Historic Debt Pact By G20 – Burning Issues – Free PDF Download

What has happened?

• The United States, China and other G20countries on Friday agreed for the first time on a common approach,
• For restructuring government debt as the coronavirus crisis leaves some poorer nations at risk of default.
• The agreement came as Zambia said it would not pay an overdue Eurobond coupon by Friday’s deadline,
• Putting it on track to become Africa’s first pandemic-era sovereign default.

Why this restructuring of debt?

• Citing the scale of the COVID-19 pandemic and “the significant debt vulnerabilities and deteriorating outlook in many low-income countries,“
• G20 finance officials agreed more help was needed than a current freeze in official debt payments that runs out at the end of June.

• Major creditors, including China, will be expected to follow the joint guidelines agreed by the G20,
• Which lays out how debt deemed to be unsustainable can be reduced or rescheduled.

April, 2020

• The group of industrialized economies unveiled the Debt Service Suspension Initiative in April to provide billions of dollars in relief for 73 eligible nations.
• So far, more than 40 have applied for the help that was set to run through the end of December, most in sub-Saharan Africa.
• The World Bank estimates countries could save $12 billion owed to government creditors this year.
• Eligible countries can also ask private creditors to freeze repayments, but only a few have done so —
• A major failing according to advocacy groups.

China- the largest creditor

• China, which accounted for 63% of overall debt owed to G20 countries in 2019, has been reluctant to acknowledge the need for outright cancellation or reduction of debts.
• Estimates of total Chinese lending – which surged in the past 20 years – range from $350 billion to over $1 trillion.
• Under the new framework, creditor countries will negotiate together with a debtor country,
• Which will be expected to seek the same treatment terms from private sector creditors.

Criticism of China

• The new framework requires all public creditors to participate, after China was criticised by some G20 partners earlier for not including debt owed to its state-owned banks.
• Wary about debt write-offs, Beijing has defined the state-owned China Development Bank as a private institution, resisting calls for full participation in debt relief.

World bank

• In an online press conference, World Bank President David Malpass urged more steps for meaningful debt reduction.
• “It’s urgent to make rapid progress on a framework because the risk of disorderly defaults is rising.”

IMF

• The consequences for some countries are dire.
• African nations face a financing gap of $345 billion through 2023, the IMF said last week,
• With some forced to choose between servicing debt or spending on social and health programs.

Q) Which among the following issues is not addressed by G20?

1. Tax and fiscal policy
2. Employment
3. Climate Change
4. All are addressed

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