My Lords, the Government are concerned by debt vulnerabilities in developing countries, which Covid-19 has amplified. The Chancellor and his G20 counterparts agreed a historic suspension of debt repayments from the world’s poorest countries. This will see official creditors provide up to $12 billion of cash-flow relief to help countries respond to the health and economic impacts of Covid-19. It also provides time to assess what further assistance these countries may need as the full economic impact becomes clearer.
I thank the noble Baroness the Minister for her Answer. I also take this opportunity to express appreciation to the Government for their continued commitment to paying 0.7% of GNI to official development assistance. It is a very positive step that debt has been suspended but, in view of the increasing economic and social burden of this terrible virus on the poorest countries in the world, will the Government begin to press not only for the suspension but the cancellation of debts as we go further and, indeed, encourage private debtors to do the same?
My Lords, we are in uncharted territory at the moment and the full impact of Covid on the developing world is unknown. The DSSI provides breathing space, so future restructuring of debts may be needed. The G20 has publicly called for the private sector to voluntarily participate in this initiative and, if it did so to the full extent, that would provide another $10 billion of breathing space for these countries.
My Lords, I thank my noble friend and the Government for all the work they have already done to help less developed and low-income emerging markets grappling with the health and economic fallout of Covid, especially from the fall in commodity prices. But I hope that the Government will consider debt forgiveness rather than just a debt freeze as we go through this unprecedented crisis, so that these countries can recover rather than having to continue to pay debts that have posed such problems in these times.
The Government will continue to keep all options under review. In terms of debt forgiveness, the Government have committed a further £150 million to the IMF Catastrophe Containment and Relief Trust, which provides debt relief to low-income countries for their IMF payments. Twenty-five eligible countries will receive that debt relief for at least the next six months.
My Lords, I am grateful for what the Minister has already said, but I want to back up the right reverend Prelate because, given the public interest in debt relief, surely the Government could take the lead in debt cancellation as well as suspension during the pandemic. Does the Minister agree that DfID and the Treasury also have some responsibility for ensuring that the private sector cannot pursue LDCs for any default?
Debt relief can be an important route for some countries; however, in terms of UK support, under the heavily indebted poor countries initiative, the UK has written off most of its exposure to low-income developing countries and has since adopted a grant-based financing model. We need to look at all routes of support to these countries during the Covid epidemic.
My Lords, for the world as a whole and especially for the G20 countries, the priority at the present time must be for poorer countries to have the resources to combat the pandemic and to do so effectively. To that end, it is essential for these countries to be relieved of debt; a mere postponement of repayment is not enough. Lives must be saved and the spread of the disease must be prevented. Poorer countries must be able to withstand the economic consequences of the pandemic. The United Kingdom must lead the way.
My Lords, I feel I have said quite a bit on debt relief and that we may be supportive in future for certain countries, if that is the right route. In terms of the UK’s contribution to support, very little of our support to countries is in the form of debt and we therefore need to look at other routes as well. That is why the UK is spending over £700 million of its ODA funding towards the Covid response, in addition to normal programming, and is the largest contributor in the G20 to global efforts on a vaccine for Covid.
My Lords, does the Minister agree that, at a time when low-income countries need to intervene to support their economies but lack the reserves, in addition to broader debt cancellation her Government should urge the IMF to initiate a large special drawing rights allocation to speed the recovery of low-income economies?
The noble Baroness is right that the scale of the economic crisis facing these countries is significant. The IMF predicts that global GDP will fall by 3% in 2020 and says it is the worst global recession since the great depression and much worse than the 2008 financial crisis. We are providing a huge amount of additional support, including through the IMF, which has doubled to $100 billion the emergency financing support available to its members.
My Lords, I am second to none in wanting to assist poorer countries, but will the noble Baroness accept, in the context of debt forgiveness, that the World Bank has done recent research to show that aid flows through the poorest countries straight back into the wealthier countries—something called aid leakage? So unless we want to give money to Switzerland, Luxembourg, the Cayman Islands and those sorts of places, the best way to help the poorest countries is through a vaccine, through medical and pharmaceutical products and, most importantly, through the special drawing rights of the IMF mentioned by the noble Baroness, Lady Kramer.
The noble Baroness is correct that we need to ensure that the support we give to these countries actually flows into supporting social and health programmes that help to tackle this virus. That is why one of the conditions of the debt service suspension initiative is that the financial headroom it creates for those countries is actually directed towards those services.
My Lords, I completely agree with the noble Lord that black lives matter. The UK has been a leading voice on debt forgiveness. As I said previously, however, the UK has forgiven most of its debt from low-income countries, so we also focus our support to those countries through other routes.
My Lords, I know that Britain plays a major role in fighting poverty around the world and I appreciate the UK’s generous donation of £150 million to an IMF debt relief scheme used for Covid-19. What further plans do the Government have to take part in international initiatives to repay the debt of the poorest countries?
As I said in my response to the noble Lord, Lord Livermore, we will continue to work with the G20 and look at the extension of the debt service suspension initiative. One of the things that makes that initiative so ground-breaking is that it is the first time that China has signed up to a multilateral agreement of this nature, and as it is the largest lender to some of these countries, that will have a big impact for them.
My Lords, will my noble friend ensure that funding through DfID and FCO is directed at supporting economic recovery through an economic recovery plan, whereby British businesses are supported in investing and generating employment?
We will absolutely ensure that our commitment to 0.7% of GNI supports economic recovery in the countries most affected by this pandemic and also draw on the expertise and skills of British businesses and investors across the world to support jobs.