G7 to Back Debt Relief for the Poorest Countries If China Joins

Canada, France, Germany, Italy, Japan, the U.K., and the U.S., all of which make up the group of the world's seven most industrialized countries (G7), announced that they would support a temporary suspension of debt payments for the poorest countries if China also does.

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"Ministers and governors noted that a number of the most vulnerable and poorest countries will face acute health and economic challenges related to the fallout of COVID-19," the G7 said through a statement.

They were “ready to provide a time-bound suspension on debt service payments due on official bilateral claims for all countries eligible for World Bank concessional financing, if joined by all bilateral official creditors in the G20 and as agreed with the Paris Club,” as FT reported”.

On Monday, the International Monetary Fund (IMF) Executive Board approved immediate debt relief for the world's 25 poorest countries, including Haiti, Afghanistan, Nepal, and Yemen.

These countries will receive financial aid from a catastrophe fund that will allow them to meet their debt obligations to the IMF for at least the next six months.​​​​​​​

On Wednesday, the Group of 20 (G20), which includes the G7, China, India, Brazil, and Russia, met to address the debt issue within ​​​​​​​the framework of the ​​​​​​​IMF-World Bank spring reunions.

Previously, France's President Emmanuel Macron proposed an immediate debt service moratorium for poor countries and a massive debt cancellation in the long term.

"During the crisis, let's let African economies breathe and not have to pay interest on the debt," he said.

For the moratorium to be effective, however, the Paris Club countries, China, Russia, the Persian Gulf monarchies, and multilateral financial institutions must accept such a proposal.​​​​​​​

If this happens, 76 poor countries would not be obliged to pay about US$20 billion for a year. If multilateral creditors also support the debt relief initiative, those countries would save an additional US$12 billion.

Regarding the African countries' debt cancellation, Macron argued that the debt burden has increased as their debts accounted for 30 percent of their Gross Domestic Product (GDP) in 2012 and that percentage has risen to 95 percent in 2020.

The volume of that debt represents about US$365 billion, 40 percent of which is controlled by China.