Intensified debt relief could save economies, prevent defaults
As economies across the globe struggle to cope with an economic crisis triggered by COVID-19, the United Nations today called for robust policy action to ensure economic stability.
The global community has offered partial debt service suspensions to 76 low-income countries, and the IMF has offered debt service relief to 25 of the poorest countries. These do not cover commercial and multilateral debt or middle-income countries, and will not suffice to avoid defaults.
Debt distress will impede countries’ efforts to combat the coronavirus pandemic and derail progress towards the Sustainable Development Goals (SDGs).
In its latest policy brief on debt, published today, the United Nations Department of Economic and Social Affairs (UN DESA) puts forward options for a full standstill on servicing of all bilateral, multilateral and commercial debt for all developing countries that request it, including middle‑income countries – for example, a central credit facility for countries requesting assistance, managed by an international financial institution. The brief does not call for universal forbearance for all middle-income countries, however, as this would risk disrupting their access to financial markets.
Standstills would grant countries time to devise sustainable debt solutions – to ‘build back better’. The brief also lays out alternative proposals for debt relief, noting however that debt relief should be part of broader financing and recovery strategies that take into consideration SDG investment needs, for example through country-led integrated national financing frameworks.
The COVID-19 crisis highlights gaps in the current international sovereign debt restructuring architecture that should be addressed once the world recovers. It is an opportunity for the international community to come together under the auspices of the United Nations, which is not a creditor and provides a neutral forum for inclusive dialogue among sovereign debtors and creditors and other stakeholders, to discuss a way forward.
To read the full policy brief, please visit: bit.ly/UNDESACovid