Passing the Buck on Debt Relief: How the failure of the private sector to cancel debts is fueling a crisis across the developing world

Overview

The Covid-19 pandemic will not be defeated unless it’s defeated in all countries. In developing countries, where public health spending is often severely constrained, significant debt cancellation will be necessary to deal with the double whammy of health and economic crises.

Leaders of G20 countries, the IMF and the UN have acknowledged the need for substantial debt relief. In April 2020 G20 finance ministers agreed a temporary suspension of debt payments from the poorest countries. This agreement – the Debt Service Suspension Initiative (DSSI) – is a first step to a solution to the crisis. But it fails to mandate action from private creditors (e.g. commercial banks and investment funds) or multi-lateral development banks, such as the World Bank – to which many developing countries owe huge sums.

This paper, issued ahead of the G20 Finance Ministers meeting, shows that despite the DSSI, many of the poorest countries are spending more on servicing debt payments than they are on life-saving public services. This paper examines the size of the private debt burden in these countries and makes a case for the introduction of a mechanism that would make participation in a debt suspension initiative compulsory for all actors, including private and multi-lateral creditors.