- On 18 July, G20 finance ministers and central bank governors met to discuss, amid other things, the status of the Debt Service Suspension Initiative (DSSI) launched in April.
- Rather than heeding calls to extend the initiative beyond 2020 or broaden its scope to include middle-income countries, decisions taken by the G20 suggest that the DSSI mechanism will continue to revolve around the lowest common denominator.
- While the pressure on private sector creditors to participate has eased for now, China’s lack of transparency is drawing increasing criticism and might undermine what little collective approach the G20 has been able to muster.
To date, 42 countries have officially applied for a debt moratorium under the DSSI, resulting in an estimated USD 5.3bn of debt service to be deferred in 2020, according to the G20. Ahead of the meeting, civil society organizations such as Oxfam and the Jubilee Network, as well as a group of international economists including Vera Songwe, executive secretary of the United Nations Economic Commission for Africa, had urged the G20 to broaden the DSSI’s scope and extend the initiative beyond 2020, respectively.
However, decisions taken during the meeting suggest the G20 will stick to the narrow focus that already characterized the outcome of the April summit. A decision to extend the DSSI into 2021 has been deferred to later in the year, presumably the grouping’s next meeting in October. It will be contingent on the Covid-19 pandemic situation as well as a joint report by the World Bank Group (WBG) and the International Monetary Fund (IMF) on the liquidity needs of eligible countries.
If a statement by WBG President David Malpass is anything to go by, the recommendation by the latter is already clear. Malpass urged G20 governments to extend the DSSI until end-2021 and “give the initiative as broad a scope as possible” to cover “all external long-term public and publicly guaranteed debt, including the external debts of SOEs [state-owned enterprises] with either explicit or implicit government guarantees.” If Malpass had his way, the initiative would therefore have to extend far beyond debt suspensions, to debt reduction on net present value (NPV) terms involving both official and commercial creditors.
While Malpass also pushed for private sector participation, the wording regarding the latter in the official communiqué suggests a small yet important shift in the opposite direction. While back in April, the G20 had called on private creditors “[…] to participate in the initiative on comparable terms”, the respective passage now “[…] strongly encourage[s] private creditors to participate in the DSSI on comparable terms when requested by eligible countries” (emphasis added). This would suggest the G20 have embraced the practice of several DSSI applicant countries that accompanied their requests for a debt suspension from the official sector with an explicit statement that they are not intending to seek equal treatment from private creditors.
Meanwhile, criticism of China’s lack of transparency in approaching the DSSI is mounting and could potentially jeopardize the G20’s joint approach. While the official communiqué merely admonishes “all official bilateral creditors” to implement the initiative “fully and in a transparent manner,” Malpass singled out the China Development Bank (CDB) by name and criticized “secretive reschedulings that are underway in some countries, such as Angola” (where China is by far the most important bilateral donor). Malpass has called for “full participation of the [CDB] as an official bilateral creditor” for the DSSI to succeed; the USD 5.3bn agreed to date – less than half the hoped for USD 11.5bn – reportedly do not include any CDB loans.