G7 Backs Debt Relief Initiative for World’s Poorest Nations

G7 finance ministers backed on Friday an extension of the G20's bilateral initiative to reduce debt burden for the world's poorest nations, yet, it said that the relief must be revised to address deficiencies hindering its implementation.

Ministers of the G7 advanced economies said they 'deeply regret' some countries' moves to bypass participation by classifying state-owned enterprises as commercial lending institutions.

G7 officials said the signal was clearly targeting China, which has refused to include loans from the state-owned China Development Bank and other government-controlled entities in their official bilateral debt totals.

The ministers also stressed that some countries will need more debt relief, and urged the major economies group and Paris Club creditors to agree on terms by the G20 finance ministers meeting next month.

"Everyone has been disappointed by China's lack of transparency and commitment," an official said..

In an online meeting hosted by US Treasury Secretary Stephen Mnuchin, the ministers stressed their commitment to work together to support the poorest and most vulnerable countries, which was hit by the pandemic.

Moreover, G7 asked the International Monetary Fund (IMF) and the World Bank (WB) to provide regular updates on the financing needs of low-income countries and to propose solutions to expected financing gaps, including tools to increase access to private financing.

The Group of Seven said the Debt Service Suspension Initiative (DSSI) agreed by the G20 countries in April, including China, had helped 43 countries delay $ 5 billion in official debt service payments.

Meantime, the total is well below the $ 12 billion in savings initially projected, and it represents just over half of the more than 70 eligible countries.

G7 calls on private lenders to implement debt relief initiative

The finance ministers said that the initiative should be extended, in the context of a request for funding from the IMF, and called for new conditions and a memorandum of understanding (MoU) to improve its implementation.

The claims classified as commercial under the DSSI would also be treated as such in future debt transactions and for implementing IMF policies, sending a stern reminder to China and other countries that have not been fully transparent about terms of government lending to the poorest nations.

The G7 ministers also called on private lenders to implement the debt relief initiative, noting that the absence of private sector participation has limited potential benefits.