Key Takeaways
- The G20 was established to make the global economy more fair and stable, with a focus on helping less developed countries.
- The G20 Leaders’ Summit declaration was adopted despite the US pulling out and Argentina not signing the document.
- The leaders agreed to actively ensure that less developed countries can manage and repay their debt in the long term without going bankrupt or falling into a financial crisis.
- The group recognized that a high level of debt is one of the obstacles to inclusive growth in many developing economies.
- The G20 is committed to supporting low- and middle-income countries to address debt vulnerabilities in an effective, comprehensive, and systematic manner.
Introduction to the G20
The G20 was essentially established with a focus on making the global economy more fair and stable, which includes helping less developed countries. The G20 Leaders’ Summit declaration has been adopted despite the US pulling out and Argentina not signing the document. This declaration outlines the commitments and priorities of the 19 countries that agreed to it, and it is a significant step towards achieving the goals of the G20.
The G20 Leaders’ Summit
The first day of the G20 Leaders’ Summit held at Nasrec, Johannesburg saw the attendance of most members of the group, except for US President Donald Trump or an official from the States. Argentina’s foreign minister Pablo Quirno attended on behalf of President Javier Milei. Despite the absence of the US and Argentina’s refusal to sign the declaration, President Cyril Ramaphosa said there has been an overwhelming consensus to adopt the declaration. Adopting a declaration means that the 19 countries have agreed on certain decisions, commitments, and priorities, which are outlined in a document.
Helping Low-Income Countries
The G20 was established with a focus on making the global economy more fair and stable, which includes helping less developed countries. According to the G20 Leaders’ Summit declaration, the group recognized that a high level of debt is one of the obstacles to inclusive growth in many developing economies. Due to the high level of debt experienced by less developed countries, their ability to invest in infrastructure, disaster resilience, healthcare, education, and other development needs is limited. The group noted with concern that interest payments on total external public debt have increased significantly and have more than doubled over the past decade for low-income countries.
Debt Vulnerabilities
The document outlines that many vulnerable low- and middle-income countries face high financing costs, large external refinancing needs, and a significant outflow of private capital. These debt vulnerabilities, along with other factors, can constrain their fiscal space, their ability to address poverty and inequality, and their capacity to invest in growth and development. The situation is particularly challenging for many low-income countries, especially those in Africa. The group remains committed to supporting low- and middle-income countries to address debt vulnerabilities in an effective, comprehensive, and systematic manner.
Commitment by G20
The document outlines that the group remains committed to further strengthening the implementation of the G20 Common Framework (CF) for debt treatments beyond the Debt Service Suspension Initiative (DSSI) in a predictable, timely, orderly, and coordinated manner. The group highlighted the call to enhance debt transparency from all stakeholders, including private creditors. The G20 also supports the ongoing review of the International Monetary Fund (IMF)-World Bank Low-income Countries Debt Sustainability Framework (LIC-DSF), which is expected to result in further improving the methodology underpinning the IMF-World Bank Debt Sustainability Analysis (DSA) for LICs.
Managing Debt Level
The review includes improving how baseline projections are judged, including "realism tools" for macro assumptions. Ensuring that all relevant public debt is included in the analysis—not just external debt, but domestic debt, state-owned enterprises’ debt, etc. A joint IMF–World Bank note suggests a three-pillar strategy to address debt issues in LICs. Pillar 1 includes structural reforms and domestic resource mobilization to help countries grow, tax more, and improve governance. Pillar 2 includes external financial support, such as more concessional loans, grants, and multilateral aid. Pillar 3 includes measures to reduce debt service burden, especially for those who are not insolvent but struggling with payments.
Use of Crisis Resilient Debt Clauses
The G20 Leaders’ Summit declaration document added that they have noticed that some countries are choosing to include special debt rules that help them during crises. The group noted the voluntary use of crisis resilient debt clauses where appropriate, which can provide vital breathing space and liquidity. The group also noted the efforts to explore the consideration of the use of liability management operations and debt-for-development, debt-for-climate, or similar swaps on a voluntary and case-by-case basis, with a balanced view on their benefits and limitations to help strengthen debt sustainability.