The discussion focused on how to improve debt disclosures and on the recording and management of non-standard debt.
February 19th, 2021
Officials from G20 members, guest countries, academics and international organisations gathered virtually, yesterday and today, for a workshop discussing how to improve debt transparency in both debtor and creditor countries; and for the second meeting of the International Financial Architecture (IFA) Working Group.
While tackling debt vulnerabilities has always been a component of the G20 work, the economic crisis triggered by Covid-19 outbreaks exacerbated pre-existing vulnerabilities and created unprecedented financing needs in many low-income countries. In 2020, the G20 took important measures to alleviate the burden of the crisis for the most fragile economies. This year, the Membership will need to continue to address these issues.
The workshop on Tackling the Debt Transparency Challenge was an opportunity to discuss how to improve debt disclosures, the recording and management of non-standard debt with global experts and liabilities that may materialize under specific circumstances in the future. Furthermore, improving debt transparency is crucial to promoting good governance and would also help ensure that future financing flows are sustainable. In fact, debtor countries would know better how much debt they already need to shoulder before taking on any new debt, and creditors would have better information on the creditworthiness of their counterparts. This would ultimately lower the costs for those countries whose debt is sustainable, thereby supporting strong, sustainable and balance growth and contributing to the achievement of the Sustainable Development Goals.
The IFA Working Group met the first time under the Italian G20 Presidency in December 2020. As was the case back then, debt issues were also present in today’s Working Group agenda. In fact, Members discussed how to maximise the impact of the International Monetary Fund and World Bank Group’s Multi-pronged Approach for Addressing Debt Vulnerabilities (MPA), a tool specifically designed to address debt weaknesses. Once updated, this tool could both inform G20 work on debt issues, and support debtor countries in improving standards through capacity development and the implementation of new IMF and World Bank policies.
The meeting also offered the chance to continue the Group’s discussions on capital flows by building on an IMF presentation on recent developments. While capital flows provide crucial financing to many emerging markets, they sometimes present excessive volatility and a “sudden stop” or rapid outflows may jeopardize a country’s financial system health and/or destabilize its currency. To this respect, the G20 is constantly monitoring capital flows and refining appropriate measures to harness them in a way that promotes growth while maintaining financial stability.
Finally, another item on the IFA WG’s agenda was the potential impact of the rise of international digital assets on the International Monetary System (IMS) and the likely implications for reserve currencies. This was a first discussion aimed at investigating what the IMS of the future may look like and what policies could help shape it for the benefit of all.
The Group will meet again on March 24-25 to assess and further discuss all the above as well as the Debt Service Suspension Initiative’s next steps (DSSI).