G7 backs extension of G20 debt freeze, calls for more reforms

G7 finance ministers on Friday backed an extension of a G20 bilateral debt relief initiative for the world’s poorest countries, but said it must be revised to address shortcomings hindering its implementation.

In a lengthy joint statement, the ministers from the Group of Seven advanced economies said they “strongly regret” moves by some countries to skip participation by classifying their state-owned institutions as commercial lenders.

Two officials from G7 countries said the reference was clearly targeted at China, which has refused to include loans by the state-owned China Development Bank and other government-controlled entities in its official bilateral debt totals when dealing with countries seeking debt relief.

The ministers also acknowledged that some countries will need further debt relief going forward, and urged the Group of 20 major economies and Paris Club creditors to agree on terms by next month’s meeting of G20 finance ministers.

“Everyone was disappointed by China’s lack of transparency and commitment,” said one official, who asked not to be named.

At an online meeting hosted by US Treasury Secretary Steven Mnuchin, the ministers underscored their commitment to work together to support the poorest and most vulnerable countries, which have been hard hit by the coronavirus pandemic.

They asked the International Monetary Fund and World Bank to provide regular updates on the financing needs of low-income countries and propose solutions for expected financing gaps, including through instruments to leverage access to private finance.

They said the Debt Service Suspension Initiative (DSSI) approved in April by G20 countries, including China, had helped 43 countries defer $5 billion in official debt service payments to free up money to respond to the pandemic.

But the total is far short of the $12 billion in savings that were initially projected, and represents just over half of the 70-plus countries that were eligible. The ministers said the initiative should be extended, “in the context of a request for IMF financing,” and called for a new term sheet and memorandum of understanding to improve its implementation.

The ministers said claims classified as commercial under DSSI would also be treated as such in future debt treatments and for implementation of IMF policies, delivering a stern reminder to China and others that have not been fully transparent about the scope and terms of government lending to poor countries.

The ministers also called again on private lenders to implement the debt relief initiative when requested, noting that the absence of private sector participation has limited the potential benefits for several countries.

Japanese Finance Minister Taro Aso said on Friday that China’s participation in a debt relief initiative dubbed “DSSI” was insufficient and that the Group of Seven (G7) advanced economies must put more pressure on Beijing to abide by it.

Speaking to reporters after a G7 teleconference, Aso voiced the need to extend the debt relief programme for poor developing countries beyond its current year-end deadline.

Less bleak outlook: The global economic outlook is less bleak than projected in June, an IMF spokesman said on Thursday, hinting that the organization’s forecasts for growth will be raised next month.

“Recent incoming data suggests that the outlook may be somewhat less dire” than projected in the Washington-based crisis lender’s World Economic Outlook published in June, spokesman Gerry Rice told reporters, nothing that “parts of the global economy (are) beginning to turn the corner.”

As the coronavirus has moved through the world, economists have been forced to constantly revise their forecasts for growth.

The International Monetary Fund is set to update its global outlook on October 13, though Rice did not reveal details about the new projection.

In its June forecast, the fund said world GDP would drop by 4.9 per cent and the virus would wipe out $12 trillion over two years,

However China and some other advanced economies performed better than expected in the second quarter of 2020, Rice said, partly due to the easing of lockdown measures after the near total shutdowns earlier in the year.

“We’re also seeing signs of global trade slowly beginning to recover,” Rice said.

“I would emphasize we are not out of the woods,” Rice said, calling the outlook “very challenging” with emerging markets facing a “precarious” situation due to the coronavirus.

Economists also fear that a second wave of infections could damage growth. Governments including Britain and France have reinstituted some restrictions in recent days, although on a much more limited scale than earlier in the year.

Rice said households and businesses in the United States continue to face challenges and signaled that the fund supports more fiscal support for the economy.

Talks on another round of stimulus are deadlocked in Washington weeks before President Donald Trump stands for a second term in the November polls.

In a column earlier this month, IMF leader Kristalina Georgieva and chief economist Gita Gopinath said governments should continue to support workers and businesses since the unprecedented nature of the crisis could give rise to a wave of bankruptcies and job destruction.

Agencies