Remarks by World Bank Group Chief Economist Carmen Reinhart at the Extraordinary G20 Finance Ministers and Central Bank Governors’ Meeting

Thank you for the opportunity to provide comments on the G20 Action Plan, the DSSI extension, and the Common Framework.  The pandemic and the associated economic dislocations have been acutely regressive both within and across countries. It has hit the poorest countries particularly hard.  Many were already facing debt distress prior to the COVID crisis and the sharp economic contraction has added to those debt burdens.

 

We welcome the G20’s extension of DSSI and the addendum to the term sheet. This will materially increase the amount of debt service relief. The relief is timely but temporary, it postpones but does not reduce the ultimate debt burden.  Creditor participation is far from complete — private creditors and some official bilateral creditors still do not fully participate, limiting the scope of relief.

 

Many IDA countries need immediate fiscal space to address the COVID emergency but they also need a reduction in the debt burden to enable new investment and greener, more inclusive growth.  Looking beyond DSSI, principles for debt reduction will be needed and the G20’s work on a Common Framework is vital in this context. This initiative is a work in progress, and we look to future enhancements to this framework. For instance, private creditors – whether bondholders and other commercial creditors – also need to participate in debt-burden reduction. Possible enhancements to encourage their participation should be considered.

 

G20 governments can adopt legislation in their capitals to reconcile their laws with a more expedient and balanced debt restructuring process. They should also consider creating incentives for all their public creditor institutions to participate fully in debt relief efforts, fostering inter-creditor equity.

 

On their part, the developing countries need to take steps to put in place sustainable national policies that support the poor. Greater transparency on debt is needed.

 

We urge all G-20 countries to require their public creditor institutions to disclose  debt contracts, as well as DSSI MOUs, and make refinancing agreements public. We at the Bank Group will continue our work to strengthen quality and consistency of debt data and improve debt disclosure. We have shared with all G20 governments a breakdown of their official bilateral debts extended to DSSI-eligible countries, as reported to us by borrowers, and requested your validation of the data.

 

At the WB/IMF Annual Meetings last month, the Development Committee tasked the Bank and the Fund to propose actions to address low income countries’ unsustainable debt burdens.  I encourage the G20 to leave open the common framework for future enhancements as we seek to help countries facing debt distress avoid the deep development setbacks that are threatening so many people around the world.

 

In 1990, ten years after the onset of a major debt crisis, almost 60% of developing countries and emerging markets had lower per capita incomes than in 1980. We need to avoid repeating the protracted debt restructuring process that delayed that recovery.  International cooperation is critical, let us work together to avoid a lost decade.

 

Thank you.

 

Source: The World Bank