$800-900 million G-20 debt relief for another 6 months: Cabinet set to allow EAD to move formal request

ISLAMABAD: The Federal Cabinet is all set to allow Economic Affairs Division (EAD) to put forward a formal request for availing G-20 Debt Relief of about $ 800-900 million for another six months, ie, January-June 2021, official sources told Business Recorder.

The Economic Coordination Committee (ECC) of the Cabinet, in its meeting, held on November 20, 2020, had approved the EAD's proposal. Sharing the details, sources said, G-20 Finance Ministers in their meeting held in April 2020 announced debt relief for IDA eligible countries to mitigate socioeconomic impact of Covid-19.

The EAD sought approval of the ECC for availing the G-20 Debt Service Suspension Initiative (DSSI). The ECC in its meeting held on May 20, 2020, approved the proposal and authorized EAD to proceed with signing of the Memorandum of Understandings (MoUs) with the creditor countries. The ECC's decision was later, ratified by the Cabinet on May 21, 2020.

Pursuant to the ECC decision, Economic Affairs Division constituted a negotiation team comprising representatives of EAD, Finance Division and Law & Justice Division, and entered into individual negotiations with bilateral creditors.

The sources said, so far 27 debt rescheduling agreements with 16 creditor countries had been negotiated and finalized. Negotiations for finalization of debt rescheduling agreements with the remaining bilateral creditors, ie, Japan, Russia, Saudi Arabia, United Arab Emirates, and the United Kingdom were currently underway.

The sources maintained that it was expected that agreements with these bilateral creditors would also be finalized and signed before the deadline of December 31, 2020. The G-20 Finance Ministers and Central Bank Governors in their meeting held on October 14, 2020 had announced extension in the DSSI for further period of six months, ie, January-June 2021. This would bring additional debt relief of $ 800-900 million depending upon exchange rate and interest rate variation.

Salient points of G-20 debt relief announcement were given as follows; (i) extended debt suspension period, January 01 to June 30, 2021 (6-months); (ii) repayment period 5-year with 1-year grace period (6-year in total); (iii) the beneficiary country will not contract non-concessional debt during suspension period, other than agreements under this initiative or in compliance with limits agreed under the IMF Debt Limit Policy (DLP) or WBG policy on non-concessional borrowing; (iv) the beneficiary country to request all its official bilateral creditors and not only a subset and; (v) all other terms & conditions of April, 2020 0-20 Communiqué shall be applicable.

The sources further stated that the G-20 Finance Ministers also resolved to consider further extension of DSSI beyond June, 2021, during the IMF/ WBG 2021 spring meetings. Given the scale of Covid-19 crisis, significant debt vulnerabilities and deteriorating economic outlook in low income countries, the G-20 Finance Ministers also recognized the need for debt treatment beyond the DSSI on a case by case basis.

The sources said, in this respect, the G-20 together with the Paris Club will work out a Common Framework for Debt Treatment beyond the DSSI. The EAD has requested the Cabinet to allow it to proceed with the formal request for availing G-20 Debt Relief for the extended period, ie, January-June, 2021. In terms of Rule 16(1)(h) of the Rules of Business, 1973, approval of the Federal Cabinet, is required for signing of the bilateral Debt Service Suspension Agreements. The Finance Division has endorsed the proposal.

According to media reports, Pakistan was expecting a total $ 1.8 billion temporary relief from the G 20 member countries if agreements with the concerned countries are reached. Of this, Pakistan can avail $ 613 million temporary relief from Saudi Arabia, followed by $ 309 million from China, $ 23 million from Canada, $ 183 million from France, $ 99 million from Germany, $ 6 million from Italy, $ 373 million from UK and $ 128 million from the US.

Copyright Business Recorder, 2020