RAY OF HOPE

G20 likely to extend debt repayment time on Wednesday

The periodic global economic update by IMF shows the economy is recovering faster in rich countries

In Summary
  • This follows a request by 74 poor countries in the world including Kenya that benefited from G20's debt suspension plan that expires June 30. 
  • Since it took effect on May 1, 2020, the initiative has delivered about $5 billion in relief to more than 40 eligible countries.
CAUTION: IMF wants local banks to tread carefully in regional expansion.
CAUTION: IMF wants local banks to tread carefully in regional expansion.

Finance ministers and Central Bank heads of the 20 richest countries are likely to endorse an extension to the six months debt suspension plan when they meet in Italy this Wednesday.

This follows a request by 74 poor countries in the world including Kenya that benefited from G20's debt suspension plan that expires June 30. 

Yesterday, Italy's CBK governor Ignazio Visco said ongoing multilateral measures would be critical to ensuring an evenly distributed global recovery.

He said this on the back of the latest World Economic Update by the International Monetary Fund (IMF) which pointed to the uneven and fragile recovery in developed and developing nations. 

''We need to maintain close international co-operation within the G20 to avoid that the different stages of the vaccination campaign in the various countries result in excessive divergences of the respective economies,'' Ignazio said. 

He warned that a patchy international vaccine rollout could result in sharply different recoveries for developed and developing nations.

“The G20 is aware of the serious difficulties facing the most vulnerable countries and is committed to offering not a sterile solidarity . . . but concrete help to ensure that these countries have the necessary resources to respond to the crisis and can then get back on track,” he said.

Ignazio's remark is the first by any top executive under G20 to support the extension of the debt moratorium and gives hope to developing countries including Kenya that have been championing for it. 

His views on the global post covid growth trajectory mirror those of IMF in the latest World Economic Update released yesterday.

The periodic global economic update by IMF shows the economy is recovering faster in rich countries, powered by solid growth in the U.S. and China accelerated by high vaccination rate.

Last year, World Bank announced a debt suspension for 73 poor countries to help them concentrate resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people.

Since it took effect on May 1, 2020, the initiative has delivered about $5 billion in relief to more than 40 eligible countries.

The suspension period, originally set to end on December 31, 2020, was extended to June 2021 but beneficial countries want it extended by another year. 

Kenya is among the beneficiaries of the initiative that saw it hold $600 million ( above Sh66 billion) of due debt.

The country is now racing against time to mobilise resources to clear debt once the extension lapses at the end of the current financial year. 

It has already hinted at going for the fourth Eurobond to help clear maturing loans in a classic debt trap scenario of borrowing from Peter to pay John. 

The debt suspension and another support mechanism debate are expected to dominate the 2021 Spring Meetings of the World Bank Group and the International Monetary Fund (IMF) which commenced yesterday. 

Besides discussing the progress of the two international lenders, this year's conference to be held virtually will feature events that include regional briefings, press conferences, and fora focused on international development, issues of debt, economic recovery, vaccines, and climate. 

Though embargoed for today, IMF has projected economic expansion for this year, from the 5.5 per cent expansion projected in January.

It will be a consecutive improvement after a 3.5 per cent contraction in 2020, the worst peacetime outcome since the Great Depression.