Debt relief

A few days back, Prime Minister Imran Khan appealed to the leaders of rich countries, the UN Security-General and heads of global financial institutions to provide immediate debt relief to developing countries, such as Pakistan, battling the coronavirus pandemic which infected more than two million people worldwide.

The prime minister highlighted the difficulties being faced by developing countries particularly those burdened by debt in handling the crisis and saving people’s lives from hunger, disease and death due to extended lockdowns. He said Pakistan already has an overstretched healthcare system and fledgling economy, and thus cannot provide the huge relief packages announced by the US, Japan and European countries to control the situation.

PM Imran Khan compared the difference in approaches in dealing with the pandemic. He noted that developed countries were adopting a policy to contain the virus first and then dealing with economic impact, but warned that emerging countries cannot do so as people would die from hunger due to lockdown. Therefore, he called on the leaders of rich countries to write off the debt of poorer countries.

These calls for a global initiative on debt relief were echoed by the UN Secretary-General Antonio Guterres. A spokesman for the UN chief said debt relief, including interest payment waivers, is an important part of the response to the pandemic. With the global economy in the midst of a recession, many countries and financial institutions are adhering to growing calls for debt relief.

The G20, which brings the world’s largest economies, have announced a one-year debt standstill on the world’s poorest countries, and reiterated to use all possible tools to deal with the health and economic crisis. This will also provide more than $20 billion for health care and supporting people facing the crisis, providing temporary relief to these countries.

The IMF and World Bank have rushed to roll out emergency financing after receiving requests from more than 100 countries. The global lender has $1 trillion in lending capacity as poor countries strongly need concessional aid. Pakistan is expected to receive a concessionary loan of $1.4 billion by this week as the prime minister faces the tough decision on whether to reopen the economy.

The pandemic is being referred to as the ‘Great Lockdown’ and could wipe off an astounding $9 trillion from the global economy. Debt relief, moratoriums and waiving off debts are the only measures but it needs to be seen if global institutions will provide the necessary relief. The situation could worsen if the pandemic lingers on and we will need to restart the economy once it is over.