G20 Summit: Good progress on easing debt in Zambia, Ethiopia & Ghana, says finance minister

There has been good progress in helping address the debt situation in Zambia, Ethiopia and Ghana, Union Finance Minister (FM) Nirmala Sitharaman, said during a press briefing on September 9, 2023 amid the ongoing G20 conference in New Delhi.

Since the Common Framework’s establishment in 2021, only Chad has had its debt restructured, which involved concessions by creditors to lower an insolvent firm or country’s payments. “The others have been still waiting,” the FM said.

The Common Framework was launched in November 2020 by the G20 with the objective of strengthening the international debt architecture for the world’s poorest countries. It provides a support structure for official creditor coordination to facilitate timely, orderly, and durable debt treatment.

However, it has not provided a pathway toward the quick restoration of debt sustainability in obviously distressed cases.

Sitharaman argued that since India took over the G20 presidency, good progress has been made to help Zambia, Ghana and Ethiopia. “We have also succeeded in using the G20 platform to put in place a coordinated mechanism to address the debt situation in Sri Lanka,” she noted.

“India has taken the lead in facilitating debt discussions with global sovereign debt roundtable (GSDR),” Avantika Goswami, programme manager for the climate change programme at the New Delhi-based think tank Centre for Science and Environment (CSE).

The GSDR is co-chaired by the International Monetary Fund, the World Bank and India in its capacity as the 2023 G20 Presidency.

The GSDR was created in February 2023. It does not replace debt restructuring mechanisms such as the G20 Common Framework, rather, its focus is to build a greater common understanding of key concepts within the existing framework, read a CSE report, Beyond Climate Finance.

This could speed up individual country-level debt restructurings.

Six borrowing countries participated in the GSDR — Suriname, Ecuador, Zambia, Ghana, Ethiopia and Sri Lanka.

Climate finance and MDB reform

On September 9, India released the G20 New Delhi Leaders’ Declaration. The document noted that developing countries would need $5.8-5.9 trillion up to 2030 to implement their Nationally Determined contributions, as well as $4 trillion per year through 2030 for clean energy technologies for reaching Net Zero emissions by 2050.

Multilateral Development Banks (MDBs) have provided around $51 billion in climate finance to low- and middle-income economies, according to a 2021 Joint Report on Multilateral Development Banks’ Climate Finance.

There has been a call to reform MDBs to help address the current crises of climate change and development.

The G20 Independent Expert Group on Strengthening MDBs is preparing Volume 1 of the Report and Volume 2 is expected to come out in October 2023, the report highlighted.

The G20 declaration stresses the importance of maximising the effect of concessional finance, such as those from multilateral climate funds, to support developing countries in implementing their Paris Agreement.

It also called for an ambitious second replenishment process of the Green Climate Fund (a fund established within the framework of the United Nations Framework Convention on Climate Change) for its upcoming 2024-2027 programming period.

Further, the report also endorsed the G20 Roadmap for Implementing the Recommendations of the G20 Independent Review of Multilateral Developmental Banks (MDB) Capital Adequacy Frameworks (CAFs).

CAF means “how much money an MDB should hold to repay lenders if borrowers default on their debt,” read the CSE report.

In 2022, an expert panel to review MDBs’ financing capacity through a review of their ‘capital adequacy frameworks’ (CAF) published their report, in which it recommended that MDBs loosen their lending restrictions and provide much more money without threatening their financial stability or AAA credit rating.

“This was put forth by the Italian presidency. The CAF recommendations are still pending and the Indian presidency has reiterated them,” Goswami explained.

The CAF recommendations enable the MDBs to use the existing resources effectively, said Sitharaman. “The roadmap estimates that the implementation of the CAF and the measures thereby will potentially yield additional lending headroom of $200 billion over the next decade,” she explained.