Debt, also in the waiting room

In 2020, the IMF and World Bank Spring and Annual meetings, together with the G20 finance ministers’ meetings, were all about debt. The announcement of the G20 debt service suspension initiative (DSSI) in April 2020, and of the Common Framework for debt treatments in October, are an indication of the importance that these institutions gave to the gravity of the debt situation in the global south. The situation has been the opposite throughout 2021 and particularly during the Annual meetings.

Despite the evident shortcomings of the DSSI and the failure of the Common Framework to deliver on any results after almost a year of implementation, it would seem that the G20 and the Bretton Woods institutions think that their job is done. Just at a moment where the IMF was warning of a two-track recovery, and the World Bank was warning that unsustainable debt burdens were hypothecating chances of recovery, these same institutions and the G20 Finance ministers are washing their hands off any responsibility.

The latest data available shows how the G20 DSSI has suspended less than a quarter of debt payments for a very limited group of 46 countries. It was clear right from the start that the failure to bring private creditors and other multilateral creditors into the initiative would water down the initiative to being little more than meaningless.

The G20 common framework has failed so far in providing timely, comprehensive and lasting debt restructuring to any country. The framework has not only failed at convincing borrowing countries to seek debt restructuring under its auspices, but also it has failed so far at convincing private creditors to engage in the debt restructuring discussions in a timely manner. The effectiveness of the Comparability of treatment principle is dubious to say the least. The G20 Finance Ministers’ communiqué includes reference to unknown enhancements for the Common Framework, for which they offer no detail. In the case of the IMFC communiqué, it welcomes the “G20’s commitment to step up efforts to implement the Common Framework for debt treatment. Again, no further detail on what these efforts entail. This creates even further uncertainties among borrowing countries and creditors.

World Bank President David Malpass highlighted, right before the Annuals, the need for “a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency”. IMF Managing Director, Kristalina Georgieva, states in her Global Policy Agenda that “countries that have exhausted their fiscal space fighting the pandemic and face liquidity constraints and unsustainable debt burdens will need timely, orderly, and comprehensive debt restructuring”. The idea that the tools in place will deliver is bordering on delusional. Having an almost blind faith that the Common Framework will be enough to tackle the increasing debt distress in a growing number of countries in the global south in the years to come, is remarkably irresponsible.

The current rise in interest rates together with the volatility of commodity prices threaten to worsen the situation, not only in middle income countries that were excluded from the DSSI and the Common Framework, but also those whose debt service was temporarily suspended for over a year and a half. Debt payments will resume for these 46 countries in January, and from 2023 onwards the suspended payments will add up to existing and new debts that the countries have acquired to tackle the impacts of the pandemic in their public finances. As CSOs warned as early as April 2020, the G20 has created a ticking bomb.

The G20 has once more shown that it is not the right forum to design and manage debt resolution initiatives. The absolute lack of action by the G20 to tackle the debt crisis, marks a stark contrast to the proposals made by leaders of the global south at the recent United Nations General Assembly. This included calls for immediate debt cancellation, improved mechanisms for debt restructuring as well as the creation of a multilateral debt resolution framework. We need these urgent and essential reforms to be discussed with everyone at the table, including all creditor countries, in a truly multilateral process to find fair, timely and lasting solutions to the debt crisis.