ANALYSIS – SDRs and debt waivers remain a band-aid for over-indebted countries


Band Marc Jones

LONDON, April 7 (Reuters)Debt experts, charities and investors on Wednesday welcomed the news that the world’s poorest countries would get new IMF funds and COVID-19 debt relief, but they also warned that for some, it would still only be a quick fix.

A new allocation of $ 650 billion of IMF quasi-currency known as Special Drawing Rights (SDRs) will provide more than $ 20 billion in financing, while an extended holiday on loan repayments from rich countries of the G20 will temporarily save an additional $ 7 billion.

The $ 20 billion share of the SDR increase alone is more than all the emergency money the IMF has provided in Africa last year and in relative terms, those who experience the most severe stress will receive the greatest benefit.

Zambia’s share of alms – SDRs are allocated roughly according to the size of economies – will double its international reserves. It will increase those of Argentina, Ethiopia, Ecuador, Kenya, Ghana and Sri Lanka by at least 10%.

More help could be on the way too. Discussions have already started that richer countries donate or recycle some of their new SDRs either directly or at IMF emergency facilities where they could be put to good use.

It would add a lot of extra support, but some think even that might not be enough for those in the deeper funk.

The European Network on Debt and Development (Eurodad), made up of 50 non-governmental organizations, estimates that the average debt-to-GDP ratio of nearly 70 G20 Debt Service Suspension Initiative (DSSI) countries will exceed 60% this year, from 52% before the pandemic and 46% in 2015.

In sub-Saharan Africa, interest payments absorb nearly 50% of government revenue for Ghana and around 30% for Nigeria and Angola, calculates S&P Global.

Zambia, Mozambique, Republic of Congo and Angola have all seen their indebtedness exceed 100% of GDP, while Morgan Stanley raised concerns over Cameroon, Kenya, Costa Rica, El Salvador, Tunisia, Sri Lanka, Laos and the Maldives.

“This SDR issue will help countries that were not in bad shape to enter this crisis,” said Ravi Bhatia, sovereign analyst at S&P. “But for others who already had very high debt levels and have large payments to make, this will not be enough.”

Carmen Altenkirch, sovereign emerging markets analyst at Aviva Investors, agrees. She believes that Zambia, Pakistan, Ghana, Argentina and Bahrain will benefit the most from the increase in the SDR, while Pakistan and Angola will benefit the most from the expansion of the DSSI.

“Pakistan is a prime example of a country that could have failed,” she said. However, this will not solve the underlying problems of the most indebted countries and the rising interest charges.


Poorer countries are also lagging behind in immunization programs, which means that the crisis will be prolonged for many. World Bank and IMF research estimates that Africa alone will need around $ 12 billion for vaccines, roughly what they will have carried forward under the ISSD so far.

World Bank President David Malpass said on Monday that this week’s DSSI extension would still likely be the “last or final”.

It urges countries to move towards the G20 “common framework”, under which countries fully restructure their debts rather than simply postponing payments for a year or two under the DSSI.

So far, only Chad, Ethiopia and Zambia have said they will follow this path. It has become a hot potato for governments as the framework also encourages them to restructure their private sector debt, which would be a default in the eyes of major rating agencies.

This could trigger ripple effects and make borrowing in international markets more difficult and expensive in the future.

“I don’t think it will be enough,” said Richard Cooper, partner and debt specialist at law firm Cleary Gottlieb, of the increase in SDR and expansion of DSSI.

The concern is that with so many emerging countries taking on more debt during the COVID pandemic and rising global interest rates, there will be more restructuring over the next 2-3 years.

“It’s kind of like a ticking time bomb,” Cooper said.

Debt-to-GDP ratios of DSSI countries with sovereign bonds Debt-to-GDP ratios of DSSI countries with sovereign bonds

Share of $ 650 billion SDR allocation to reserves

(Reporting by Marc Jones; editing by David Evans)

(([email protected]; +44 (0) 20 7513 4042; Reuters messaging: [email protected] Twitter @marcjonesrtrs))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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