* G20 'DSSI' debt relief plan for poorest nations to be
extended
* Extension through 2021 for public, private sectors would
defer
$50 bln
* Rating agencies could declare default
By Marc Jones
LONDON, Sept 30 (Reuters) - The world's poorest countries
could soon be facing a tough decision -- double up on debt
relief from the G20 with the caveat they must default on private
creditors, or quit the programme to try to keep financial
markets on side.
Rich countries on Friday backed an extension of the G20's
Debt Service Suspension Initiative (DSSI), approved in April to
help developing nations survive the coronavirus pandemic and
which has seen 43 of a potential 73 eligible countries https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiative
defer $5 billion in 'official sector' debt payments.
The European Network on Debt and Development (Eurodad),
comprising 50 non-governmental organisations, estimates that
extending that temporary freeze by six months would provide a
further $6.4 billion of relief, rising to $11.4 billion if the
extension runs to the end of 2021.
That would be just over a quarter of next year's combined
debt payments for countries already signed up to the DSSI, and
worth up to 4.3% of GDP for nations like Angola, according to
Fitch Ratings.
But a significant string may be attached.
Amid warnings the pandemic could push 100 million people
into extreme poverty, World Bank President David Malpass is
calling for banks and investment funds that have lent to DSSI
countries to be involved too.
"The relief so far is too shallow to provide light at the
end of the debt tunnel," Malpass told the United Nations on
Tuesday. "Commercial creditors are not participating in the
moratorium, draining the financing provided by multilateral
institutions."
Kevin Daly of Aberdeen Standard Investments, who is part of
a joint-private sector response to the DSSI proposals
thinks views like Malpass's mean private sector
involvement (PSI) -- writedowns for bondholders -- could become
"mandatory" under the expected extension.
Such a change could be flagged at next month's IMF meetings.
Eurodad calculates DSSI countries are due to pay private
sector bondholders $6.4 billion and other private lenders $7.1
billion next year -- a combined $13.5 billion that exceeds what
the signed-up countries owe to G20 governments.
"We have already heard there is a strong possibility that
this (PSI) can be the case," said Angola's secretary of state
for budget and investment, Aia-Eza Silva, while adding that
Angola's main focus remains bilateral creditors like China.
LOSING ACCESS
Charity groups estimate that 121 low- and middle-income
governments spent more last year servicing external debt than on
public health systems that are now at breaking point, making a
powerful moral case for relief.
There are other complicating factors, however.
Credit rating agencies S&P Global, Moody's and Fitch have
warned that if countries do suspend or defer debt payments to
the private sector it would almost certainly be classed as
restructuring and default under their criteria.
Restructurings are complex and typically take far longer
than stricken countries now have. It would also mean poorer
nations that have battled to gain international market access
over the last decade lose it just as they face huge challenges.
Moody's reckons they face a combined $40 billion funding gap
this year. The Institute of International Finance estimates that
external debt of DSSI countries has more than doubled since 2010
to over $750 billion and now averages nearly 50% of GDP -- high
for their stage of development.
A total of 23 DSSI-eligible countries have sold Eurobonds,
but only a few, like Honduras and Mongolia, have done so since
the programme's launch in April. Pakistan wants to sell $1.5
billion of bonds but creditors would baulk if PSI was looming.
"It is hugely unlikely that any country that has been part
of it (DSSI) this year would put their market access at risk,"
said Aberdeen's Kevin Daly. "I wouldn't think any of them would
want to take part."
Poverty action groups say the private sector is overstating
the issue, pointing to the speed with which Argentina sold a
100-year bond after one of its restructurings.
A potential 'carrot' for countries and their creditors could
be Brady bond-style debt swaps, where investors write off some
loans in return for new credit-enhanced bonds with full or part
guarantees from the G20 or multilateral development banks.
J.P. Morgan's bond index arm fanned talk of such a plan when
it announced this month that credit-enhanced debt would be
eligible for its top emerging markets benchmark from
mid-October, just after key IMF and G20 DSSI meetings.
Eurodad's Iolanda Fresnillo said debt swaps could be a
solution for many countries although the hardest-hit nations
would need more extreme measures.
"This is not just a liquidity crisis, we need to tackle debt
sustainability and go for debt cancellation," Fresnillo said.
"By just postponing the payments you are not solving the
problems these countries are facing."
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How much debt relief will DSSI provide countries https://tmsnrt.rs/33c4bAI
DSSI debt country bonds https://tmsnrt.rs/3n0yQJ4
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