Analysis: SDRs and debt holidays are still just a band-aid for countries hampered by debt


A new allocation of $ 650 billion of IMF quasi-currency known as Special Drawing Rights (SDRs) will provide more than $ 20 billion in financing, while an extended holiday on loan repayments from rich countries of the G20 will temporarily save an additional $ 7 billion.

The $ 20 billion share of the SDR increase alone is more than all the emergency money provided by the IMF in Africa last year and in relative terms, the most stressed people will benefit the most.

Zambia’s share in the document – SDRs are allocated roughly based on the size of economies – will double its international reserves. It will raise those of Argentina, Ethiopia, Ecuador, Kenya, Ghana and Sri Lanka by at least 10%.

Additional assistance could also be provided. Discussions have already started that richer countries donate or recycle some of their new SDRs, either directly or at IMF emergency facilities where they could be put to good use.

It would add significant additional support, but some think even that might not be enough for those in the deepest funk.

The European Network on Debt and Development (Eurodad), which includes 50 non-governmental organizations, estimates that the average debt-to-GDP ratio of nearly 70 countries under the Debt Service Suspension Initiative (DSSI) of the G20 will exceed 60% this year against 52% pre-pandemic and 46% in 2015.

In sub-Saharan Africa, interest payments absorb nearly 50% of government revenue for Ghana and about 30% for Nigeria and Angola, calculates S&P Global.

Zambia, Mozambique, Republic of Congo and Angola have all seen their debt burdens exceed 100% of GDP, while Morgan Stanley reported concerns over Cameroon, Kenya, Costa Rica, El Salvador, Tunisia, Sri Lanka, Laos and the Maldives.

“This SDR issue will help countries that were not in bad shape in this crisis to cope,” said Ravi Bhatia, sovereign analyst at S&P. “But for others who already had very high debt levels and have big payments to make, that won’t be enough.”

Carmen Altenkirch, sovereign emerging markets analyst at Aviva Investors, shares a similar view. She believes that Zambia, Pakistan, Ghana, Argentina and Bahrain will benefit the most from the SDR increase, while Pakistan and Angola will benefit the most from the DSSI extension.

“Pakistan is a prime example of a country that could have failed,” without the support, she said. However, this will not solve the underlying problems of the most indebted countries and the rising interest charges.

Chart: Debt-to-GDP ratios of DSSI countries with sovereign bonds:


The poorest countries are also lagging far behind in immunization programs, which means that the crisis will be prolonged for many. World Bank and IMF research estimates that Africa alone will need around $ 12 billion for vaccines, roughly what it will have delayed so far under the ISD. .

World Bank President David Malpass said on Monday that this week’s DSSI extension would likely be the “last or final”.

It urges countries to move towards the G20 “common framework”, under which countries completely restructure their debts rather than simply postponing payments for a year or two under the DSSI.

So far, only Chad, Ethiopia and Zambia have said they will take this route. It has become a hot potato for governments as the framework also encourages them to restructure their private sector debt, which would be a default in the eyes of major credit rating agencies.

This could trigger ripple effects and make borrowing in international markets more difficult and expensive in the future.

“I don’t think it will be enough,” said Richard Cooper, partner and debt specialist at law firm Cleary Gottlieb, of the increase in SDR and expansion of DSSI.

The problem is that with so many emerging countries that took on more debt during the COVID pandemic and global interest rates are currently rising, there will be more restructuring in the next 2-3 years.

“It’s kind of like a ticking time bomb,” Cooper said.

Chart: Share of SDR 650 billion allocation in relation to reserves:

(Reporting by Marc Jones; editing by David Evans)

By Marc Jones


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