India is drafting a proposal for G20 countries to assist debtors or nations suffering from the economic fallout of the pandemic and the Ukraine war by requesting significant loan haircuts from lenders, including China, the world’s largest sovereign creditor. The International Monetary Fund (IMF) announced on Tuesday that it will hold a virtual meeting with the World Bank, India, China, Saudi Arabia, the United States, and other wealthy Group of Seven (G7) democracies on Friday to try to agree on common standards, principles, and definitions for how to restructure distressed country debts.
India to draft proposal for G 20 countries to help nations helped nations badly hit by economic fallout
According to Indian officials, “India is designing a proposal” to persuade countries such as China to take a large haircut in lending to distressed countries.
China and G 20 countries aware of India working on proposal
As per officials, China and the other G20 countries were aware that India was working on a proposal. China’s Ministry of Foreign Affairs told Media agencies on Wednesday that it had nothing to add to what spokesperson Wang Wenbin said at a news conference on Tuesday.
China’s Ministry of Foreign Affairs told Media Agencies on Wednesday that it had nothing to add to what spokesperson Wang Wenbin said at a news conference on Tuesday.
He said,
“China takes the debt issue of developing countries seriously and supports relevant financial institutions to put forward solutions,”
“It is our consistent stance that multilateral financial institutions and commercial creditors, which hold the bulk of the debt of developing countries, should participate in the debt relief efforts.”
The People’s Bank of China and the Finance Ministry did not respond to requests for comment right away.
India’s finance and foreign ministries did not respond immediately to emails and messages seeking comment.
According to one of the sources, New Delhi expects the United States to be a major supporter of its proposal.
The US Treasury’s spokesperson declined to comment.
US Treasury officials have previously stated that they oppose China’s demand that multilateral development banks take debt principal haircuts in any restructurings. It was unclear whether the Indian proposal would advocate for haircuts for multilateral lenders.
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India’s neighbors Pakistan and Srilanka in economic crisis
Pakistan and Sri Lanka, two of India’s neighbours, are in economic crisis and are desperately seeking international assistance before they run out of foreign currency to pay for essential imports.
As the bankrupt country sought a $2.9 billion loan, India and the Paris Club of creditors recently told the IMF that they supported Sri Lanka’s debt restructuring plan. The US stated earlier this month that it was willing to do its part, but that “credible and specific assurances that (China) will meet the IMF standard of debt relief” were required.
The Export-Import Bank of China has offered Sri Lanka a two-year debt moratorium and said it would support the country’s efforts to secure an IMF programme, which a Sri Lankan government source says is insufficient.
IMF, World Bank and United States push for so-called Common Framework – G 20 Initiative
The IMF, World Bank, and the US have pushed for the so-called Common Framework – a G20 initiative launched in 2020 to assist poor countries in deferring debt repayments – to be expanded to include middle-income countries, but China has resisted.
In December, World Bank President David Malpass announced that the world’s poorest countries owed $62 billion in annual debt service to bilateral creditors, a 35% increase year on year, raising the risk of default.
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