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By Marc Jones
LONDON (Reuters) – The world’s poorest countries may soon face a difficult decision: doubling G20 debt relief with warning that they will have to default on personal creditors or abandon the program to stay behind in money markets.
On Friday, rich countries supported an extension of the G20 Debt Service Suspension Initiative (DSSI), approved in April to help upcoming countries cope with the coronavirus pandemic, which saw 43 of the 73 possible eligible countries https://www. worldbank. org/ is /topic/debt/debt/short/covid-19-initiative-suspension-of-debt-service depletes $5 billion in “official sector” debt bills.
The European Debt and Development Network (Eurodad), which includes 50 non-governmental organizations, estimates that the extension of the six-month transitority freeze would provide additional relief of $6. 4 billion, amounting to $11. 4 billion if the extension is completed until the end of 2021.
This would make up more than a quarter of next year’s combined debt bills for countries already signatories to the DSSI, accounting for up to 4. 3% of GDP for countries such as Angola, according to Fitch Ratings.
But you can place a chain.
Amid warnings that the pandemic could push a hundred million people into excessive poverty, World Bank President David Malpass is calling for the participation of banks and the investment budget they have lent to ISD countries.
“The relief so far is too shallow to take the darkness out of the end of the debt tunnel,” Malpass told the United Nations on Tuesday. “Trade creditors do not participate in the moratorium, exhausting the financing provided through multilateral institutions. “
Kevin Daly of Aberdeen Standard Investments, a component of a joint personal sector reaction to ISD proposals, believes that prospects such as Malpass’s average personal sector share (PSI) (depreciations for bondholders) can simply be “mandatory” under the expected extent.
Such a replacement can be reported at IMF meetings next month.
Eurodad estimates that DSSI countries will pay $6. 4 billion to personal sector bondholders and other personal lenders $7. 1 billion next year, a total of $13. 5 billion that exceeds what signatory countries owe G20 governments.
“We have already heard that there is a strong option that this (PSI) may be the case,” said Angola’s Secretary of State for Budget and Investment Aia-Eza Silva, adding that Angola’s main objective remains bilateral creditors like China.
(Chart: How much debt relief DSSI will provide to countries: https://fingfx. thomsonreuters. com/gfx/mkt/xklpyqjbwpg/Pasted symbol 1601420726673. png)
LOSING ACCESS
Charities estimate that 121 low- and middle-income governments spent more last year on external debt services than on public fitness systems that are now at a breaking point, a difficult ethical argument for aid.
However, there are factors that complicate it.
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Restructuring is complex and takes much longer than today’s struggling countries, and would also mean that poorer countries that have struggled to access the foreign market over the past decade would lose it just as they face enormous challenges.
Moody’s estimates they face a combined investment deficit of $40 billion this year. The Institute of International Finance estimates that the external debt of DSSI countries has more than doubled since 2010 to more than $750 billion and now averages about 50% of GDP. a higher point for your development point.
A total of 23 ISD-eligible countries have sold Eurobonds, but only a few, such as Honduras and Mongolia, have sold Eurobonds since the program was introduced in April. Get.
“It is incredibly unlikely that a country that has been a part of it (DSSI) this year will jeopardize its market access,” said Kevin Daly of Aberdeen. “I don’t think any of them should participate. “
(Chart: DSSI Country Debt Bonds – https://fingfx. thomsonreuters. com/gfx/mkt/xklpyqlkrpg/Pasted symbol 1601460240507. png)
Anti-poverty teams say the personal sector is overestimating the issue, pointing to the speed with which Argentina sold a bond 100 years after one of its restructurings.
A possible “carrot” for countries and their creditors may simply be Brady-type debt exchanges, in which investors cancel secure loans in exchange for new credit bonds with full or partial G20 promises or multilateral progressive banks.
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Iolanda Fresnillo de Eurodad said debt exchanges can be a solution for many countries, the countries most affected want more excessive measures.
“This is just a liquidity crisis, we want to deal with debt sustainability and opt for debt cancellation,” Fresnillo said.
“Just by deferring payments, you are solving the problems these countries face. “
(Additional information via Andrea Shalal in Washington and Karin Strohecker in London; editing via Catherine Evans)