Introduction sectionG20 support to low income countries: From emergency to long-term recovery
G20 support to low income countries: From emergency to long-term recovery
Since the outbreak of the COVID-19 in February 2020, the G20 have been working hard to alleviate the burden of the crisis on the most vulnerable countries and to make sure they have the necessary financial resources to tackle the pandemic and kick-start a rapid, inclusive and sustainable economic recovery.
Italy took over the G20 Presidency in December 2020 and continued the important work launched by Saudi Arabia, while shifting the attention of the membership to the long-term financing needs of developing countries.
The main G20 working level venue for these discussions is the International Financial Architecture Working Group (IFA WG). In fact, the IFA WG meets regularly to lay the ground for decisions taken at ministerial level on issues related to debt sustainability and transparency, volatile capital flows and associated risks, and financing for development in low-income countries.
During the Italian G20 Presidency, the IFA WG has already agreed to extend debt relief measures for low-income countries until the end of 2021 and garnered support for a new general Special Drawing Rights allocation of USD 650 billion.
This week, on Monday 14 and Wednesday 16 June, the IFA WG members gathered virtually for the fifth time under the Italian G20 Presidency to assess which additional measures can foster a sustainable, long-lasting and inclusive economic recovery, while maximising the impact of resources towards development objectives.
Members received an update on the implementation of the Debt Service Suspension Initiative (DSSI), including on Multilateral Development Banks (MDBs) efforts to provide fresh financing to DSSI-eligible countries, and on the activities undertaken under the Common Framework, an initiative endorsed by the G20 and the Paris Club to address debt sustainability issues of low-income countries in a structural manner.
IFA WG members learned about private sector initiatives to promote debt transparency, which would be crucial to improve debt sustainability in the long term.
Development finance and how to maximise its impact took centre stage in yesterday’s meeting. Especially in a post-pandemic context, MDBs play a critical role in providing affordable new financing to support the economic recovery and help achieve the Sustainable Development Goals (SDGs). To this end, the IFA WG is laying the ground for an ambitious package of measures to make available more development finance and strengthen coordination among International Financial Institutions (IFIs). The package includes the full support of the G20 to advancing an early replenishment of IDA, the arm of the World Bank specialized in grant and concessional financing for poorer countries. In this meeting the IFA WG also discussed MDB’s balance sheet optimization measures and a possible review of MDB’s capital adequacy frameworks: both initiatives could free up additional resources for low- and middle-income countries. G20 members also discussed MDB coordination to maximise their development impact. In particular, the IFA WG considered proposals to further enhance policy-based lending, and received updates from MDBs on country platforms, which enable closer coordination on the ground and promote recipient countries’ ownership of reforms and development projects.
Finally, the IFA WG also discussed capital account policies implemented in response to the COVID-19 pandemic and ways to promote domestic capital markets and local currency bond markets.
The discussions will inform the G20 Finance Ministers and Central Bank Governors meeting which will take place in Venice on July 9-10. The IFAWG work will continue and the Group will meet again in September.