G20 agrees on a significant debt pact to aid COVID-19 hit poorer nations

By Rahul Vaimal, Associate Editor
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For the first time in history the United States, China and other Group of 20 (G20) countries have agreed on a common approach to government debt restructuring, as the coronavirus crisis leaves some poorer nations at risk of default.

The agreement came as Zambia said it would not be able to pay an overdue Eurobond coupon by this week’s deadline, putting it on track to become Africa’s first defaulter in the pandemic era.

Citing the severity of the COVID-19 pandemic and the “significant debt vulnerabilities and worsening outlook in many low-income countries,” G20 finance officials decided that more support was required than the existing freeze of official debt payments which runs out by June 2021.

Major creditors, including China, are expected to follow the joint guidelines accepted by the G20, which laid out how to minimize or reschedule debt considered to be unsustainable.

Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva called the framework a historic achievement and said it should improve private sector involvement and speed up resolution in cases where debts are unsustainable.

“Let’s be very frank here. We are not out of the woods. This crisis is not over. We need further support through debt relief and through fresh financing,” she told G20 officials. African states alone face a financing gap of $345 billion through 2023, she has warned.

Need to include middle-income countries

Non-governmental organizations said that the accord should have gone further by including middle-income countries and pressuring private investors to consider cancellations,

A senior US official from the Treasury Department confirmed that the country was open to extending the joint framework to include middle-income countries and small island states, but that view was not shared by all G20 members.

For the first time, the system has brought creditors such as China, India and Turkey into a structured debt restructuring process, the official said adding that the US would closely monitor its implementation, especially to ensure that China is complying.

“I count on everyone’s constructive spirit to ensure swift and cooperative implementation of the common framework, with several countries already asking for debt treatments, in particular in Africa,” French Finance Bruno Le Maire told his G20 counterparts during an online meeting.

China’s stand

In 2019, China, which accounted for 63% of the total debt owed to the G20 countries, was reluctant to consider the need for urgent cancellation or debt reduction. Total Chinese lending figures, which have risen in the past 20 years, range from $350 billion to over $1 trillion, the US official said after the G20 meeting.

The new framework aims “to facilitate timely and orderly debt treatment” for countries eligible for the debt payment freeze put in place in April, but which only included private sector creditors on a voluntary basis, the G20 statement said.

“Debt transparency is extremely important,” Japanese Finance Minister Taro Aso said after the G20 conference call.

The new framework demands the involvement of all public creditors, after some G20 partners criticized China for not including debt owed to its state-owned banks earlier.
Wary of debt write-offs, China has defined its state-owned China Development Bank as a private entity, rejecting calls for full participation in debt relief.

The inclusion of private sector creditors was a significant step, Eric LeCompte, the United Nations’ (UN) debt advisor, said but criticized the G20 for failing to include middle-income countries.

“Unfortunately, middle-income countries that will see some of the highest poverty increases due to the crisis, are excluded from this process, Mr. LeCompte said.

G20 leaders are expected to endorse the common framework at a virtual summit meeting next week.


The Group of Twenty (G20) is an international forum of governments and central bank governors from 19 countries and European Union (EU). Since its formulation in 1999, the group has discussed financial and socioeconomic issues. G20 members represent 80 percent of the global economic output, two third of world’s population and three quarters of international trade.