Countries in the G20 group have agreed to suspend debt payments for the world’s poorest nations as they struggle to deal with the coronavirus pandemic.
Pakistan has been added to the group of countries that are eligible for debt relief.
According to the official communique of G20 Finance Ministers and Central Bank Governors Meeting, all IDA-countries, that are currently on any debt service to the IMF and the World Bank and all least developed countries as defined by the United Nations, that are currently on any debt service to the IMF and the World Bank will be eligible for the debt relief.
The IDA group consists of 76 countries, which includes Pakistan as well.
According to the standardized term sheet, the suspension period will start on May 1st, 2020 and will last until end-2020. It also mentioned that the creditors will consider a possible extension during 2020, taking into account a report on the liquidity needs of eligible countries by the World Bank and IMF.
The agreement covers money that is due to be paid to G20 governments up to the end of 2020.
Foreign Minister Shah Mehmood Qureshi speaking at a press conference said that the International Monetary Fund (IMF) has decided to give a one-year relief as the country is facing the coronavirus pandemic. He noted that the relief could be extended since the situation was still uncertain.
The foreign minister told the media that Pakistan annually spent around $10 to $12 billion on debt servicing. While the details were being worked out by the finance ministry, the impact of debt relief for Pakistan would be ‘substantial’.
“Prime Minister Imran Khan had appealed to IMF for debt relief for developing countries which was accepted by the Fund. IMF has announced it would give one-year relief to 76 developing nations including Pakistan,” Qureshi said.
The G20, which consists of the world’s leading economies stated,
We commit to use all available policy tools to support the global economy, boost confidence, maintain financial stability and prevent deep and prolonged economic effects. As mandated by the extraordinary G20 Leaders’ Summit, we endorse the G20 Action Plan in response to the COVID-19 pandemic, which sets out the key principles guiding our response, and our commitments to specific actions to drive forward international economic cooperation as we navigate this crisis and look ahead to a robust, sustained and inclusive global economic recovery.
The G20 finance ministers and central bankers endorsed “A time-bound suspension of debt service payments for the poorest countries,” and in the communique following their virtual meeting, said, “All bilateral official creditors will participate in this initiative.”
“We agreed on a coordinated approach with a common term sheet providing the key features for this debt service suspension initiative, which is also agreed by the Paris Club. All bilateral official creditors will participate in this initiative, consistent with their national laws and internal procedures. We call on private creditors, working through the Institute of International Finance, to participate in the initiative on comparable terms. We ask multilateral development banks to further explore the options for the suspension of debt service payments over the suspension period while maintaining their current rating and low cost of funding. We call on creditors to continue to closely coordinate in the implementation phase of this initiative,” said the official communique.
Saudi Finance Minister Mohammed Al-Jadaan, who currently chairs the group, said this means “Poor countries don´t need to worry about repaying over the course of the next 12 months.” The initiative will “provide north of $20 billion of immediate liquidity” for poor countries to use “for their health system and support their people facing COVID-19,” he said in a press briefing.