Major international creditors will relieve the world's poorest countries of debt payments this year to help them deal with the coronavirus pandemic that has sparked the steepest downturn in the global economy since the 1930s, France announced on Tuesday.
Finance officials from the United States, China and other Group of 20 major economies are expected to finalize the agreement when they meet online on Wednesday, French Finance Minister Bruno Le Maire told reporters.
He said some 76 countries, including 40 in sub-Saharan Africa, would be eligible to have debt payments worth a combined $20 billion suspended by official and private creditors, with a remaining $12 billion in payments due to multilateral institutions still to be sorted out.
"We have obtained a debt moratorium at the level of bilateral creditors and private creditors for a total of $20 billion," Le Maire told journalists. He spoke just before Group of Seven (G-7) finance ministers and central bank governors met by video conference on Tuesday and threw their support behind temporary debt relief to the poorest countries, as long as it was backed by the G-20 and the Paris Club.
In a joint statement, they said they were ready to provide "a time-bound suspension on debt service payments due on official bilateral claims for all countries eligible for World Bank concessional financing" if joined by China and other countries in the Group of 20 major economies, and as agreed with the Paris Club group of creditors.
Sources familiar with the process had told Reuters this week they expected the G-20 to endorse a suspension of debt payments at least until the end of the year, despite some resistance from China, which has overtaken the World Bank as a major lender to developing countries, especially in Africa.
IMF chief economist Gita Gopinath told Reuters the agreement offered "hugely welcome" relief for the poorest countries, freeing resources that could be used to improve healthcare systems at a time when resources are strained by plunging commodity prices and massive capital outflows.
World Bank President David Malpass, in a tweet, thanked U.S. Treasury Secretary Steven Mnuchin for hosting the G-7 meeting and backing his joint call with International Monetary Fund Managing Director Kristalina Georgieva for the temporary debt standstill.
The World Bank and the IMF have begun disbursing emergency aid to countries struggling to suppress the coronavirus and mitigate its economic impact. They first issued their call for debt relief on March 25, but it has not been formally endorsed by the G-20 nations.
The IMF, in its 2020 World Economic Outlook, said the pandemic would cause a 3.0% contraction in the global economy, but warned the impact could be far worse.
Gopinath said the pandemic could be far more severe in developing economies that had not yet seen the kinds of lockdowns already implemented in China, the United States and Europe, adding a "serious downside risk" to the IMF forecast.
The forecast provided a somber backdrop to the IMF and World Bank spring meetings, which normally draw 10,000 people to Washington but are being held by video conference this week because of the pandemic.
In their statement, G-7 officials also called for more contributions to the IMF's Catastrophe Containment and Relief Trust (CCRT) and its Poverty Reduction and Growth Trust, which support the poorest countries. They said the debt relief effort should include private creditors on a voluntary basis, as well as efforts to enhance debt transparency.
Western countries for years have been demanding greater transparency about lending by the Chinese government, banks and companies, but Beijing has balked at opening its books.
A French finance ministry official said private creditors have agreed on a voluntary basis to roll over or refinance $8 billion of the debt of the poorest countries, on top of the $12 billion in debt payments to be suspended by countries.
A further $12 billion is owed to multilateral lenders, mainly the World Bank, Le Maire said, urging such lenders to join the debt relief initiative. The IMF on Monday announced $215 million in initial debt relief grants to 25 countries from the CCRT. The trust has about $500 million, but the IMF wants to boost it to $1.4 billion.
There are growing calls from nonprofit groups, Pope Francis and others to follow up the temporary suspension of debt payments with cancellation of debts for the poorest countries.
The AFL-CIO union federation and nearly 80 other faith groups on Tuesday urged the U.S. government, the IMF and G-20 nations to cancel debt payments by developing countries, and to mobilize additional resources to support all countries affected by the rapidly spreading pandemic.
French President Emmanuel Macron on Monday said in a televised address that African countries should be helped by "massively cancelling their debt."
He gave no details, but Le Maire said outright debt cancellation should take place on a case-by-case basis and in coordination with multilateral lenders at the end of the year, depending on the economic situation of the countries as well as developments in commodity markets and capital flows.