Reacting to the G7 Finance Ministers statement released today at the end of their summit[1], Tim Jones, Head of Policy at Debt Justice said:
“To tackle the debt crisis in lower income countries the G7 need to stop blaming China and address the far larger debts owed to their own banks, hedge funds and oil traders. For two years the G7 have called on these private lenders to take part in debt relief schemes and they have refused. In contrast, China did suspend debt payments. The G7 need to make private lenders play ball, both to make debt relief effective, and to build trust with other lenders such as China. This means politically and financially supporting debtors to default on recalcitrant creditors and passing legislation in the UK and New York to make lenders comply.”
In 2022, of external debt payments due to be paid by low and lower middle-income governments, 47% are to private lenders, 27% to multilateral institutions, 12% to China and 14% to governments other than China.[2] Of debts owed to private lenders by low and lower middle income country governments, 51% are governed by English law, and 49% by New York law.[3]
IMF Managing Director Kristalina Georgieva has called on the UK and US to pass legislation to stop private lenders blocking debt relief agreements.[4] President of the World Bank David Malpass has made similar calls.[5]
The G7 specifically reference the debt situation in Sri Lanka in their statement. Of Sri Lanka’s external debt payments between 2022 and 2028, 52% are to private lenders, 21% multilateral institutions, 15% China and 12% other governments.[6]
Notes
[2] Calculated by Debt Justice from World Bank International Debt Statistics database.
[3] The figure is for bonds as these are the ones with public information on governing law. Calculation is at https://debtjustice.org.uk/wp-content/uploads/2022/05/G7-responsibility-for-debt-payments_Briefing_05.22-1.pdf
[4] “We also are pressing for some of the changes, legal changes that need to happen in New York, in London, to close loopholes for vulture funds and others to prevent debt resolution. We are discussing how we can bring more contingency measures in debt agreements, how to press for more debt transparency.”
https://www.imf.org/en/News/Articles/2022/04/21/tr220421-transcript-of-the-imfc-press-briefing
[5] “Given the depth of the pandemic, I believe we need to move with urgency to provide a meaningful reduction in the stock of debt for countries in debt distress. Under the current system, however, each country, no matter how poor, may have to fight it out with each creditor. Creditors are usually better financed with the highest paid lawyers representing them, often in U.S. and UK courts that make debt restructurings difficult. It is surely possible that these countries—two of the biggest contributors to development—can do more to reconcile their public policies toward the poorest countries and their laws protecting the rights of creditors to demand repayments from these countries.” https://www.worldbank.org/en/news/speech/2020/10/05/reversing-the-inequality-pandemic-speech-by-world-bank-group-president-david-malpass
[6] Calculated by Debt Justice from World Bank International Debt Statistics database.