China Seen Joining Debt Relief Effort for Poorest Nations

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(Bloomberg) --

The Paris Club is confident China will take part in a global drive to pause debt payments for poor countries that urgently need funds to battle the coronavirus pandemic.

China, which has grown to become one of the world’s largest creditors, is expected to provide debt relief under the same terms as other large nations that joined an agreement last month, Paris Club Chair Odile Renaud-Basso said in a phone interview.

That means China, which has participated in meetings of the group of 22 creditor governments, may need to clarify the scope and terms of loans offered to some of the poorest countries in recent years. Those include credit used to build roads and ports as part of efforts to expand its political influence.

China Seen Joining Debt Relief Effort for Poorest Nations

“It has not always been easy, but they have been very constructive and at the end the outcome has been good. Now we need to monitor the implementation,” said Renaud-Basso, who is also director general of the French Treasury in Paris.

Africa owes almost $150 billion, or about 20% of all government external debt to China, according to the relief group Jubilee Debt Campaign. China’s inter-government lending, mostly unreported, may have exceeded money lent by the Paris Club, International Monetary Fund and World Bank combined, economists including Carmen Reinhart said in a report.

The club, an informal group of mostly developed nations, has so far received 13 requests for a temporary suspension of debt payment out of 73 eligible countries.

”China has always provided our assistance to debt relief and development of developing countries,” Foreign Ministry spokesman Zhao Lijian told reporters at a regular briefing in Beijing on Wednesday. “China has agreed to suspend principle and interest payments for relevant countries due from May 1 to end of this year.”

Avoiding Default

Beyond China’s involvement, success will depend on whether African nations and private creditors find a way to halt Eurobond payments. Finance ministers have held a meeting with investors to discuss details on the instruments that form a majority of the continent’s debt.

Some governments have expressed concern that a request for delayed payment on bonds could trigger default clauses and hurt access to funding in the future. Creditors have argued the legal and financial complexity of debt instruments mean any relief can only be made on a case-by-base basis.

“We still believe that there is some room to find a way for the private creditors to intervene without triggering either a default, which will be damaging for the countries which have still market access, or even a downgrade,” said Renaud-Basso.

Even with debt relief, poor countries may struggle to fight a pandemic that has slashed demand for commodities and shut down economies. Gross domestic product may contract by as much as 5.1% this year in Sub-Saharan Africa, according to the World Bank, the first recession in 25 years.

Relief efforts could also be expanded beyond the list of poorest countries to middle-income emerging economies, and also include a longer-term rescheduling or outright debt cancellation, according to Renaud-Basso.

“Some countries may need more than just a moratorium for six months or one year. We may need deeper debt alleviation,” said Renaud-Basso.

©2020 Bloomberg L.P.

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