EU contributes €183 million to debt relief for 29 of the world’s poorest and most vulnerable countries
The EU will contribute €183 million to the IMF’s Catastrophe Containment and Relief Trust for debt relief in 29 low-income countries, allowing them to increase their social, health and economic spending in response to the COVID-19 crisis. This contribution, announced just after the G20 Summit endorsed a Common Framework on Debt Treatments beyond Debt Service Suspension Initiative (DSSI), is fully in line with Commission President von der Leyen’s proposal for a Global Recovery Initiative that links investments and debt relief to the Sustainable Development Goals.
Josep Borrell, High Representative and Vice President for Foreign and Security Policy, said: ”The EU is combining injections of funds for the rapid easing of budget constraints to help the immediate response – through contributions like this one – with a sustained longer-term plan to assist partners in weathering a severe social-economic storm, which is far from over. The EU has been leading global efforts to do more on debt relief and debt restructuring efforts. It is our hope that our contribution will pave the way for others to join those global efforts.”
Paolo Gentiloni, Commissioner for Economy, added: “Today, Europe makes an important contribution to multilateralism and debt relief. The EU as a member of the G20 strongly supports the Debt Service Suspension Initiative and the new Common Framework on Debt Treatment. This contribution to the IMF debt relief trust is a further demonstration of our firm commitment to helping low-income countries deal with their debt burden.”
Jutta Urpilainen, Commissioner for International Partnerships, stressed: “The Commission is determined to continue supporting its partner countries in maintaining their path toward the SDGs despite dire financial situations. Debt levels were already high before the crisis and in many countries they are now simply becoming unsustainable. This is why we have decided to contribute €183 million for debt relief through this IMF mechanism.”
Kristalina Georgieva, IMF Managing Director, participated in the virtual European Foreign Affairs Council of Development ministers to maximise common awareness of the worsening debt situation in many countries, said: “I am very thankful to the EU for the generous contribution of €183 million to the CCRT—a critical step to help the world’s most vulnerable countries provide health care and economic support for their people during the ongoing pandemic. The EU and the IMF have a strong partnership on development financing. I urge others to join the EU and our other contributors in giving to the CCRT. Contributions from our member countries are instrumental in helping the Fund support the most vulnerable countries.”
The EU is leading the way on international partnerships
The EU funds channelled through the IMF’s Catastrophe Containment and Relief Trust (CCRT) will provide debt service relief to 29 of the world’s poorest and most vulnerable countries.
The CCRT pays debts owed to the IMF for eligible low-income member countries that are hit by the most catastrophic natural disasters or battling public health disasters—such as epidemics or global pandemics. This allows them to free up resources to meet exceptional balance of payments needs created by the disaster rather than having to assign those resources to debt service.
Experience from the first two six-month tranches of CCRT relief showed that benefitting countries were able to boost their projected 2020 priority spending by some 1.2 percentage points of GDP; with expenditure on health and social protection increasing, on average, by about a 0.5 percentage point.
Another positive benefit from this short-term liquidity support is that it will also contribute to the countries’ macro-economic stability.
With this €183 million contribution, the EU becomes the largest donor to the CCRT, which so far has received over $500 million in grants from donor countries.
Background
Low-income countries are facing large short-term liquidity needs, hampering their ability to find the necessary funds to deal with the COVID-19 crisis, and fuelling concerns about a fully-fledged external debt crisis.
The EU, as a global player, can help integrate debt relief into a broader policy dialogue, financing strategies and actions, in order to ‘build back better’.
CCRT-eligible countries are those eligible for concessional borrowing through the IMF’s Poverty Reduction and Growth Trust (PRGT) and whose annual per capita gross national income level is below $1,175. Vulnerable countries most seriously affected by the COVID-19 crisis benefit from the CCRT.
These include: Afghanistan, Benin, Burkina Faso, Burundi, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Djibouti, Ethiopia, The Gambia, Guinea, Guinea-Bissau, Haiti, Liberia, Madagascar, Malawi, Mali, Mozambique, Nepal, Niger, Rwanda, São Tomé and Príncipe, Sierra Leone, Solomon Islands, Tanzania, Tajikistan, Togo and Yemen.
The EU added value to the CCRT
- 22 out of the 29 countries have ongoing EU budget support programmes. This means that economic stability and sound public finance management have been at the heart of the EU’s dialogue with their national administration. The EU places particularly strong emphasis on the proper accounting, monitoring and control the of COVID-19-related expenditures. The ongoing EU’s dialogue with partner countries in the framework of budget support programmes, reinforces the CCRT framework and its monitoring capacities.
- By simultaneously contributing to countries’ macroeconomic stability and priority-spending there is also a reduction of transaction costs.
- A monitoring framework ensures that the freed-up resources are used for COVID-19 crisis response.
- The policy dialogue with partner countries will ensure that the recovery from COVID-19 and the debt situation do not increase CO2 emissions and inequalities.
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