How the G20 debt service suspension initiative works

LONDON (Reuters) – The G20 group of wealthy nations and major emerging powers extended its Debt Service Suspension Initiative (DSSI) this week to help the world’s poorest countries deal with the fallout from the global crisis. COVID-19 until the middle of next year.

Below is an explanation of how the DSSI works:

The DSSI was approved in April. It is proposing a temporary suspension of “official sector” or government-to-government debt payments to 73 countries here, although only 43 have signed up so far.

The six-month extension announced this week will see it last until at least June 30, 2021.

Covered payments are not canceled but deferred, with a five-year repayment period and a one-year grace period. The rescheduling is supposed to be what is known as Net Present Value (NPV) neutrality.

The World Bank estimates that to date, the 43 countries that have joined the DSSI have deferred just over $5 billion in debt.

Charity groups have estimated that the six-month extension of the temporary freeze will bring an additional $6.4 billion in relief to the 43 countries that have signed up. This would rise to around $11.5 billion if the extension were extended to the end of 2021 and nearly $16 billion if all 73 eligible countries took the initiative.

To qualify for DSSI relief, countries are required to seek an agreement with the International Monetary Fund. This can be a regular program or a short-term emergency installation. [Rapid Financing Instrument (RFI) or Rapid Credit Facility (RCF)]

Countries must commit to using the resources freed up to increase social, health or economic spending in response to the current crisis. Beneficiaries also undertake to disclose all public sector debt and similar instruments.

Eligible countries would include all International Development Association (IDA) countries and all Least Developed Countries (as defined by the United Nations) that are current on debt service to the IMF and World Bank . This means 72 active IDA borrowing countries plus Angola.

Estimates suggest that official bilateral debt service payments in these countries would have totaled nearly $14 billion in 2020, including interest and amortization payments. Less than $4 billion of that sum is owed to the Paris Club group of major creditor countries, so other official bilateral creditors such as China and Russia are also invited to participate.

The G20 has also called on commercial creditors such as banks and investment funds to participate on comparable terms, but there are no signs of this happening so far.

At the IMF and World Bank spring meetings in 2021, the G30 will decide whether the program should be extended for another six months.

So far, no country has publicly requested similar treatment for private sector creditors, although Zambia has requested that some $200 million in bond payments be pushed back to April 2021. This request has up to present been refused.

At the Riyadh G20 Leaders Summit in November 2020, the G20 will release a framework for debt relief outside the DSSI, which may be required on a case-by-case basis.

For a chart on the amount of debt relief DSSI will provide to countries:

Compiled by Marc Jones; Editing by Paul Simao and Steve Orlofsky

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