Despite significant relief measures brought on by the Covid-19 crisis, about 60 percent of low-income countries are at high risk or already in debt distress. In 2015 that number was below 30 percent.
Since the start of the pandemic, low-income countries have benefited from some attenuating measures. Domestic policies, together with low-interest rates in advanced economies mitigated the financial impact of the crisis on their economies. The G20 put in place the DSSI to temporarily pause official debt payments to the poorest countries, followed by the Common Framework to help these countries restructure their debt and deal with insolvency and protracted liquidity problems. The international community also scaled up its financial support, including record IMF emergency lending and a $650 billion allocation of special drawing rights, or SDRs—$21 billion of which was allocated directly to low-income countries. The G20 leaders committed to supporting low-income countries with on-lending $100 billion of their SDRs to significantly magnify this impact.
The Common Framework is intended to deal with insolvency and protracted liquidity problems, along with the implementation of an IMF-supported reform program. G20 official creditors agreed to coordinate to provide debt relief consistent with the debtor’s capacity to pay and maintain essential spending needs. The Common Framework requires private creditors to participate on comparable terms to overcome collective action challenges and ensure fair burden-sharing.
(WBJ)