Developing countries stand to benefit from up to $10 billion in savings after the G20 group of wealthy nations announced on Wednesday (7 April) that it would extend its debt service suspension initiative (DSSI) which launched last May until the end of this year.
Forty-five countries signed up for the DSSI last year, resulting in the deferral of $5.7 billion in debt payments. Extending the initiative until the end of 2021, which the G20 said would be the “final extension” of the scheme, could potentially save an additional $9.9 billion.
Daniele Franco, finance minister of Italy, which chairs the G20 this year, said the extension would allow beneficiary countries to mobilise more resources to cope with the effects of COVID-19.
The G20 ministers also gave their endorsement for the International Monetary Fund (IMF) to propose a new Special Drawing Rights (SDR) worth $650 billion to help economies hit by the pandemic.
While wealthy countries in Europe and elsewhere were quick to adopt multibillion rescue packages to support their own economies, businesses and employees, the question of how to support poor countries is yet to be resolved despite a year of talks at international level.
The G20 communique also urged the IMF “to explore options for members to channel SDRs on a voluntary basis to the benefit of vulnerable countries, without delaying the process for a new allocation.”
That could lead to European Union countries giving part of the $167 billion that would be available to them, equivalent to 25.72% of IMF quotas, to developing countries. Leaders have stated that the new SDRs should be used primarily to support poorer countries who lack the fiscal space to introduce stimulus programmes to support their economies against the disruption caused by the pandemic.
However, under the IMF quotas, the vast majority of the SDRs would be allocated to wealthy countries, prompting civil society groups to urge them to donate their share of the SDRs to those most in need.
The campaign for debt suspension also appears to have strong public support. A poll by YouGov for WaterAid published earlier this week found that a large majority of EU nationals believe that debt repayments for poor countries should be suspended to allow them to invest in public health essentials to help combat the spread of COVID-19.
Among EU countries covered by the 15-nation survey, 83% of Italian respondents backed debt suspension, as did 72% and 70% of German and French respondents respectively. Sweden saw the lowest level of support for debt suspension, although 61% of respondents supported it.
“We won’t see a global economic recovery until all countries can withstand the shock of the pandemic and rebuild their economies,” David McNair, ONE’s Global Policy Executive Director, said in a statement.