Global finance ministers are prepared to offer debt relief for struggling nations, they say
Global finance ministers and central bank chiefs backed debt relief for the world's poorest nations as part of a coordinated response to the deepening global recession on Tuesday.
The finance leaders from the Group of Seven said they would suspend debt service payments the poor countries owe to other governments if all Group of 20 nations agreed to back the move, as anticipated. In a statement following a virtual meeting to discuss the crisis, the finance leaders endorsed efforts to get global banks to offer similar relief to the 76 countries eligible for the World Bank's easiest loan terms.
The aim is to free up money the countries need to fund medical care and to support their economies amid the coronavirus pandemic.
"The scale of this health crisis is generating unprecedented challenges for the global economy," the G-7 said.
The governments acted after last month's call by the International Monetary Fund and the World Bank to suspend payments on government-to-government loans. The G20, whose member nations produce roughly 80% of global output, is expected Wednesday to issue its own debt proposal.
Tuesday's G7 statement came as the IMF said the coronavirus pandemic is causing the worst economic downturn since the Great Depression of the 1930s. In its annual world economic outlook, the fund forecasts the global economy will shrink by 3% this year before staging a partial rebound in 2021.
Over the next two years, output will be $9 trillion less than expected before the crisis, according to Gita Gopinath, the fund's chief economist. The fund says the U.S. economy will contract by 5.9% this year and grow by 4.7% next year. "This makes the Great Lockdown the worst recession since the Great Depression and far worse than the global financial crisis," Gopinath said.
Though the fund expects a punishing global recession, the downturn will not be as severe as in the 1930s, when the global economy shrank by an estimated 10%, she said. The current recession is expected to trim world output by 3%.
This is the first time since the depression that advanced areas - such as the United States, Europe and Japan, as well as developing nations in Africa, Asia and Latin America - are simultaneously mired in recession, according to Gopinath, an Indian economist who joined the IMF last year.While the fund expects the pandemic to peak by mid-year, the U.S. will remain below its pre-crisis growth trend through 2021. And the fund acknowledged that its forecast could prove overly optimistic if the pandemic lingers.
More than 90 countries have approached the fund seeking some type of financial assistance to help them weather the pandemic. Many developing countries are suffering a rising health-care burden along with the loss of revenue from tourism and commodities sales, Gopinath said.
"This is a truly global crisis, as no country is spared," she said.
The fund has been racing to extend financing help to hard-hit countries such as Senegal, Tunisia and Albania. On Monday, the global lending agency said it had approved $1 billion for Ghana under a new "rapid credit facility."
IMF officials said individual governments should combat the pandemic by spending freely on medical care and aid for the unemployed before pivoting next year to stimulating economic growth.
Amid the crisis-fighting efforts, sovereign debt totals are expected to balloon. But assuming that the global recovery emerges as expected next year and interest rates remain low, governments should be able to whittle away at their debt burdens, Gopinath said.
New trade barriers represent a threat to the anticipated recovery, she said. Several countries, including the U.S., have imposed restraints on exports of medical equipment needed to fight the pandemic. And Gopinath said the strong recovery the IMF projects will not materialize "if the world de-globalizes."
