COMMENT: G20 Debt relief: a push for multilateralism in a increasingly fragmented world

PUBLISHED: Mon, 20 Jul 2020 14:19:47 GMT

When French President Emmanuel Macron made his first trip outside Europe since the COVID-19 lockdown,
he chose to visit Mauritania for the G5 Sahel summit. The Sahel region of Africa is faced with persistent
terrorism and security threats with international implications. But listening carefully to Macron’s first speech
in Nouakchott, it was clear the he was also using the visit to promote a sovereign debt relief initiative set up
in April at the IMF and World Bank Spring Meetings. The G20 had agreed at that time to suspend incoming
debt service from low income countries for eight months to allow them to redirect funds to cover the health
and economic costs of the COVID-19 pandemic. Mauritania will benefit from this initiative.
As seen at this weekend’s G20 follow-up meeting, France continues to play a pivotal role in supporting the
debt service standstill for the world’s poorest countries, mainly in Africa. By doing so, it is making a frank
push for multilateralism against a backdrop of geopolitical tensions between superpowers, the increasingly
entrenched isolationism of the United States, the fallout of Brexit, and a rising criticism of China’s handling
of the coronavirus outbreak. The message is clear: the world is facing debt distress because of COVID-19
and the world should work collectively to find solutions. At the nexus of the debt relief efforts is the French
Treasury, which hosts the Paris Club, an ad hoc negotiating forum of 22 creditor governments. The Paris Club
secretariat is coordinating the implementation of the debt service suspension with G20 participants.
Without doubt, many African debtors will be facing intense debt distress in 2020. Already in late 2019, the
tail end of the debt financing cycle had been reached. Borrowing countries had taken advantage of high
commodity prices, a low-inflation environment, and excess savings in developed markets seeking high-yield
investments. The arrival of COVID-19 in early 2020 has drained national budgets and hindered new financing,
revealing debt servicing vulnerabilities. In such a context, the G20 initiative is not a panacea. The suspension
of debt payments will allow countries with growing primary deficits to pay for COVID-19 prevention and
treatment. It will help boost economic activity. But the real impact of the G20 initiative is paving the way for
reinforced multilateralism in a world of growing political disengagement.
At the root of the G20 initiative is a comprehensive review of the sovereign debts of countries, including
debts to China. Very little information has existed concerning the terms of Chinese bilateral and commercial
lending and China is not a member of the OECD Creditor Reporting System. By making debt transparency key
to the success of the G20 initiative, a multilateral framework has been created to delve further into the
composition and risks of sovereign debts. The initiative also serves to reset the stage for a fairer sharing of
the costs of debt relief across all creditor groups. This is particularly important when considering the critical
role of China in sovereign financing today and the difficulty gauging any debt relief they may provide. As an
illustration, how will hesitating private creditors, another crucial source of hard currency, be convinced to
participate in sovereign debt restructurings if they fear their efforts could subsidize China’s debt recoveries?
By promoting G20 debt relief at the recent G5 Sahel summit in Mauritania, France reconfirmed its multilateral
convictions. Countries can come together to address security threats and terrorism as well as find better and
longer-lasting solutions for sovereign debt sustainability. By reinforcing the role of the Paris Club, France is
breathing new life into multilateralism at a critical time.

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