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Several heads of state and governments as well as key figures from the United Nations and heads of multilateral development finance institutions have called for the expansion of the Debt Service Suspension Initiative which has afforded low-income countries to suspend paying debts owed during the Covid-19 pandemic to enable them achieve a sustained economic recovery.
This call was made at a virtual meeting convened by Prime Minister Justin Trudeau of Canada, Prime Minister Andrew Holness of Jamaica and the United Nations Secretary-General, António Guterres with the theme, Financing for Development in the Era of Covid-19 and Beyond on Monday.
Notable attendees at the roundtable event were IMF Managing Director, Kristalina Georgieva, African Development Bank Group President, Akinwumi Adesina, World Bank President David Malpass.
Also in attendance were OECD Secretary-General Ángel Gurría, World Trade Organization Director-General Ngozi Okonjo-Iweala; and Inter-American Development Bank President Mauricio Claver-Carone.
According to the world leaders and panelists at the meeting, the initiative should be widened beyond low-income countries and its current expiration time-frame extended to offer the much-needed fiscal space, along with special Drawing Rights to be reallocated to poorer countries.
Speaking on the impact of debt financing on the achievement of the Sustainable Development Goals, Guterres said it was placing the achievement of these goals at risk but commended efforts to widen debt relief and improve access to special drawing rights while urging for more to be done.
“I’m calling for bolder and more ambitious measures. A new debt mechanism could provide a menu of options, including debt swaps, buybacks and cancellations,” he said. “This is also the moment to tackle longstanding weaknesses in debt architecture,” he added.
Meanwhile, Prime Minister Andrew Holness of Jamaica issued a blunt warning saying, “Debt servicing has come at tremendous socioeconomic costs to our populations, which have borne the burden of steep costs in public expenditures.” He also praised the G20’s decision to extend the debt suspension initiative. “I believe there is a sound basis for it to be further extended to next year. Consideration should also be given to expanding its beneficiaries to include highly-indebted middle-income countries,” he said.
Economic recovery would require a comprehensive approach to increasing fiscal space for poor nations, IMF’s Georgieva noted. This must include “measures to include revenue collection, spending efficiency, the business environment, as well as very substantial international support, grants and concessional lending.”
She revealed that the IMF had indeed discussed a proposal to allocate an additional $650 billion in special drawing rights, in order to enable member countries with strong economic fundamentals to divert reserves to low-income and vulnerable countries.
On his part, AfDP Group President Akinwunmi Adesina said that Africa’s economic recovery would hinge largely on the continent’s ability to secure equitable access to vaccines and developing solutions for debt distress.
“Africa needs debt relief, debt restructuring and debt sustainability,” he said, pointing out that in the absence of reallocations, low-income countries would receive only about 3.2% of special drawing rights.
Adesina also called for the formation of a financial stability mechanism for Africa to be modeled on the European Stability Mechanism to provide jointly guaranteed emergency support. “The mechanism will provide a much-needed fiscal safety net for African economies and help to avoid regional spillover effects of countries falling into illiquidity and insolvency.”
On her part, WTO’s Iweala said that trade and debt sustainability are closely linked.
“Trade and debt sustainability are closely linked, by closing off export opportunities and lowering commodity prices, Covid-19 has worsened debt dynamics for many developing countries,” she said.
She called on governments to “deliver results” at the WTO this year, to reinforce the rules of global trade and pave the way for low-income countries to earn foreign exchange earnings.