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Abidjan, March 30, 2021 – Several heads of state and government, the United Nations and heads of multilateral development finance institutions on Monday called for an expansion of the Debt Service Suspension Initiative, under which low-income countries have suspended debt repayment during the Covid-19 pandemic.
The initiative is expected to be expanded beyond low-income countries and its current expiry should be extended to provide much-needed fiscal space, panelists urged in a discussion of the architecture of international debt and liquidity. The meeting also called for Special Drawing Rights to be reallocated to the poorest countries.
Prime Minister Justin Trudeau of Canada, Prime Minister Andrew Holness of Jamaica and United Nations Secretary-General António Guterres convened the virtual meeting.
African Development Bank Group President Akinwumi A. Adesina participated in a panel discussion with IMF Managing Director Kristalina Georgieva; World Bank President David Malpass; OECD Secretary-General Ángel Gurría; The Director-General of the World Trade Organization, Ngozi Okonjo-Iweala; and the President of the Inter-American Development Bank, Mauricio Claver-Carone.
Over-indebtedness puts the achievement of the Sustainable Development Goals at risk, Guterres said. He praised ongoing efforts to expand debt relief and improve access to special drawing rights, but called for more. “I call for bolder and more ambitious measures. A new debt mechanism could provide a menu of options, including debt swaps, redemptions and cancellations, ”he said. “Now is also the time to tackle long-standing weaknesses in the debt architecture,” he added.
Holness issued a blunt warning. “Debt servicing has resulted in enormous socio-economic costs for our populations, who have borne the burden of the high costs of public spending.” He also welcomed the G20’s decision to extend the debt suspension initiative. “I think there is a solid basis for it to be extended until next year. Consideration should also be given to expanding its beneficiaries to heavily indebted middle-income countries, ”he said.
Economic recovery would require a comprehensive approach to increase fiscal space in poor countries, Georgieva noted. This should include “measures to include revenue collection, spending efficiency, the business environment, as well as very significant international support, grants and concessional loans”.
She said the IMF had discussed a proposal to allocate an additional $ 650 billion in special drawing rights, allowing member countries with solid economic foundations to divert their reserves to low-income and vulnerable countries.
African Development Bank Group President Akinwumi A. Adesina said Africa’s economic recovery will depend on ensuring equitable access to vaccines and developing solutions to over-indebtedness. “Africa needs debt relief, debt restructuring and debt sustainability,” he said, noting that in the absence of reallocations, countries to low income would receive only about 3.2% of Special Drawing Rights.
The Bank Group President called for the formation of an African Financial Stability Mechanism, modeled on the European Stability Mechanism, to provide jointly guaranteed emergency aid. “The mechanism will provide a much needed fiscal safety net for African economies and help avoid regional spillovers from countries falling into illiquidity and insolvency.”
“Trade and debt sustainability are closely linked,” WTO Iweala said. “By shutting down export opportunities and lowering commodity prices, Covid-19 has worsened the debt dynamics of many developing countries.” She called on governments to “deliver results” at the WTO this year, strengthen global trade rules and pave the way for low-income countries to earn in foreign exchange.
The meeting entitled, Financing for Development in the Age of Covid-19 and Beyond, consisted of many sessions.
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