G20 Reaches Historic Debt Reduction Deal, U.S. to Watch China’s Implementation

The United States, China and other G20 members agreed for the first time Friday (Nov. 13) on debt relief for poor countries hit by the epidemic that are struggling to pay their debts. China and other emerging economies for the first time to be included in the debt relief framework. The United States said it will closely monitor China’s implementation of debt relief.

The debt relief agreement is for the poor countries hit by the global neo-coronavirus pandemic to reduce the debt burden. As the 20 nations formed common guidelines, Zambia said on the same day that it would not make payments on its Eurobond notes due by Friday’s deadline, making it the world’s first sovereign debt defaulter during the pandemic.

Because of the scale of the global pandemic and the vulnerability and worsening prospects of the heavy debt of many low-income countries, finance officials from the Group of 20 have argued that these countries need more help than freezing official debt due at the end of June.

China has become a major global creditor in recent years, but is not part of the “Paris Club”, a Western framework for debt reduction. China has provided loans to many African countries. After Xi Jinping proposed the global infrastructure investment plan “One Belt, One Road”, China has also provided large loans to countries participating in the plan.

However, China’s silence on debt relief has sparked concern and criticism when many low-income countries are facing debt default under the impact of the epidemic.

China has said that the vast majority of its loans to those countries are commercial in nature and therefore difficult to relieve. Some international development agencies have criticized China for lending to low-income countries at higher interest rates than international institutions such as the World Bank. When China provides infrastructure loans to low-income countries, it often also requires that they be built by Chinese state-owned enterprises.

This time, the major creditors, including China, have formed common guidelines to set rules on how to reduce or restructure the unsustainable debt of low-income countries.

International Monetary Fund Managing Director Georgieva called the agreement a historic achievement. She also said that such a framework should also be extended to involve private and civic institutions.

Georgieva told G20 officials that African countries will face a $345 billion shortfall by 2023.

The U.S. Treasury official said the U.S. is open to expanding the framework to include participation from countries with middle-income status. But there is no agreement within the G20 on this.

Reuters reported that U.S. officials said the agreement for the first time includes creditor countries such as China, India and Turkey in a coordinated debt restructuring process. The official said that Washington will closely monitor the implementation of debt reduction in these countries.

According to figures cited in the Reuters report, China’s foreign loans account for 63 percent of total G20 lending. The aforementioned U.S. official told the media after Friday’s meeting that China’s foreign loans are expected to total between $350 billion and $1 trillion.

G20 leaders are expected to approve the common framework at a virtual summit next week.