In his Easter Urbi et Orbi message, Pope Francis urged all nations to “meet the greatest needs of the moment through the reduction, if not the forgiveness, of the debt burdening the balance sheets of the poorest nations”.
While poor countries face a double threat – the COVID-19 pandemic and the debt crisis, it is of the utmost importance to find a long-term plan to restructure the debt beyond the pandemic. Allowing debt payments this year will help in the short term, but the economic and social consequences of the pandemic will not end soon.
The COVID-19 pandemic caused and is causing diseases and deaths all over the world and is pushing several people into poverty. The coronavirus crisis is turning into an extended debt crisis for many developing and less developed countries.
In order to help the poorest states to concentrate their resources in their fight against the coronavirus pandemic, on 15th April 2020 the G20 decided to temporarily suspend the debt service for 76 low-income developing countries eligible for funds from the World Bank’s International Development Association (IDA), which includes all least developed countries. The International Monetary Fund (IMF) also offered further debt service relief to 25 of the poorest countries.
Private creditors did not take part in the debt moratorium decision, even if they were invited by the G20 to join the initiative. The Institute of International Finance, which includes over 450 banks and investment funds, has made known that private creditors will comply to the proposal, but on a voluntary basis.
It will therefore be necessary to ascertain whether they will suspend their credits, in order to prevent the risk that the beneficiary states may use the freed-up resources for the repayment of the private creditors, instead of tackling the coronavirus crisis.
At the moment, just Cameroon, Ivory Coast, Ethiopia and Senegal have asked for assistance and the majority of the eligible states have not yet requested a debt moratorium, since they fear to be viewed as high-risk borrowers in the future and to be punished by rating agencies.
In any case, the G20’s decision to suspend debt payments is a first step in the achievement of the goal of the international solidarity, but much more is needed. Temporary actions or simple declaration will not suffice to avoid defaults. A comprehensive debt restructuring process managed and coordinated by an independent international body (and therefore not the International Monetary Fund or the World Bank) is needed. Moreover, a particular priority should be debt transparency, since the arrival of new and non-traditional creditors has exposed flaws in the data collection and information about political activities of the beneficiary countries.
The debt relief is, of course, an important goal to achieve justice and equity within the international community, but also economic and political stability in developing and poor countries is decisive, because it guarantees more trade opportunities and fewer fiscal risks and conflicts. For these reasons, it is time to raise citizens’ awareness of this crucial issue and make political initiative able to promote, at the same time, the stability of the international economic system and the development of the poorest countries.
John Paul Pezzi, mccj
VIVAT International NGO
with consultative special status at UN