In a Wednesday address at a World Economic Forum session, Prime Minister Imran Khan noted how interconnected the world has become and repeated his call for a global response to the Covid-19 coronavirus pandemic. He noted, “When this pandemic hit the world, every country… became insular… But ultimately, we are all connected, and therefore our response has to be global.” The PM also called for debt relief for developing countries, including Pakistan, and referred to the G20 debt relief initiative, saying that “we need more details.” He justified his lockdown easing by referring to the number of daily wagers in the country and the risk of mass starvation due to poverty.
Broadly speaking, the PM repeated most of his (very valid) talking points on the crisis and how the world must respond, although he appears to have missed the news that the Paris Club has clarified the terms of its debt relief plan. Some countries were initially worried that signing up could hurt their credit ratings after ratings agencies said failure to pay private creditors, even if they had agreed to suspend debt payments under terms similar to the Paris Club, could be considered a default. Kenya has explicitly said this is why it had not applied yet.
According to a Reuters report on Tuesday, the Paris Club has clarified that applicant countries can specify that they only want debt relief from state creditors. Under past practice, the Paris Club would ask borrowing governments to seek the same debt repayment conditions from private creditors. Since ratings agencies are primarily concerned with private sector borrowing, the exception will mean that countries can focus on paying back the private debt while seeking relief for the rest, which will not show negatively on their ratings.
This is significant because of the $36 billion falling due this year from countries eligible for the programme, $13 billion is owed to other governments, around $14 billion to multilateral development lenders, and only $9 billion to private-sector creditors. While it is not a perfect solution, it is still a significant concession, since getting private parties to agree to altruistic terms might be a bridge too far for most governments.
Published in The Express Tribune, May 22nd, 2020.