The Group of 20 nations, representing the world’s biggest economies, have agreed to extend the suspension of debt payment for an additional six months to support vulnerable countries in the fight against the coronavirus pandemic.
The decision gives developing countries until the end of June 2021 to focus spending on healthcare and emergency stimulus rather than debt payments. Critics and global aid groups have expressed disappointment and have called for extending the moratorium for a full year or outright cancellation.
Pakistan has benefitted from the initiative and is expected to get a temporary relief of $1.2 billion. The participation has come at a price as Pakistan is being labelled among the world’s poorest countries despite having better economic and social conditions. The relief is also temporary and the nation will eventually have to make the principal amount and interest payments after two years.
Pakistan has applied for debt suspension on $2 billion loans from eleven G20 countries and has now received more relief. It is be reminded that G20 nations have not written off these loans but have extended the repayment period with additional interest costs. The government will have to make arrangements to pay over $3.2 billion by June next year as the loans mature.
Pakistan had assured that it would not receive non-concessional debt relief during the suspension period. On the contrary, Pakistan has signed more loans agreements with the World Bank witnessed by the prime minister himself. With a struggling economic and stagnant growth, it needs to be seen how Pakistan will be able to make these debt payments when they are due.
The participation in the debt relief also alerted international credit rating agencies who decided to review Pakistan’s rating. The government eventually decided not to seek debt relief from private creditors to avoid being downgraded. Pakistan retained its rating and has touted this as an indication that the economy is on track.
The world’s richest countries also need to do more to help vulnerable countries as the pandemic is far from over and the economy has not recovered. The debt relief is only the first step and should be extended. This may be a sigh of relief for countries such as Pakistan who should instead focus on how these massive debts will eventually be repaid.