BUUMBA CHIMBULU writes
COMMERCIAL or private creditors must be “forced” to participate in debt relief initiatives to developing and low-income countries, says President of the World Bank Group, David Malpass.
Mr Malpass indicated that the Debt Service Suspension Initiative (DSSI) relief had been less than anticipated because not all creditors participated.
He explained that large non-Paris Club bilateral creditors had only partially participated in the DSSI and, most troubling of all, bondholders and other private creditors had continued to collect full repayments throughout the Covid-19 crisis.
He said this when delivering a speech virtually to the London School of Economics on building a green, resilient, and inclusive recovery from the Covid-19 pandemic.
“The implementation of the initiative shows that private and commercial creditors won’t comply with calls for ‘voluntary participation’ in debt relief initiatives, further demanding that they be ‘forcefully encouraged’ to participate in debt relief programmes.
“The recent DSSI experience shows that commercial creditors will not comply with calls for “voluntary participation” in debt relief initiatives,” Mr Malpass said.
He indicated that as the implementation of the Common Framework commences, Group of 20 countries (G20) needed to instruct and create incentives for all their public bilateral creditors to participate in debt relief efforts, including national policy banks.
Mr Malpass said they also needed to forcefully encourage the private creditors under their jurisdiction to participate fully in sovereign debt relief efforts for low-income countries.
“There are specific measures that should be considered by G7 countries to encourage more participation.
“To give just one example, sovereign immunity laws might be amended to include immunity from attachment by commercial creditors who refuse to participate in a Common Framework treatment in which their Government is participating,” he said.
He, however, expressed satisfaction with the DSSI initiative that had provided beneficiary countries with some level of liquidity to fight the pandemic.
He noted the G20 DSSI had enabled 43 countries to postpone around US$5.7 billion in debt-service payments between May and December of last year, with further savings of up to US$7.3 billion expected by the initiative’s end-date of June 2021.
Mr Malpass therefore called for an additional six months extension of the DSSI through to the end of 2021 as many countries are still battling Covid-19 and facing a liquidity squeeze.