G20 to Suspend Repayment of Sovereign Debts for Low Income Nations

• G20 to Suspend Repayment of Sovereign Debts for Low Income Nations

The Group of 20 is about to approve a deal that would allow low-income nations to hold off on debt repayments, according to a Financial Times report.

The COVID-19 pandemic has forced low-income nations to seek debt relief on government debts as they struggle to contain the impact of COVID-19 on their economies.

According to the report, the deal would put a moratorium on repayments for at least 6 to 9 months with the possibility of extending it to 2021.

“What is immediately needed is to give these people space so they don’t need to worry about the cash flow and debt servicing going to other countries, and they can use that money for their immediate needs,” the senior official said, according to the FT.

In a recent statement by the World Bank, Sub-Saharan Africa spent about $35 billion or 2.1 percent of the region’s GDP servicing debts in 2018. Therefore, suspending payment on sovereign debts would allow the region enough fiscal space to cushion the effect of coronavirus in 2020.

The region’s economy is expected to contract by 5.1 percent this year, down from 2.4 percent growth achieved in 2019. While analysts have said the region could plunge into a $75 billion funding hole without a well-structured stimulus package.

Africa’s ministers of finance estimated that the continent needs at least $100 billion to protect about 30 million jobs and stimulate growth on the continent this year. Together they requested for debt relief from global financial partners.

However, with around 170 nations seeking financial supports from the International Monetary Fund according to the fund recent report, most African nations would struggle to get tangible support considering the pervasiveness of the situation. Therefore, financial partners are looking at suspending interest payments to allow most African nations moderate liquidity to manage the present situation as the world hope for COVID-19 drug.