(Bloomberg) -- Group of Seven countries backed an extension of a freeze in debt payments from the world’s poorest nations struggling with Covid-19, while signalling criticism for China for failing to fully participate.
The support of the club of industrialized economies, whose finance ministers met on Friday, signals a growing consensus within the Group of 20, a wider body that includes China. But the countries underlined the need for members that aren’t part of the Paris Club group of creditors to fully participate in the debt relief, a comment likely aimed at the Asian nation.
China is biggest official bilateral creditor that’s not in the Paris Club. In April, the G-20 launched an eight-month debt service suspension initiative, or DSSI, to help more than 70 countries. France has publicly backed giving more relief.
The debt is a theme that will be at the center of the annual meetings of the World Bank and International Monetary Fund -- to be held virtually next month. G-20 finance ministers are set to decide about the length of the extension and how to include private creditors that have been reluctant to join the moratorium. So far, 42 countries have applied for bilateral debt relief, with most refraining from demanding a waiver from private creditors out of fear they could be locked out of debt markets.
“We call on non-Paris Club lenders to commit to full and transparent implementation of the DSSI through all government entities going forward,” the G-7 finance ministers said in a joint statement Friday. “We reiterate our call for private creditors to implement the DSSI on a voluntary basis when requested by eligible borrowers.”
The International Monetary Fund has said it will push hard for private creditors to join the waiver to give a meaningful respite for countries battered by low commodity prices and an exodus of capital. World Bank President David Malpass has also called on private creditors to do more.
China is owed almost 60% of the money that the world’s poorest nations would be due to repay this year, according to World Bank data, and the nation has made many loans to developing countries with terms that aren’t transparent and at higher interest rates than the nations can afford, Malpass said in an August interview. That highlights the importance of China’s participation in the debt relief, he said.
“We strongly regret the decision by some countries to classify large state-owned, government-controlled financial institutions as commercial lenders and not as official bilateral creditors, without providing comparable treatment nor transparency, thus significantly reducing the magnitude of the initiative and the benefits of the DSSI for developing countries,” the G-7 said.
Any coercion to get private creditors involved would tip borrowers into default and hurt financial markets, the Institute of International Finance, a trade group that represents banks and financial institutions, wrote in a letter to the G-20 on Tuesday. It said a case-by-case approach with a focus on sustainable debt should the next step in relief.
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