China backs G20 debt relief plan

China will continue to support the Group of 20 debt treatment framework for low-income countries, helping them mitigate potential credit risks and promote post-pandemic economic recovery, Finance Minister Liu Kun said. in a recent press release.

The message showed the Chinese government’s firm commitment to promoting multilateral cooperation and actively participating in global actions related to debt issues, experts said.

China’s response to the G20 debt relief plan will help poorer countries redirect debt servicing resources towards mitigating the severe impact of the COVID-19 pandemic, officials said. experts at China Daily after a virtual meeting of G20 finance ministers and central bank governors held on Friday.

Participants finalized the plan documents – the Common Framework for Debt Treatment Beyond the Debt Service Suspension Initiative. The initiative sought to grant low-income countries a moratorium on bilateral government loan repayments, under which 73 eligible countries can ask G20 governments and their political banks to defer debt repayment.

Liu said China is for the first time participating in a multilateral debt coordination process – the G20 Debt Service Suspension Initiative and the next debt treatment procedure – under a common framework, according to a press release posted on the Ministry of Finance website after the meeting.

China’s official bilateral creditors have fully implemented demands for debt relief required by the G20 initiative, Liu said after attending the meeting with other finance ministers and central bank governors from around the world. G20.

As a commercial lender, the China Development Bank has “proactively responded to and participated in the debt relief initiative based on self-determined and market-oriented principles”, he added.

China is a country that has provided the largest amount of debt relief for implementation among G20 members, making significant contributions to help low-income countries meet the challenges of COVID-19 and make deal with debt vulnerabilities, Liu said.

Wang Yiming, former deputy director of the State Council’s Development Research Center, said strengthening international cooperation on macroeconomic policies and tapping into multilateral platforms can help defuse financial and economic risks. indebtedness.

Soaring global debt is a growing risk to the financial system. To mitigate the impact of the COVID-19 pandemic, major economies have launched extraordinary fiscal and monetary policies, leading to historically high debt levels among these economies, he said.

Wang added that the decline in the level of potential economic output has reduced the tax base, which could increase defaults. Financial risks also come from low interest rates, soaring asset prices and expanding balance sheets of major central banks.

According to research by the IMF, public debt in many G20 emerging countries is expected to reach around 10% of GDP this year. Due to currency depreciation, combined with a sharp decline in output, foreign currency-denominated debt-to-GDP ratios are rising in some economies.

On Friday, G20 finance ministers and central bank governors reached consensus on defining key parameters for the treatment of debt, which should ensure fair burden-sharing among all official bilateral creditors, and a treatment of debt by private creditors at least as favorable as this one. provided by official bilateral creditors, a statement concluded after the meeting.

Key metrics should at least include changes in non-inflation-adjusted debt service, debt in net present value terms, and duration of claims processed. As a general rule, debt treatments will not be made in the form of debt write-offs or write-offs, unless necessary in the most difficult cases, the statement said.

Chinese officials pledged to implement the work of the debt relief plan, based on corporate actions and sharing the burden fairly, the finance ministry said.

A meeting of finance ministers in October agreed to freeze sovereign debt repayments for the poorest countries for six months until 2021, with a review by the spring 2021 meetings of the International Monetary Fund and the Group of the World Bank to determine if the economic and financial situation requires an extension of the initiative for an additional six months.

G20 members originally proposed the debt suspension initiative this spring as part of a plan to tackle the pandemic and buy more time for poor countries struggling to repay their debt.

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