European Council President Charles Michel on Friday (20 November) called on G20 leaders to create “a new model of sustainable finance” to avoid sovereign defaults in the wake of the COVID-19 crisis.
“In our opinion it is not enough,” Michel said of the G20’s Debt Service Suspension Initiative, which has suspended debt repayments between governments, ahead of this weekend’s G20 leaders’ summit.
While 43 countries have signed up to the DSSI private creditors have so far resisted involvement, and the G20 lacks a mechanism to force them.
“All creditors need to do their share. No country must be perceived as getting a free ride. Multilateral means everyone being on board. We need a new model of sustainable finance, particularly in Africa, to break the cycle of over indebtedness,” said Michel.
Michel added that financing and development, in addition to the COVID-19 pandemic, would be on the agenda at an EU-African Union meeting in December.
African states alone face a financing gap of $345 billion up to 2023, International Monetary Fund managing director, Kristalina Georgieva, warned earlier this month.
Speaking at the Friday meeting of G20 finance ministers and central bank governors, World Bank President David Malpass said countries need to move forward with “deep, permanent debt relief” and some may need to make legislative changes to push private-sector creditors to support sovereign debt restructurings for distressed countries.
“Major jurisdictions may need to look to legislative changes to support faster progress if private creditors aren’t able to move forward on their own,” Malpass said, referring to the bank’s call to require public creditor institutions to disclose debt contracts and make refinancing agreements public.
Government debt burdens in Europe and across the world have significantly increased as a result of the combination of recession and emergency public spending programmes to support businesses and workers whose trade has been badly affected by the restrictions put in place to control the spread of COVID-19.
However, developing countries, while typically having lower debt-to-GDP ratios than European and other wealthy countries, are more vulnerable to widening bond spreads.
Earlier this week, Zambia became the first African country to default on debt repayments since the COVID-19 pandemic and a handful of countries in Africa and elsewhere are expected to face debt distress or default without an ambitious restructuring plan.
The G20 has begun what is likely to be a long process of drawing up guidelines for when debt restructuring can be allowed. The final blueprint is likely to require governments to present credible national recovery plans – endorsed by the IMF – and show sufficient transparency in order to be eligible.
At the G20 summit, the EU is also set to push the international community for further commitments to provide universal access to COVID-19 vaccines, said European Commission President Ursula von der Leyen.
The aim is to purchase 2 billion doses of COVID-19 vaccine to be made available to 92 low and middle income countries, at an estimated cost of $5 billion.
The EU will also host a global health summit under the Italian G20 presidency next year.
[Edited by Sam Morgan]