G-20 strikes historic debt pact to help poorer states hit by Covid

The United States, China and other G-20 countries 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.

Citing the scale of the Covid-19 pandemic and “the significant debt vulnerabilities and deteriorating outlook in many low-income countries,” G-20 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 G-20, which lays out how debt deemed to be unsustainable can be reduced or rescheduled.

International Monetary Fund Managing Director Kristalina Georgieva called the framework a historic achievement and said it should increase private sector participation and speed up resolution in cases where debts were unsustainable.

“Let’s be very frank here. We are not out of the woods. This crisis is not over. We need further support through debt relief and through fresh financing,” she told G-20 officials. African states alone face a financing gap of $345 billion through 2023, she has warned.

Non-governmental groups said the accord should have gone further by including middle-income countries and forcing private investors to accept cancellations.

A senior US Treasury Department official said Washington was open to extending the joint framework to include middle-income countries and small island states, but that view was not shared by all G-20 members at this stage.

The official said the framework brought creditors such as China, India and Turkey into a coordinated debt restructuring process for the first time, but said Washington would be monitoring its implementation, especially by China, carefully.

“I count on everyone’s constructive spirit to ensure swift and cooperative implementation of the common framework, with several countries already asking for debt treatments, in particular in Africa,” French Finance Bruno Le Maire told his G-20 counterparts during an online meeting.

China, which accounted for 63% of overall debt owed to G-20 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, the US official told reporters after Friday’s G-20 meeting.

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.

The scheme borrows heavily from rules established by the Paris Club group of mostly wealthy nations established in 1956, which until now was the only joint forum for negotiating debt restructurings.