–Paris Club agrees to suspend payments from Pakistan, Ethiopia, Congo as part of G-20 debt relief deal
–Expert says relief too small unless ‘China and multilateral and private creditors’ step up efforts
ISLAMABAD: The Paris Club of creditor nations have agreed to suspend debt service payments from Chad, Ethiopia, Pakistan, and Republic of Congo as part of a G20 debt relief deal, the group said.
The Group of 20 leading economies and the Paris Club, an informal group of state creditors coordinated by the French finance ministry, agreed in April to freeze debt payments of the 77 poorest countries this year to free up cash to fight the coronavirus pandemic.
The latest agreements bring to 12 the number of countries to receive debt relief under the deal with a total of $1.1 billion in debt deferred as a result, the Paris Club said, adding 30 countries had requested to benefit.
Earlier in April, the Paris Club had agreed to freeze the debt payments of the 77 poorest countries in 2020 to free up cash for them to fight the coronavirus pandemic.
“Debtor countries saw that others were using it, so that reduced the fear and stigma,” Chairwoman Odile Renaud-Basso told reporters in a telephone briefing on Wednesday. “We see today an acceleration in the number of demands.”
The club has held talks with ratings companies to avoid any action against countries participating in the initiative, Renaud-Basso said. China is implementing waivers individually with each country, but questions remain on which obligations can be delayed, she was quoted by Bloomberg as saying.
“Paris Club been quickest and set a good example to other creditors. But speed due to it being only a small creditor,” Gregory Smith, a strategist with London-based M&G Investments, said on Twitter. “Unless China steps up, plus in some cases multilateral and private creditors, relief is too small.”
Pakistan in May had formally requested members of G-20 nations for debt relief with a commitment of “not contracting new non-concessional loans, except those allowed under the International Monetary Fund (IMF) and World Bank guidelines”.
The formal requests were sent to individual countries under the G-20 Covid-19 Debt Service Suspension Initiative.
Pakistan owes $20.7 billion to 11 members of the Group of 20 rich nations. Out of this sum, an amount of $1.8 billion would mature by December 2020, including the interest payments, according to the economic affairs ministry.
In May, Prime Minister Imran Khan had urged the global community to provide debt relief to the developing world, especially the sub-continent, saying several countries in the developing world do not possess the fiscal space to divert resources to the healthcare sector amid a deadly pandemic.
Addressing a session of the World Economic Forum (WEF) via video link, the prime minister had said he talked to several leaders of the developing world who were facing the same problem as Pakistan or any other developing country.
“The G20 has come up with a debt relief plan but it needs more details and work. Let me just put it this way: many of the developing countries face this situation where, because of their debt-servicing, their fiscal space has contracted and they are unable to cope with this challenge of health facilities.
“The reason why there should be a debt relief and the G20 is looking into it is because we need to divert those resources to health and also to environment and, unfortunately, that space is not there,” he added.
On April 15, the G-20 nations had announced a freeze on debt repayments from 76 countries, including Pakistan, during May to December 2020 period, subject to the condition that each country would make a formal request.
On April 16, an IMF report had estimated Pakistan’s post-Covid-19 external financing requirements at $25.8 billion with a financing gap of $2 billion. For the next fiscal year, the IMF projected Pakistan’s gross financing requirements at $29.3 billion and a financing gap of $1.5 billion.
The IMF had approved $1.4 billion emergency loans, which largely bridged the projected financing gap but the amount fell short of the full needs. Pakistan’s exports and foreign remittances were projected to be affected by the “Great Lockdown”, which had put additional burden on the official foreign exchange reserves.
The IMF report stated that though Covid-19 shock had increased near-term risks, with strong policy implementation under the EFF and continued support by multilateral and official bilateral creditors, Pakistan’s debt remained sustainable over the medium-term.
