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Analysis

The G20 Can Begin to Restructure Pandemic Debt at Rome

Chiara Oldani,
Director, G20 Research Group Italy, October 30, 2021

The pandemic crisis has left G20 members with an extra burden of debt, both public and private. According to recent data, in 2020 public debt in advanced countries increased by 20%, and corporate debt by 9%. Firms were forced to borrow to keep operations running and to invest rapidly in technology. Public debt has been fuelled by health care and welfare spending, with reduced tax revenues. While advanced economies fund their recovery on financial markets, other countries – especially poor ones – are no longer able to pay, and $41 billion of their debts have been relieved under the G20's Debt Service Suspension Initiative (DSSI). The International Monetary Fund (IMF) has provided $650 billion in the form of new special drawing rights, to be used to help vulnerable countries with strong external positions.

However, as in the past, speculators can take advantage of loopholes and gain from rising uncertainty. A global system to manage excessive debt restructuring is necessary to reduce pandemic-caused financial risks and guarantee a stable recovery. G20 leaders at the Rome Summit on October 30-31, 2021, should discuss implementing the United Nations' nine Basic Principles on Sovereign Debt Restructuring Processes:sovereignty, good faith, transparency, impartiality, sovereign immunity, legitimacy, sustainability and majority restructuring.These principles could be implemented as a soft law regime, creating a healthier environment for debtors and creditors. At the base of this regime is the Debt Sustainability Analysis, already implemented by the European Union and IMF members, which enhances the public disclosure of information on debt and the economy. The implementation of these principles would reduce the likelihood of speculation in the future, and would facilitate the development of the global bond market, thus also helping emerging countries that need to access it.

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Chiara Oldani is professor of monetary economics at the University of Viterbo 'La Tuscia' and the director of the G20 Research Group's Rome office. Her research currently focuses on over-the-counter financial derivatives and the complex web of counterparty risk, widely considered a major precipitating factor of the global financial crisis. Follow her at @ChiaraOldani.