Developing country debt must be cancelled to tackle coronavirus crisis
- Emergency finance must not add to debt burdens
- Process to reduce debts to sustainable level in future also needed
Embargoed to: 00:01 April 7 2020 CEST
Cancelling all debt payments owed by low-income countries to other governments, multilateral institutions and private lenders would free up to US$ 25.5 billion to fight coronavirus in 2020 alone. Extending the cancellation to apply to payments due in 2021 would make another US$ 24.9 billion available to help save lives now and in the future.
The IMF and the World Bank have called for debt payments by the poorest countries to other governments to be suspended, but with the effects of the pandemic likely to last for years, delaying rather than cancelling payments won’t solve the problem.
Cancellation also needs to apply to all creditors, including bilateral, multilateral and private lenders, to ensure freed-up money goes to support the pandemic response, and not to pay off other debts.
Mark Perera, Policy and Advocacy Manager at the European Network for Debt and Development (Eurodad) said: “Millions of people in some of the world’s poorest countries are facing devastating health, social and economic crises as a result of the Covid-19 pandemic. Permanently cancelling upcoming debt payments owed by these countries would be the fastest way to free up existing public resources to tackle this unprecedented crisis and to save lives.
“The suspension on debt payments called for by the IMF and World Bank will fall short of this goal if it doesn’t apply to all lenders, and only postpones payments. Full cancellation of all external debt payments is critical, along with emergency finance that doesn’t add to debt burdens. This must be followed up with a more comprehensive and long-term approach to debt crisis resolution.”
As well as a cancellation of debt service, up to an additional US$ 73.1 billion of emergency finance will be needed to help low income economies as they respond to the crisis in 2020. This must be provided through grants, rather than loans, to stop recipient countries getting even deeper into debt. Addressing the long-term debt pressures on developing countries also requires decision-makers finally agreeing reforms to the international system for dealing with sovereign debt restructuring, once the acute Covid-19 crisis has passed.
A joint letter– signed by Eurodad - will be sent to governments and their representatives at the IMF and World Bank today. It calls for:
- The permanent cancellation of all external debt payments due in 2020 by developing countries, with no accrual of interest and charges and no penalties.
- The provision of additional, fresh emergency finance that does not create more debt.
- Debt cancellation and new financing to be provided free of demands for market-friendly and austerity-focused policy reforms in developing countries.
- Measures to be put in place to protect developing countries from lawsuits when ceasing 2020 debt payments. A process under UN auspices to be agreed in the longer term, to support systematic, timely, and fair restructuring of sovereign debt.
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- Signatories of the statement include the African Forum and Network on Debt and Development (AFRODAD), Asian Peoples’ Movement on Debt and Development (APMDD), Latin American Network on Debt, Development and Rights (LATINDADD) and European Network on Debt and Development (Eurodad). Other signatories include Jubilee Debt Campaign UK, USA and Germany, Oxfam, ActionAid, International, The ONE Campaign, Cafod, Save the Children and Global Justice Now, as well as the Mozambique Budget Monitoring Forum, Budget Advocacy Network in Sierra Leone and CUTS International, Zambia.
- African finance ministers have called for a suspension of all interest payments in 2020, and all principal and interest payments by fragile states.
- Urgent calls for debt relief have also been made by the United Nations Secretary General, the United Nations Conference for Trade and Development, the Prime Ministers of both Pakistan and Ethiopia, the Ecuadorian Congress and Vatican Cardinal Luis Antonio Tagle.
The statement calls for:
- Multilateral institutions, including the IMF and World Bank, should offer an immediate cancellation of all principal, interest and charges for the remainder of 2020 for all countries in need, and most urgently for all PRGT and IDA countries.
- The IMF and World Bank should urge any country ceasing multilateral and/or bilateral debt payments to also cancel payments to private external lenders. Any new IMF and World Bank finance should be in the form of grants not loans, and require other lenders to reprofile the debt where sustainability is uncertain, or restructure their debt where it is unsustainable, to help ensure money is used to support public policy priorities in response to the COVID-19 crisis, rather than to repay other lenders.
- Lender governments, both Paris Club members and others such as China, Saudi Arabia and Kuwait, should cancel all principal, interest and charges for the remainder of 2020 for all countries in need, and most urgently for all PRGT and IDA countries. Ideally a debt cancellation should be coordinated between lenders but should not wait for them all to agree.
- The G20 should support moves by any country to stop making payments on debt to private external lenders.
- Key jurisdictions, especially the UK and New York, should pass legislation to prevent any lender suing a government for stopping debt payments in 2020.
- Debt payment cancellations and additional finance should be free of economic policy conditionality promoting privatisation, deregulation and trade liberalisation. The crisis has been caused by exogenous shocks: developments over which countries in the global south had no control.
- Debt payment cancellation and additional finance should be designed specifically to bolster public expenditure targeted at protecting the rights and needs of populations, especially to maintain and increase social protection and health spending in response to COVID-19.
The statement also calls for longer-term measures:
- The creation through the United Nations of a systematic, comprehensive and enforceable process for sovereign debt restructurings.
- The IMF to introduce clear guidelines on when a debt is unsustainable, and follow its policy only to lend to countries with unsustainable debts if there is a default or debt restructuring.