Washington: Reiterating that addressing the growing debt distress was a priority for India’s G20 presidency, Union finance minister Nirmala Sitharaman has emphasised debt transparency, information-sharing, clarity on the comparability of treatment (which aims to ensure the balanced treatment of the debtor country’s debt by all external creditors), predictability and timeliness of restructuring process as key principles that should govern the process.
Her comments, according to tweets put out by the ministry of finance, come in the backdrop of what is widely perceived to be China’s position impeding efforts to help countries in distress. Each of the principles Sitharaman mentioned can be interpreted as a coded message to Beijing.
Sitharaman made the remarks while co-chairing a meeting of the global sovereign debt roundtable along with the heads of the International Monetary Fund (IMF) and World Bank (WB) on Wednesday in Washington DC, as the second G20 finance minister and central bank governors meeting commenced under India’s presidency.
The meeting was held as the debt crisis intensifies. At least 21 countries are in default or seeking restructuring. Last week, IMF managing director Kristalina Georgieva said that 15% of low-income countries are already in debt distress; another 45% are vulnerable; and a quarter of emerging economies are at high-risk.
“This has raised concerns over a potential wave of debt restructuring requests — and how to handle them at a time when current restructuring cases are facing costly delays,” she added.
The debt roundtable grouping, which includes official creditors, private creditors and borrowing countries, had first met in Bengaluru on the sidelines of the first G20 Finance Ministers and Central Bank Governors (FMCBG) meeting in February. Amid deep divisions between advanced western economies and multilateral development banks (MDBs) on one hand, and China on the other, the main aim of the roundtable is to build a greater common understanding on the debt restructuring process, with a focus on process and standards.
The primary tension in the debt restructuring process has stemmed from the fact that China is a big bilateral lender to many countries now drowned in debt. There is uncertainty about the scale of Chinese loans given the opaqueness of the lending process — which is where Sitharaman’s emphasis on information-sharing and transparency is relevant. There is an impasse about the next steps because Beijing has refused to write down loans — which is where the principle of “comparability of treatment” comes in. Beijing has also blocked restructuring efforts even in cases where the Fund has moved ahead with its restructuring loans, as in the case of Zambia — which is where Sitharaman’s emphasis on timeliness, “including a way to assess and enforce” the steps involved in restructuring is relevant.
Instead, Beijing has demanded that MDBs too take a hair-cut on their loans, which MDBs don’t do as a vital safeguard.
While Reuters reported on Wednesday that China may drop this demand – an important step forward in devising a common understanding – there hasn’t been an official confirmation yet on this. All of this has generated concerns among other economies that providing debt relief and support to countries in debt, without China playing its part, can end up being misused to repay Chinese loans and further encourage a culture of impunity for Beijing’s behaviour.
On Monday, Sitharaman also met IMF’s first deputy managing director, Gita Gopinath, who has played an important role in taking the debt roundtable forward. The two discussed debt vulnerabilities and downside risks to the global economy. Gopinath also congratulated the minister on the “fruitful discussions that translated the February consensus on the need for a globally coordinated policy response” on crypto assets into a set of guiding principles and an action plan.
