China G20 coronavirus debt relief 'progressing well'

Out-Law News | 04 Sep 2020 | 10:29 am | 1 min. read

Debt relief provided to the world's poorest countries by China as part of the G20's Debt Service Suspension Initiative (DSSI) is "progressing well", China's Ministry of Foreign Affairs (MOFA) has announced.

Figures published by the World Bank suggest China accounts for around half of the debt suspended through the DSSI to date. So far, 41 countries have applied to G20 countries for $8.8 billion worth of debt relief under the scheme. G20 countries had suspended a combined $5.3bn worth of debt repayments as of July 2020, with China accounting for over half of the debt relief granted to date, according to the figures.

The G20 countries announced in April that they had agreed on a coordinated approach to suspending debt repayments from the world's poorest countries during the coronavirus pandemic. At the time, the World Bank estimated that around $11.5bn worth of debt could be eligible for relief under the scheme.

However, World Bank president David Malpass has criticised G20 countries' rate of response to debt relief requests, and has called for the scheme to be extended to commercial debt, in a statement given on 18 July 2020 in Washington. Currently, commercial lenders and the World Bank are not part of the scheme and only repayments under official bilateral credit agreements are covered by the DSSI.

While the World Bank has continued to push commercial lenders to participate in the DSSI, including specifically calling on the China Development Bank, its own views on the issue appear to be firm for the time being. In a speech on 28 May, David Malpass said that the multilateral development bank's participation in debt relief "would be harmful to the world’s poorest countries".

Finance expert Kanyi Lui of Pinsent Masons, the law firm behind Out-Law, said: "From the sovereign debtors' perspective, participation of commercial lenders and investors in debt relief discussions is not necessarily desirable due to reputational concerns, ratings downgrades and the potential impact on their future access to the international capital markets".

"In addition, as past restructurings have shown, participation by commercial lenders and investors in debt relief discussions are not necessarily conducive to an efficient process," he said.

"Given the prudential, regulatory and commercial pressures on commercial lenders and investors, in the absence of significant changes to the global framework, it remains to be seen how they might be incentivised to answer the World Bank's call to participate in DSSI debt relief and debt cancellation discussions," he said.