The International Chamber of Commerce (ICC) is urging finance ministers to use this week’s Spring Meetings of the World Bank Group (WBG) and International Monetary Fund (IMF) to ensure sovereign debt does not stymie efforts to combat COVID-19.
In an open letter issued April 10, the ICC, together with the International Trade Union Confederation and the Global Citizen, said the global health crisis has resulted in rapid capital flight, plummeting foreign direct investment flows and significant currency depreciations in developing countries.
Consequently, many developing countries now face an impossible choice: continue servicing international debt obligations or take the necessary steps to safeguard their citizens from the health and economic ravages of COVID-19.
“No government should be forced into making such an illogical trade-off,” said the letter.
“Without urgent action, we see a fundamental risk that a series of debt defaults will further exacerbate the unprecedented economic downturn already unfolding before us and deliver a fatal blow to the achievement of the Sustainable Development Goals.”
The group further said that in combatting a virus that—by its very nature—knows no borders, it is imperative that all countries have the necessary resources to eradicate the spread of COVID-19.
The letter urged finance ministers to “take international debt out of the equation” through the following measures:
1. Provide immediate relief from debt service obligations
“No country should have to choose between servicing sovereign debt repayments or paying nurses and purchasing ventilators, and multilateral response financing should not be diluted by payments to official and private creditors,” said the letter.
“As such, we lend our collective voice to the World Bank Group and International Monetary Fund call on all official bilateral creditors to immediately suspend debt payments from IDA countries requesting forbearance, and ask that no interest accrual accompany suspension.”
It encouraged the Spring Meetings to “coordinate emergency action on debt including standstills, and a roadmap to systematic and comprehensive debt relief to enable recovery from COVID-19 and achievement of the Sustainable Development Goals.”
2. Fund the Catastrophe Containment Relief Trust
The Catastrophe Containment and Relief Trust (CCRT) allows the IMF to provide grants for debt relief for the poorest and most vulnerable countries hit by public health disasters. It is essential in freeing up resources of the lowest-income countries to adequately prepare for COVID-19 and respond to its effects. The CCRT is an indispensable part of the multilateral response to the current crises.
The letter underscored that failure to urgently address the debt and financing needs of developing countries could result in a fundamental collapse of social and economic systems in addition to large-scale loss of lives and livelihoods.
On March 25, 2020, the WBG and IMF issued a joint statement to the G20 concerning providing immediate debt relief for the poorest countries.
WBG and IMF “call on all official bilateral creditors to suspend debt payments from IDA [International Development Association] countries that request forbearance. This will help with IDA countries’ immediate liquidity needs to tackle challenges posed by the coronavirus outbreak and allow time for an assessment of the crisis impact and financing needs for each country.”