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(Bloomberg) – A senior US Treasury official has urged China – by far the world’s largest official bilateral creditor – to participate in coordinated debt relief for vulnerable countries to avert the specter of a systemic crisis. sovereign debt.
“Failure to act on these debts could mean years of continued difficulties with debt servicing and with underinvestment and lower growth in low- and middle-income countries,” said Neiman, adviser to US Treasury Secretary Janet Yellen, during an organized discussion. Tuesday by the Peterson Institute for International Economics.
Although China is not the only creditor “withholding rapid and effective aid”, its lack of participation in coordinated debt relief in the international landscape “is the most common and the most important”, he said. he declares.
China, which has been criticized for its lending practices to the poorest countries, accounts for nearly 40% of the bilateral debt and private creditors the world’s poorest countries have to repay this year, according to the World Bank. He helped forge recent debt relief deals, helping to suspend repayments from the Group of 20 during the pandemic.
About 60% of low-income countries are at high risk or already in debt distress, with about 25% of emerging countries in the same situation as they borrowed and spent to deal with the pandemic and subsequent food and energy shocks caused by Russia. invasion of Ukraine, according to the International Monetary Fund.
The surge in inflation triggered a series of interest rate hikes around the world by central banks, led by the aggressive actions of the Federal Reserve, which inflated the dollar. Meanwhile, developing countries have amassed a quarter of a trillion dollars in troubled debt that threatens to create a historic cascade of defaults.
Estimates of the total stock of outstanding Chinese official loans range widely from around $500 billion to $1 trillion, concentrated in low- and middle-income countries, Nieman said. As many as 44 countries now owe debt equivalent to more than 10% of their gross domestic product to Chinese lenders, after taking into account on- and off-balance sheet liabilities, he said.
In May, Group of Seven finance ministers called on China, urging creditor countries to help developing countries struggling with debt.
In August, China announced that it would cancel 23 interest-free loans to 17 African countries and redirect $10 billion of its IMF reserves to countries on that continent.
But a study by Boston University’s Global Development Policy Center estimates that the latest relief would amount to only between $45 million and $610 million, or about 1% of what the continent owes China. It was difficult to determine an exact figure due to a lack of public information, he said.
The worsening debt burden comes after the expiry in December 2021 of the so-called debt service suspension initiative adopted by the G-20 to suspend or reorganize the debt repayments of low-income countries during the Covid-19 pandemic.
The G-20 has also set up a so-called common framework that brings together the Paris Club of wealthy traditional debtor countries with China to try to restructure the debts of low-income countries on a case-by-case basis.
Chad, Ethiopia and Zambia are the only three Common Framework cases so far, and the delays in resolution mean “suffering and uncertainty, may discourage others from seeking needed treatments and prevent best outcomes”, said Nieman said.
On August 31, Zambia won IMF executive board approval for a $1.3 billion support package, a major step towards restructuring the country’s debt and a boost for the Framework. common.
“Now that the IMF program for Zambia has been approved, it is essential that creditors move quickly to settle, and then transparently meet, the terms of the debt treatment,” he said.
Increasing the scale of high-quality development finance through multilateral development banks – stretching their existing resources and using them to mobilize private capital – will be “one of the main objectives” of Treasury commitments during the IMF and World Bank annual meetings in Washington in October, Nieman said.
(Updates with more comments from Nieman in 13th paragraph.)
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