UN Chief Wants India To Mobilize G20 To Help Debt-Ridden Countries

October 20, 2022
Posted by: OptimizeIAS Team
Category: DPN Topics

UN Chief Wants India To Mobilize G20 To Help Debt-Ridden Countries

Subject :International Organizations

Context: UN chief Antonio Guterres sought India’s support in mobilising G20 nations to help out developing countries saddled with debt, including three of India’s neighbours.

Concept:

India takes over the G20 presidency from Indonesia for a year from December 1, 2022.
Sri Lanka, Pakistan and Bangladesh have in recent months sought IMF loans as high oil prices complicate efforts to recover from the economic damage of the COVID-19 pandemic.
UN chief also stressed the importance of multilateral initiatives like G20 Debt Service Suspension Initiative, G20 Common Framework etc.

G20 Debt Service Suspension Initiative

It was established in May 2020 during the Covid pandemic.
The Debt Service Suspension Initiative (DSSI) means that bilateral official creditors are, during a limited period, suspending debt service payments from the poorest countries (73 low- and lower middle-income countries) that request the suspension.
It is a way to temporarily ease the financing constraints for these countries and free up scarce money that they can instead use to mitigate the human and economic impact of the COVID-19 crisis.
The DSSI helps address immediate liquidity needs but does not mean that existing debt sustainability problems in some of these countries will be resolved.
But DSSI does help by providing more time to properly assess and address debt sustainability on a country-by-country basis.

G20 Common Framework

Later in November 2020, G20 announced Common framework for Debt treatments.
As compared to the previous DSSI, the Common Framework allows debt rescheduling tailored to the specific needs of requesting countries.
Furthermore, whilst the DSSI encouraged but did not require comparable debt relief from other creditors, the Common Framework requires the debtor to seek comparable relief from others including Paris Club, non-Paris Club and private creditors.

Various Multi-lateral Debt relief initiatives are:

Type of programme	Conditionality	Creditor Participation	Private Sector Participation
Paris Club (1980s)	Implementing a sound package of economic policies by debtor countries, resulting in restoration of creditworthiness.	Included the ‘Comparability of Treatment’ clause where all creditors were expected to provide relief that is commensurate with their exposure to the debtor country.	Private creditors included banks, bondholders, and suppliers.
London Club (1980s)	–	Case-by-case restructuring routine developed between major western banks and developing country governments. Included a Bank Advisory Committee (BAC) to represent the western banks.	Creditors included major western banks.
Brady Plan (1989-90s)	Debtor countries to carry out market-liberalisation in return for debt.	The menu of options for offering grant debt relief included different debt instruments for creditors. It was implemented on a country-by-country basis.	Private-sector creditors such as commercial banks were incentivised.
HIPC (mid-1990s)	Establish a track record of good performance under programmes supported by loans from the IMF and the World Bank and implement structural reforms linked with the acceleration of the achievement of SDGs.	Debt owed to Paris Club and Multilateral Institutions was eligible.	Included bilateral and commercial creditors. Private sector participation was on a voluntary basis.
DSSI (2020)	Use fiscal space for social, health and economic support, as monitored by IFIs. Disclose all public sector financial commitments, with technical assistance from IFIs.	Only provides maturity extension on a uniform basis for all DSSI-eligible countries.	Voluntary private sector participation.
Common Framework (2021)	The need for debt treatment will be based on an IMF-WBG Debt Sustainability Analysis (DSA) and the participating official creditors’ collective assessment. The debtor countries will have to provide all public sector financial commitments.	It provides debt relief through maturity extension and interest rate reduction. Offers guiding agreements on debt treatment on a case-by-case basis. Includes comparability of treatment with other creditors.	It includes non-Paris Club members. Includes comparability of treatment with other creditors.

For further details about G20, refer – https://optimizeias.com/g-20/