LONDON: Debt experts, charity groups and investors welcomed news on Wednesday that the world’s poorest countries will get new IMF funds and COVID-19 debt relief, but they also cautioned that for some it would still only be a band-aid solution.
A new $650 billion allocation of the IMF’s quasi currency known as Special Drawing Rights (SDRs) will provide over $20 billion of funding, while an extended repayment holiday on loans from rich G20 nations will temporarily save another $7 billion.
The $20 billion share of the SDR increase alone is more than all the emergency money the IMF provided in Africa here last year and in relative terms, those under the most serious stress will receive the biggest benefit.
Zambia’s share of the handout — SDRs are allocated roughly according to the size of economies — will double its international reserves. It will lift those of Argentina, Ethiopia, Ecuador, Kenya, Ghana and Sri Lanka by at least 10%.
More help might be forthcoming too. Talk has already begun about wealthier countries donating or recycling some of their new SDR either directly or into emergency IMF facilities where they could be put to good use.
That would add significant extra support but some feel that even that might not be enough for those in the deepest funk.
The European Network on Debt and Development (Eurodad), comprising 50 non-governmental organizations, estimates the average debt-to-GDP ratio for nearly 70 countries in the G20’s Debt Service Suspension Initiative (DSSI) will rise above 60% this year from 52% pre-pandemic and 46% back in 2015.
In sub-Saharan Africa, interest payments suck up close to 50% of government revenues for Ghana and around 30% for Nigeria and Angola, S&P Global calculates.
Zambia, Mozambique, Republic of Congo and Angola have all seen their debt burdens soar above 100% of GDP, while Morgan Stanley has flagged concerns about Cameroon, Kenya, Costa Rica, El Salvador, Tunisia, Sri Lanka, Laos and the Maldives.
“This SDR issuance will help the countries that were not in terrible shape coming into this crisis muddle through,” said S&P sovereign analyst Ravi Bhatia. “But for others that already had very high debt levels and have big payments to make, this isn’t going to be enough.”
Carmen Altenkirch, an emerging market sovereign analyst at Aviva Investors, holds a similar view. She thinks Zambia, Pakistan, Ghana, Argentina and Bahrain will see the biggest benefit from the SDR increase, while Pakistan and Angola will get the most from the DSSI extension.
“Pakistan is a great example of a country that could have defaulted,” without the support she said. However, it won’t solve the underlying problems of those countries with the highest debt burdens and rising interest costs.
TICKING TIME-BOMB
Poorer countries are also lagging well behind with vaccine programs, meaning the crisis will be prolonged for many. World Bank and IMF research estimates that Africa alone will need about $12 billion for vaccines, roughly what they will have deferred under the DSSI so far.
World Bank President David Malpass said on Monday this week’s DSSI extension would nevertheless probably be the “last or final” one.
It incentivizes countries to move toward the G20’s so called “Common Framework”, under which countries would fully restructure debts rather than just postpone payments for a year or two under the DSSI.
So far only Chad, Ethiopia and Zambia have said they will go down that route. It has become a hot potato for governments as the framework also encourages them to restructure their private sector debt, which would be a default in the eyes of the major credit rating agencies.
That could trigger knock-on effects and make it harder and more costly to borrow from international markets in future.
“I don’t think this will be sufficient,” Richard Cooper a partner and debt specialist at law firm Cleary Gottlieb, said about the SDR increase and DSSI extension.
The concern is that with so many emerging market countries having taken on more debt during the COVID pandemic and global interest rates now rising, there will be more restructurings in the next 2-3 years.
“This is a little like a ticking time-bomb,” Cooper said.
SDRs and debt holidays just a band-aid for debt-hobbled countries like Pakistan
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SDRs and debt holidays just a band-aid for debt-hobbled countries like Pakistan
- A new $650 billion allocation of the IMF’s quasi currency known as Special Drawing Rights will provide over $20 billion of funding
- An extended repayment holiday on loans from rich G20 nations will temporarily save another $7 billion
Islamabad says Pakistan Saudi Arabia Economic Cooperation Framework initiatives ‘being materialized’
Islamabad says Pakistan Saudi Arabia Economic Cooperation Framework initiatives ‘being materialized’
- Pakistan, Saudi Arabia agreed to launch framework in October to expand trade, investment ties in priority sectors
- Pakistan views Saudi Arabia as a vital regional ally that has helped it avert macroeconomic crises over the years
ISLAMABAD: Pakistan’s foreign office spokesperson said on Thursday that certain initiatives related to the Pakistan Saudi Arabia Economic Cooperation Framework “are being materialized,” describing the economic partnership between the two countries as “solid, firmly rooted.”
Islamabad and Riyadh agreed to launch an Economic Cooperation Framework in October, as per the Prime Minister’s Office (PMO), to expand bilateral trade and investment ties. This decision was taken during a meeting between Prime Minister Shehbaz Sharif and Saudi Crown Prince Mohammed bin Salman in Riyadh.
Sharif’s office had said the framework will see the two countries focus on priority sectors including energy, industry, mining, information technology, tourism, agriculture and food security.
“Pakistan-Saudi economic partnership is solid, firmly rooted,” Tahir Andrabi, the foreign office spokesperson, said during a weekly news briefing. “There were certain initiatives taken during the visit of our prime minister to the Kingdom of Saudi Arabia and are being materialized.”
Andrabi said Pakistan’s Special Investment Facilitation Council (SIFC) and the Board of Investment are working on “individual investments” between the two countries but did not provide any further details.
Pakistan’s Finance Minister Muhammad Aurangzeb departed for Riyadh on Wednesday to attend the three-day Global Development Finance Conference, where he is expected to present Islamabad’s perspective on climate adaptation and financing.
“During the conference, Finance Minister Senator Muhammad Aurangzeb will participate in a high-level session on climate adaptation and resilience, where he will join global leaders in discussing how developing countries can secure the capital needed to address climate vulnerabilities,” the Finance Division said in a statement on Wednesday.
Aurangzeb is also scheduled to hold bilateral meetings with senior Saudi officials, including leadership of the National Development Fund and the Ministry of Finance, to discuss development financing, investment opportunities and broader economic cooperation.
The finance chief will additionally meet Pakistan’s diplomatic mission in Riyadh to review ongoing economic diplomacy initiatives.
Pakistan and Saudi Arabia have long enjoyed close ties but have sought to broaden cooperation in recent months.
In September, the two countries signed a security agreement pledging that aggression against one would be treated as an attack on both. The move was widely viewed as formalizing longstanding military cooperation into a binding commitment aimed at bolstering joint deterrence.
The Kingdom also hosts more than 2.5 million Pakistani expatriates and serves as the largest source of remittances for Pakistan’s $407 billion economy.
