China and other nations under the G-20 Group have agreed to give debt relief to the poorest countries in the world, which the World Bank classifies as International Development Association (IDA) nations.
David Malpass, President of the World Bank, while speaking at the ongoing April 2020 virtual Spring meetings of the World Bank and International Monetary Fund (IMF), said that from May 1, there would be debt relief.
“IDA countries will have bilateral debt relief beginning May 1. That way, they can concentrate their resources on fighting the pandemic and its economic and social consequences,” he said.
“I take note that in the G-20 meetings, China is supporting the international agreement to allow moratorium of debt repayments by IDA countries if they ask for forbearance.
“That’s very important because China is one of the biggest creditors and their participation in that effort is important and was very welcome.”
Countries under the International Development Association (IDA) are those with per capita income below an established threshold. The 2020 threshold is $1,175.
Countries, such as Nigeria and Pakistan, are IDA-eligible based on per capita income levels and are also credit-worthy for some IBRD borrowing. They are referred to as ‘blend’ countries.
A moratorium is the suspension of debt repayments while debt relief is the reorganization of debt in any shape or form so as to provide the indebted party with a measure of respite, either fully or partially.
Malpass said a system will be set up to monitor how developing countries utilise the funds made available by the debt relief.
“So if the government saves money by not paying creditors, there is an expectation that they use it for health, education, economic rebuilding, jobs and concrete ways to help the people of their country,” he said.
“There is also within the debt relief initiative, the idea that there will be monitoring and assessment of the debt sustainability of poor countries.
“That process itself will amount to transparency. That’s going to change the way that countries have been lending into the developing world and it will improve it substantially and there will be a big benefit even to the creditors.
“It’s not the best system for creditors to be making non-transparent loans into poor countries and this is going to improve the system.”
He added that the process will also ensure that developing countries get more grants and concessional loans.
