Debt standstills can help vulnerable governments manage the COVID-19 crisis
Part of a series of proposals for the G20’s* agenda on the COVID-19 pandemic.
COVID-19 is devastating low- and middle-income countries, adding to their debt burdens and threatening a far-reaching sovereign debt crisis. To help manage debt distress for the countries most exposed, the G20 should call for a temporary standstill on sovereign debt payments to official and private creditors. A standstill entails an agreement among creditors and the debtor for a temporary pause on debt payments. In some cases, contracts allow a majority of creditors to agree to a standstill over the objections of the minority. In addition, the G-20 should call for the establishment of a central coordination mechanism to assist in both implementing a standstill and developing a longer-term sovereign debt strategy to meet the pandemic challenge. It should make use of recent contractual and institutional reforms to maximize creditor participation in this effort.
Even before the COVID-19 pandemic, the International Monetary Fund (IMF) had projected that the gross public debt (both domestic and external) of low- and middle-income countries would on average reach a high of 55.7 percent of their GDP in 2020 (see figure). The pandemic has compounded the problem: Countries face staggering new healthcare costs; collapsing tax, nontax, and export revenues from the global recession; and capital flight and frozen debt markets, which leave governments unable to refinance maturing debt. The “sudden stop” in low- and middle-income countries is due in part to developments in high-income economies, where financing needs have skyrocketed overnight against the background of extreme risk aversion and a flight to safety among investors.
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Πηγή: piie.com
Thursday morning at 8am EDT, Managing Director Kristalina Georgieva will deliver her Curtain Raiser speech ahead of the Spring Meetings launch next week (watch the livestream here). The speech will outline key priorities for the global economy in a time of crisis, where we stand today in terms of the state of the global economy, the challenges that lie before us in tackling this pandemic, and how best to create the conditions for recovery. We will have much more on the speech tomorrow, including key highlights and video links.
Managing Director Georgieva will also be interviewed on Thursday at 9am EDT by Tom Keene, Surveillance Anchor and Editor-at-Large at Bloomberg. This discussion will be streamed live on IMF.org.
Later this week we’ll also be sharing a podcast conversation between Managing Director Georgieva and editor-in-chief of The Economist Zanny Minton Beddoes.
