The 15th G20 Leaders’ Summit will be held on November 21-22, 2020. As important deliverables of the G20 Finance Track this year, the Debt Service Suspension Initiative for Poorest Countries (DSSI) and the Common Framework for Debt Treatments beyond the DSSI will be submitted to Leaders. This is the first time in G20’s history that countries have jointly participated in multilateral debt treatments. This receives great attention from the international community. Mr. Liu Kun, Minister of Finance, China, had a written interview with the Chinese and foreign press.
Question 1: As the largest developing country and an emerging creditor, China has been participating in and implementing the DSSI, which draws extensive attention across the international community. Could you brief us on how China has been implementing the DSSI and what results have been produced?
Minister Liu Kun: The sudden attack of COVID-19 has dealt a heavy blow to the global economy, and debt vulnerabilities and debt sustainability in low-income countries become even more prominent. At the Extraordinary G20 Leaders’ Summit on March 26, 2020, leaders stated that they would continue to address risks of debt vulnerability in low-income countries due to the pandemic. On April 15, the G20 Finance Ministers and Central Bank Governors’ Meeting agreed on the DSSI to suspend debt service payments falling due from May 1st, 2020 to the end of the year owed by the poorest countries. The suspension of payments will be NPV-neutral. The initiative is intended to help these countries free up more fiscal space for increasing social, health or economic spending in response to the crisis.
As a G20 member and a creditor, China gives priority to the DSSI’s implementation. Since May this year, President Xi Jinping has made solemn commitments on several international occasions that China would work with other G20 members to implement the DSSI. The Ministry of Finance of China, along with the People’s Bank of China and other agencies concerned, has been coordinating and acting on the DSSI in a proactive and comprehensive manner. Up till now, the China International Development Cooperation Agency and the Export-Import Bank of China, as official bilateral creditors, have implemented all debt suspension requests that are DSSI-eligible. The total debt service payments suspended amount to USD1.353 billion, with 23 countries benefiting from the initiative. The China Development Bank (CDB), as a commercial creditor, has, on a voluntary basis and according to market principles, actively responded to the DSSI. By the end of September, the CDB has signed agreements with DSSI beneficiaries involving USD 748 million. Ranking the first among G20 members in terms of deferral amount, China helps, in real action, the poorest countries respond to the pandemic and address debt vulnerability. This is also an important deliverable that China contributes for the upcoming G20 Leaders’ Summit.
Being professional and responsible, the Chinese official bilateral creditors and commercial creditors have been pressing ahead with the DSSI implementation in an orderly manner by having adequate and thorough consultations with requesting countries to make sure that the countries can truly benefit from the initiative. Meanwhile, China fully respects the independent decisions and legal procedures of requesting countries with a view to preventing adverse impact on requesting countries such as credit rating downgrade.
Question 2: The G20 has agreed to extend the DSSI and endorsed the ‘Common Framework for Debt Treatments beyond the DSSI’ which is intended to facilitate debt treatment for DSSI-eligible countries. Could you give us a brief introduction thereon?
Minister Liu Kun: The DSSI is mainly intended to meet the short-term liquidity needs of the poorest countries. However, with the global economy sliding into recession against the backdrop of continued spread of COVID-19, the liquidity difficulties of many poorest countries may evolve into a solvency crisis. The G20 hence proposed the extension and debt treatments beyond the DSSI with a view to providing greater support to the poorest countries by pushing all parties to take stronger actions for debt treatment.
China has been in favor of the proposals:
First, China took the lead in calling for and supporting the extension of the DSSI. At the Extraordinary China-Africa Summit on Solidarity against the COVID-19 held on June 17th, President Xi Jinping stated that, ‘China will work with other members of the G20 to implement the DSSI, and, on that basis, urge the G20 to extend debt service suspension still further for countries concerned, including those in Africa’. This demonstrates China’s sense of responsibility as a major country and its commitment to the international fight against the pandemic. The statement by President Xi plays an important role in leading all parties towards a consensus on the DSSI extension. On October 14th, G20 Finance Ministers and Central Bank Governors unanimously agreed to extend the DSSI to June 30th, 2021, and said that they would examine by the time of the 2021 IMF/WBG Spring Meetings whether the economic and financial situation requires to extend further the DSSI by another 6 months.
Second, China participated in the discussions on debt treatments beyond the DSSI in a constructive way, and endorsed the Common Framework. To help address the real difficulties of poorest countries and support the global fight against the pandemic, and in line with the principles of ‘joint actions, fair burden sharing, a case-by-case approach and multilateral consensus’ for multilateral debt treatment, China worked with other parties to finalize a relatively balanced and operable solution to debt treatments beyond the DSSI. The Common Framework highlights the need for strong creditors' coordination and requires that all official bilateral creditors with claims on a debtor country will participate in the debt treatment of that country. According to the Common Framework, in principle, debt treatments will not be conducted in the form of debt write-off or cancellation; debt treatments by private creditors should be at least as favorable as that provided by official bilateral creditors; and multilateral development banks will develop options for how best to help meet longer term financing needs of developing countries, including by drawing on past experiences to deal with debt vulnerabilities such as domestic adjustment, net positive financial flows and debt relief, while protecting their ratings and low cost of funding. On November 13th, the Extraordinary Meeting of G20 Finance Ministers and Central Bank Governors endorsed the Common Framework.
As a party to the DSSI and the Common Framework, China participates in a multilateral debt coordination process for the first time. China’s participation points to the country’s commitment to multilateral cooperation. The international community commends China’s constructive attitude toward international debt actions while recognizing the Common Framework as an important part in international debt coordination and governance. As a milestone achievement on the G20 finance track this year, the Common Framework also showcases G20’s commitment to multilateralism and its spirit of solidarity and cooperation in jointly responding to the challenges of the pandemic. The Common Framework also demonstrates countries’ firm resolve to advance multilateral debt coordination and help low-income countries address risks of debt vulnerability.
Question 3: What will China do as the next steps to implement the DSSI and participate in debt treatments beyond the DSSI?
Minister Liu Kun: China will stay in close communication and coordination with other parties within G20 over the issue of debt vulnerabilities in the poorest countries, and we will continue to participate, in an active manner, in the multilateral debt coordination process .
First, we will act on the DSSI extension in real earnest by taking into account the requests of relevant countries. Second, we will work together with other multilateral and bilateral creditors for debt treatment on a case-by-case basis. Greater support will be given to countries that are hardest hit by the pandemic and are under heavy stress. Third, we will continue to encourage the CDB and other Chinese commercial creditors to participate in the DSSI on comparable terms. Fourth, we will assist poorest countries in combining their efforts to address debt challenges with their efforts to restore economic and social development with the aim of helping them get out of the woods at an early date and go back onto the path of growth.
Furthermore, China will provide assistance to developing countries for their efforts in fighting against the pandemic and achieve economic and social recovery and development to the best of our ability through bilateral and multilateral channels, including providing USD 2 billion of international assistance over two years. We will prioritize providing in various ways developing countries with vaccine against COVID-19 when it becomes available. I would like to emphasize that the debt issue of developing countries has been long-standing. The key to solving this issue is development. In recent years, the vast majority of developing countries have been committed to accelerating economic and social development, and there is a great demand for financing. However, financing shortage remains a major constraint on development and prosperity in these countries. As the largest developing country, China has actively engaged in investment and financing cooperation with these countries to help them improve their ‘self-development capacity’ and facilitate their economic and social development as well as connectivity. China’s efforts have been well received. We are ready to work with other parties and make greater contributions in helping these countries realize independent and sustainable development, and eradicate the root causes of the debt issue.
Question 4: What role should multilateral creditors, including MDBs, play for the G20 debt agenda?
Minister Liu Kun: Multilateral creditors like the World Bank have the lion’s share of debt service payments owed by the poorest countries. According to World Bank’s International Debt Statistics 2021, multilateral creditors account for almost half of DSSI-eligible countries’ total public and publicly guaranteed debt. In view of this, China calls on multilateral creditors to, while providing positive net inflows to DSSI- eligible countries, take part in the debt treatment process in order to help the poorest countries through this challenging time. In particular, the World Bank, as a major multilateral creditor, should take part in debt treatments and explore various options to provide more support to the poorest countries in alleviating their debt burden. If the World Bank takes part in debt treatment through setting up a multilateral debt relief facility, China will positively consider contributing to the facility as such to help ease the debt burden on the poorest countries.