Recommendation 8

HM Government Acknowledged

The Government is deeply concerned about the impact of the covid-19 pandemic on the finances of developing countries, especially its effect on debt levels. The UK has worked closely with G7, G20 and Paris Club partners to agree an unprecedented response from official bilateral creditors. The G20 Debt Service Suspension Initiative (DSSI), launched in May 2020, is available to 73 of the world’s poorest and most vulnerable countries. So far, 45 countries have requested to access the DSSI and over $5.7 billion of repayments have been suspended, creating vital fiscal space and enabling them to increase support to their citizens and economies. The UK has led by example, implementing suspensions for 11 countries under the G20 DSSI and making a leading contribution of £150 million to the IMF’s Catastrophe Containment and Relief Trust, which provides relief on debt payments due to the IMF from eligible countries. In November 2020, the G20 agreed to examine the need for a further extension by the time of the IMF-World Bank Spring Meetings in April 2021. The UK will work with G7 and G20 partners to take a coordinated view on a further extension of the DSSI, drawing on the advice of the IMF and World Bank. While the DSSI has provided vital fiscal space for the poorest countries to respond to the pandemic, the UK has recognised, alongside other G20 countries, that where countries face an unsustainable debt situation, a more comprehensive debt treatment may be required. Therefore, in November 2020, the G20 and Paris Club agreed a historic “Common Framework for Future Debt Treatment beyond the DSSI”, which for the first time brings together traditional Paris Club creditors and emerging G20 creditors to deliver coordinated debt treatments on a case-by-case basis. The first countries have already submitted requests to benefit from debt restructuring under the Common Framework, and we will work closely with our international partners to support timely and comprehensive debt resolutions in these cases. The terms of any restructuring under the Common Framework, including whether relief is provided via debt cancellation or debt rescheduling, will be determined on a case-by- case basis by the collective assessment of creditors, informed by the Debt Sustainability Analysis carried out by the IMF and World Bank. In cases where the UK is a creditor, Her Majesty’s Treasury follow the advice of the IMF and World Bank and draw on the expertise of FCDO’s and UKEF’s networks of economists to take a view on the level and terms of debt relief required. The UK Government recognises the benefits of debt cancellation for developing countries and is willing to cancel debts where required in order to restore debt sustainability. The Chancellor and other G20 Finance Ministers have repeatedly called for private sector creditors to participate in the DSSI on a voluntary basis and subject to requests from borrowers. For example, when launching the DSSI, G20 Finance Ministers called on private creditors, working through the Institute of International Finance, to participate 12 Eighth Special Report of Session 2019–21 in the initiative on comparable terms. The Institute of International Finance subsequently developed “Terms of Reference for Voluntary Private Sector Participation in the G20/ Paris Club DSSI”, with the aim of facilitating voluntary suspension of repayments where requested. However, only three borrowers have made requests to private sector creditors for debt service suspensions and no payments have been suspended thus far. Private creditor participation under the DSSI was always intended to be voluntary, in order to protect market access for eligible countries. However, under the Common Framework, countries that benefit from restructuring their debts to bilateral creditors are expected to secure comparable treatment from their private sector creditors. To support developing countries to engage with their creditors, the FCDO has committed £1 million to the African Legal Support Facility, which specialises in helping African countries to negotiate with creditors on a level playing field. The DSSI and Common Framework are open to 73 of the world’s poorest and most vulnerable countries. In cases where countries that are not eligible for these initiatives seeks to restructure their bilateral external debts, the usual Paris Club process remains available.