The director of the African department of the International Monetary Fund (IMF), Abebe Aemro Selassie, defended this Saturday, in an interview with Lusa, that adhering to debt relief has no implications on the ability to pay the debt.
“We don’t see a need for automatism between joining the Common Framework [for dealing with debt beyond the Debt Service Suspension Initiative (DSSI)] and the ability to service the debt, because there will be countries with sustainable debt that just need more budgetary space,” Selassie replied, when asked whether the `rating’ agencies are correct in downgrading the rating as soon as a country joins this debt relief instrument.
In the interview granted to Lusa by videoconference from Washington, the IMF headquarters, the director of the African department explained that adherence to this instrument defined by the G20 at the end of last year has several modalities and depends on the circumstances of each country, and there is no single model for the treatment of the debt of nations.
“The countries that have joined the debt relief are Chad, Ethiopia and Zambia, and even among these countries, the circumstances their economies are in are different, including the ability to service the debt,” he said.
The Common Framework, he added, “exists for countries that want debt treatment beyond DSSI, and it provides conditions to create short-term fiscal room for maneuver to deal with the pandemic.”
“Debt refocusing will depend on the structure and composition of the creditors, in addition to the circumstances of the countries, there are many variables,” he pointed out, noting, for example, that net present value neutrality or restructuring may be “among the many options that are available in the framework, but it is really important to have discussions about the specificity of each country and its needs and agree on the treatment that is needed.
Countries need different instruments depending on their financial specificity, but all need room for maneuver at the budget level to be able to bear the impact of containment measures and the increased public spending needed to fight the covid-19 pandemic.
“We have always said that countries at this time facing a brutal economic and health shock will need budget space, they need different instruments and in some cases no restructuring is required, they may only need liquidity support, and DSSI has played that role, while in other cases the debt is clearly unsustainable and hence restructuring is required,” Selassie said.
Asked about the contours and timing of the allocation of about $500 billion in Special Drawing Rights (SDRs), the director of the IMF’s African department said that after the `green light’ from the G20, “there are steps to be taken, including a decision to that effect by the IMF board.”
About the timeframe and the amounts that may be available for African countries, Selassie replied: “What I can say about the timeframe is that last time, in 2009, it took about four to five months between the authorization of the IMF board and the release of resources; as soon as we get the green light we will work as fast as possible to release the resources,” he said, refusing to confirm the figure of about $25 billion for Africa that has been advanced by some analysts.
The DSSI is an initiative launched by the G20 in April last year that guaranteed a moratorium on debt payments from the most indebted countries to the most developed countries and multilateral financial institutions, with an initial deadline of December 2020, which was then extended to June this year, with the possibility of a further six-month extension.
This initiative only suggested that countries seek private sector debt relief, whereas the Common Framework, approved by the G20 in November, states that private creditors must be approached, although it does not say explicitly what happens if there is no agreement between debtor and creditor.
The request for adherence to this framework has been the reason for rating agencies to downgrade countries, arguing that there will be losses or changes in the financial contracts signed with private creditors, which has led to criticism from these countries and other international financial institutions.
The proposal presented by the G20 and Paris Club in November is the second phase of the DSSI, launched in April, and which was widely criticized for not forcing the private parties to participate in the effort, since it would open the way for indebted countries not to pay the official and bilateral creditors (countries and multilateral financial institutions) and to continue servicing private debt.
This Framework aims to bring all the debt actors into the field, including China’s private and public banks, which have become the largest creditors of developing country governments, particularly those in Africa.
