G20 COMMON FRAMEWORK - INTERNATIONAL
News:
FM urges G20 to unite on debt
distress of middle income countries
What's in the news?
● Ahead
of the G20 Finance Ministers and Central Bank Governors (FMCBG) meeting on
April 12 and 13, Finance Minister Nirmala Sitharaman expressed hope that the
group could come together to address the debt distress of middle-income
countries (MICs).
Key takeaways:
● Ms.
Sitharaman highlighted the debt distress of middle-income countries (MICs)
particularly. She said she was glad that multilateral institutions (i.e., the
World Bank, IMF) were speeding up their work on this.
● Three countries in
India’s neighbourhood - Sri Lanka, Pakistan and Bangladesh have sought help
from the IMF.
2020 Common Framework:
● India
is particularly keen that middle-income countries' debt distress is addressed
by the G20.
● G20
Common Framework is the Common Framework for Debt Treatments beyond the Debt
Service Suspension Initiative (DSSI).
● It
was announced in November 2020 to deal
with the issue of unsustainable debts faced by various countries, especially
low income countries as an impact of COVID-19.
Funding:
● The
G20 2020 launched a Common Framework (CF) which brought creditors such as China and India, along with the IMF, the Paris Club,
and the private creditors to the negotiation table.
● The
Common Framework requires private creditors to participate on comparable terms
to overcome collective action challenges and ensure fair burden sharing.
Action taken:
● The
group’s debt restructuring process, the 2020 Common Framework, which has
largely catered to poor countries, has been slow to act, with just four countries (Chad, Zambia, Ethiopia
and Ghana) to date having applied for debt restructuring through the framework.
Features:
● It
includes a package of debt treatments,
which includes
○ Relief
on debt service.
○ Extended
maturities.
○ Reduction
in the stock of debt, to help these countries cope with the economic impact of
the pandemic.
● It
provides common procedures and approaches to debt treatments, with the
involvement of all creditors including private sector, and the aim of ensuring
that countries can continue to access financing while addressing their debt
challenges.