Question to the HM Treasury:

To ask Her Majesty's Government what plans they have (1) to support the creation of a permanent mechanism under the UN for the systematic comprehensive and permanent restructuring of sovereign debt, and (2) to set up a programme of continuing technical assistance to improve (a) debt transparency, and (b) the debt management offices, of those countries worst affected by the COVID-19 related debt crisis.

The UK has been vocal in its support for the IMF, helping economies facing liquidity pressures as a result of Covid-19, including supporting the IMF exploring an SDR allocation. Moreover, the UK has helped the worst affected countries by contributing £150m to the IMF’s Catastrophe Containment and Relief Trust which provides debt service relief to the lowest-income countries. This has allowed 28 countries to alleviate their funding pressures and helped them increase their social and Covid-19 related spending. The UK has also provided a new £2.2bn loan to the IMF’s Poverty Reduction and Growth Trust to provide financial assistance to low income countries at concessional rates to respond to Covid-19.

The UK has engaged with the UN on debt issues, reaffirming our commitment to support debt relief initiatives for vulnerable countries. However, we have not supported the creation of a permanent debt resolution mechanism at the UN. Previous discussions at the IMF could not secure consensus on such a mechanism and we do not judge that this has changed. Instead, the UK has worked through the G20 and Paris Club, first to deliver the Debt Service Suspension Initiative which has paused payments from the poorest 46 countries until at least mid-2021 and second to develop a Common Framework for future debt treatments which will facilitate quicker and simpler restructurings where required. This historic achievement marks the first time traditional creditors from the Paris Club, and emerging G20 creditors, such as China, the largest bilateral creditor, have agreed to participate in coordinated debt restructurings where they are needed.

To ensure that the multilateral development banks are able to continue mobilising large amounts of financing during the crisis, the UK and the G20 has supported the MBDs taking a “net positive flows” approach to DSSI participation. This ensures that borrowing countries receive significantly more funds from the MDBs in 2020 than they repay. For the most vulnerable, much of this funding will be on grant terms. We are disappointed that there has not been significant DSSI implementation by private sector creditors. Our assessment, which is shared by the IMF and the World Bank, has been that this has primarily been driven by a lack of willingness from borrowing countries to request suspensions from private creditors due to risks to their sovereign credit ratings. We strongly encourage private creditors to participate on comparable terms when requested by eligible countries.

Technical assistance and capacity building are critical to ensuring long-term debt sustainability in developing countries and even more important during crises. The UK is a donor to the joint IMF-World Bank Debt Management Facility (DMF), a world leading facility which provides high quality technical assistance in a wide range of areas, ranging from debt monitoring, recording and transparency to debt crisis response. The UK is providing £4m over 5 years to the DMF. We have also recently announced new funding for the African Legal Support Facility, providing £1m over two years, which supports countries to build negotiation capacity and engage with their creditors on a level playing field.