This week, finance ministers and business leaders are gathering virtually for both the World Bank’s annual meetings as well as the fourth G20 Finance Ministers and Central Bank Governors Meeting. With the most recent estimates now saying that as many as 150 million people might be pushed into extreme poverty by the end of 2021, actor and Global Citizen advocate Idris Elba addressed leaders with a powerful call to action.
Noting that this year will see the first rise in poverty in decades, Idris called on finance ministers and the private sector to urgently adopt a comprehensive package of debt relief to support the most vulnerable, including an extension of the one-year moratorium on debt payments adopted by the G20 earlier this year.
This call for debt relief could not be more timely or important. Many countries worldwide don’t have anywhere near the funds needed to protect their citizens — in part because they’re paying off huge quantities of debt. Globally, 64 countries, including 30 in sub-Saharan Africa, have spent more on debt repayments than on their entire national health budget — and that was before the COVID-19 crisis. These nations have limited funding to meet their citizens’ immediate needs, nevermind enough to effectively fund a post-crisis economic recovery for all of their people.
As you’d expect this high debt burden is having a dramatic impact on the ability of countries to respond adequately to and recover from both the human and economic impacts of COVID-19. As recent research from the Gates Foundation’s Goalkeepers’ report has highlighted, “Among G20 countries, stimulus funding averages about 22% of GDP. Among sub-Saharan African countries, that average is just 3 percent—and of course their GDPs are much less.”
The stakes are high and the implications of inaction are clear: Unless urgently addressed, this debt distress has the potential to slow countries’ economic growth and stall poverty reduction for years to come. In the long run, this will inevitably prolong the time it will take us globally to end the worst phase of the pandemic and recover better together.
Idris Elba at the 'Defeating Ebola in Sierra Leone' conference
It should come as no surprise then, as G20 finance ministers meet this week alongside the World Bank’s annual meetings, that they face a growing chorus of calls - including from the International Chamber of Commerce and International Trade Union Confederation - to agree to further suspend debt repayments and speed up debt restructuring processes.
And there’s precedent for this type of action — the G20 governments have already shown that they are capable of stepping up — earlier this year they supported the establishment of the Debt-Service Suspension Initiative (DSSI) for the poorest countries, which has already brought more than $5 billion in debt relief for 44 countries.
But getting governments to adopt more ambitious debt relief measures is only one part of the solution.
Existing initiatives like the DSSI do not cover debt held by private creditors, including big banks and hedge funds, to whom the poorest countries will otherwise have to repay a shocking $16 billion in 2021 — enough to buy over 3 billion COVID-19 tests.
Many of the CEOs, and top executives from these private creditors are also gathering this week, convened by the Institute of International Finance (IIF). With debt on their agenda, now would be the perfect opportunity for them to join the World Bank’s DSSI. In the lead up to this week’s meetings, thousands of global citizens have been calling on them to do just that.
Ultimately, private creditors should not be allowed a free-ride on the debt relief of others — especially at the expense of the world’s poor.
Institutions like the World Bank, International Monetary Fund, and G20 governments should also do everything they can to remove the power imbalances that put the poorest countries at a profound negotiating disadvantage when dealing with representatives of some of the world’s biggest banks and hedge funds.
Beyond additional debt service suspension measures being taken by both governments and private lenders, much more will need to be done to limit the pandemic’s impact on the poorest countries so that we can recover better together.
Ultimately, the world needs a comprehensive solution that will have to include fully-fledged debt restructuring for those countries which face solvency and not just liquidity problems. In parallel, we need to increase debt transparency and improve debt management, to free the poorest countries from a vicious cycle that keeps them trapped in an eternal loop of debt build-ups and distress. At the same time, other countries with sustainable debt levels should get support in accessing capital markets at better rates, to finance their recovery. Donor countries should meet their foreign aid obligations and find additional ways of financing the recovery for all nations, including for instance in using existing Special Drawing Rights to extend a lifeline to the hardest hit countries.
This week, the world’s finance ministers, CEOs and top executives have an opportunity to take a bold step in the right direction and adopt measures that will save lives and futures. As Idris said in closing at the World Bank meetings this week: “Let’s remember that by working together, citizens, governments, corporates, international organizations, we brought down poverty to historic lows. We’ve done it once, we can do it twice. The solutions exist, and we know what needs to be done.”
Let's hope leaders do not disappoint.
