G20 Summit: How Does The Debt Service Suspension Initiative Work?

G20 Summit: Finance Minister highlighted the Debt Service Suspension Initiative
G20 Summit: Finance Minister highlighted the Debt Service Suspension Initiative

Finance minister Nirmala Sitharaman on Friday, November 20, stressed the need for continued and collective efforts by G20 members to tackle the damaging impact of the pandemic. The Finance minister was attending a virtual meeting of finance ministers of the G20 nations to discuss the global economic outlook amid the COVID-19 crisis. Ms Sitharaman also highlighted the Debt Service Suspension Initiative (DSSI) as an important step by the group and said that it is a crucial outcome under the Saudi Arabian Presidency, delivered by all G20 members. (Also Read: PM Modi To Attend 15th G20 Summit On November 21-22 )

The DSSI was initially in force until the end of 2020. However, due to the continued liquidity pressures, the G20 had agreed to extend the DSSI by six more months. The G20 will examine the matter again in 2021 to see if the economic and financial situation requires a further extension of the DSSI.

How does the G20's Debt Service Suspension Initiative work? 

  • The Debt Service Suspension Initiative, approved in April, offers a temporary suspension of the official sector or government-to-government debt payments. The proposed extension has been made till June next year.
  • The payments covered under the initiative are not forgiven but delayed, with a repayment period of three years and a one-year grace period. According to the estimates of the World Bank, 43 of a potential 73 eligible DSSI countries have deferred just over $5 billion of debt to date.
  • To receive DSSI relief, the eligible countries have to apply for an arrangement with the International Monetary Fund (IMF). This could either be a regular program or a shorter-term emergency facility.
  • The eligible countries need to commit to utilizing the freed-up resources to increase health, social, or economic spending in response to the ongoing crisis. The beneficiaries also commit to disclose all public sector debt and debt-like instruments.
  • The eligible countries would include all the International Development Association (IDA) countries and the least developed countries, as defined by the United Nations (UN), which are currently on debt service to the World Bank and IMF. This includes 72 active IDA borrowing countries along with Angola.
  • According to estimates, the official bilateral debt service payments in these countries would have totaled around $14 billion this year, including the interest and amortization payments. 
  • Estimates also suggest that extending the temporary freeze by six months will provide a further $6.4 billion relief to 43 countries that have already signed up for the initiative. 
  • No country has publicly applied for similar treatment from any private-sector creditors till now.