UNECA pushes for G20, IMF measures to release $500 billion for poorest countries

LONDON (Reuters) - The UN Economic Commission for Africa (UNECA) urged G20 nations to take measures that could unlock as much as $500 billion (379.2 billion pounds) for the world’s poorest countries and help avoid lasting scars from a prolonged funding gap caused by the COVID-19 pandemic.

FILE PHOTO: A man stands next to a board with the G20 Meeting of Finance Ministers logo in Buenos Aires, Argentina, March 19, 2018. REUTERS/Marcos Brindicci/File Photo

Published before Friday’s extraordinary Group of 20 meeting, where finance officials expect to complete work on a common framework for dealing with the debt problems of the world’s poorest countries, the plan pushes for four actions to provide immediate relief.

The plan proposes extending the Debt Suspension Service Initiative (DSSI) until the end of 2021 or possibly the end of 2022, more funding through Special Drawing Rights (SDR), setting up a facility to help countries meet short-term debt payments and a boost in lending from development banks.

“Now even the strongest economies will struggle to survive a persistent liquidity crunch, driven by successive waves of the pandemic across the world,” the UNECA paper said. “Africa’s resilience will break if global policy makers remain indifferent or timid in their response. This is a shared responsibility.”

Signs have been increasing that the pandemic has exacerbated problems for the poorest countries, half of which are now in or at risk of debt distress. Friday will also mark the deadline for Zambia to make an overdue coupon payment on a dollar bond to its creditors or face default - Africa’s first of the pandemic.

While G20 leaders are due to approve a debt-relief framework next week, many say current plans don’t go far enough.

In October, G20 officials agreed to extend the DSSI freeze on official bilateral debt payments to the first half of 2021 and said they would consider another six-month extension in April.

UNECA said the short horizon made it harder for countries to plan and implement programmes to protect citizens beyond the middle of next year and limited measures to prevent longer-term structural damage to economies.

Meanwhile, all bilateral creditors, including state-owned enterprises (SOEs) should subscribe to the programme, and interaction between creditors and lenders needs to be streamlined, UNECA added.

“China, like the rest of the DSSI creditors, could enhance and expedite the support it has offered so far by providing a centralised venue – a one-stop-shop – where all debt to the Chinese government and SOEs could be negotiated,” authors of the report added.

China accounted for 63% of overall debt owed to G20 countries in 2019, according to World Bank data.

UNECA also called for a fresh liquidity injection of SDR 500 billion ($709 billion) - something akin to a central bank “printing” new money - which could deliver over $150 billion in additional reserves to emerging-market economies, including $20 billion to low-income countries directly.

Recent efforts to raise fresh SDR allocations have been blocked by Donald Trump’s administration.

Reporting by Karin Strohecker