G20 extends moratorium on debt interest payments for poorest Covid-hit nations

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This photo taken and handout by the Italian Finance Ministry on April 7, 2021 shows Italy´s Economy Minister, Daniele Franco (L) speaking during the 2nd G20 Finance Ministers and Central Bank Governors videoconference meeting in Rome. — AFP

ROME: G20 finance ministers and central bankers have agreed to extend a moratorium on debt interest payments for the poorest countries, which could lag behind the global recovery from the coronavirus pandemic.

In an online meeting on Wednesday, the Group of 20 most powerful nations also backed the International Monetary Fund’s plan to boost its reserve offerings to help impoverished nations, and pledged to reach a deal on global tax reform by the middle of the year.

“We will further step up our support to vulnerable countries as they address the challenges associated with the COVID-19 pandemic,” the G20 ministers said in a statement.

The IMF has forecast faster than expected global economic growth this year, of 6%, after the pandemic in 2020 caused the worst peacetime downturn since the Great Depression.

But US Treasury Secretary Janet Yellen has warned of the risk that the crisis reverses years of progress in fighting poverty and closing the gap between poor and rich nations.

The G20 said the debt moratorium, which was introduced in April last year and extended in October until June 30, would be prolonged one more time until December.

“This final extension will allow beneficiary countries to mobilise more resources to face the challenges of the crisis and, where appropriate, to move to a more structural approach to address debt vulnerabilities,” its statement said.

Debt cancellation

World Bank President David Malpass welcomed the move but urged G20 nations to show “greater transparency”, including disclosing the terms of their financing contracts, and incentivise private creditors to participate in debt relief.

The impact of the moratorium has been relatively limited so far, with just 46 out of 73 eligible countries having asked for and obtained a delay on payments totalling $5.7 billion, according to the latest official figures.

Development NGO Oxfam accused the G20 of “pushing the can down the road”.

“If debt cancellation is not part of the solution, the world´s poorest countries will continue to struggle to cope with the pandemic and its devastating effects,” said Nadia Daar, head of Oxfam´s office in Washington, DC.

The G20 also supported the IMF’s plan to increase its allocation of special drawing rights (SDR) by $650 billion, said it would “enhance global liquidity and will help the global recovery”.

SDRs are international reserve assets that help governments protect their financial reserves against global currency fluctuations, and also help the IMF calculate loans and interest rates.

Summer deal on tax reform?

Also on the agenda of Wednesday´s meeting was a US proposal for a global minimum tax rate for corporations, which is supported by the IMF and by major economies including France and Germany.

Italian Economy Minister Daniele Franco said the plan — aimed at ending tax competition between countries and the use of tax havens by companies — was “consistent” with ongoing G20 discussions on global tax reform.

The international reform would be comprised of two components: the minimum tax rate and the establishment of a system to modulate corporate taxes based on profits in each country, regardless of where they are headquartered — which would likely impact tech giants the most.

“We will continue our cooperation for a globally fair, sustainable, and modern international tax system. We remain committed to reaching a global and consensus-based solution… by mid-2021,” the G20 statement said.

German Finance Minister Olaf Scholz said agreement was urgently needed, telling reporters: “The summer is the moment when it should happen.”

But Ireland, which has become a base for multinationals with its ultra low corporation tax rate of 12.5%, expressed reservations about a global minimum tariff.

Finance Minister Paschal Donohoe said Tuesday his concerns relate to the effect of a universal rate on small and medium economies that tax business at a lower percentage “as part of their overall competitive model”.


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