Ngozi Okonjo-Iweala, director-general of the World Trade Organisation (WTO), says multilateral debt relief for low-income countries will boost investment and trade globally.
She spoke at a meeting with heads of state and government on the International Debt Architecture and Liquidity, on Monday.
Okonjo-Iweala recalled that the Nigerian economy witnessed progress after a debt relief was granted to the country between 2004 and 2005.
In October 2005, during the administration of ex-President Olusegun Obasanjo, Nigeria and the Paris Club announced a final agreement for debt relief worth $18 billion and an overall reduction of Nigeria’s debt stock by $30 billion.
The WTO DG said such measure led to increased investment, growth and trade.
She said debt relief initiatives generated positive results in the last two decades but multiple crises, including COVID-19, have led many low-income countries into higher debts.
“20 years ago, we thought that the Highly Indebted Poor Countries and Multilateral Debt Relief initiatives would solve the debt problem. And they did, for a good two decades,” she said.
“But multiple crises, from the financial, economic and food crises of 2008-2009, to localized impacts of climate change, epidemics and now COVID-19, have left many poor countries and even emerging markets in debt distress, with little fiscal space to cope or to finance the SDGs post-COVID.
“By closing off export opportunities and lowering commodity prices, COVID-19 has worsened debt dynamics for many developing countries.”
The WTO DG said action on trade can help alleviate debt pressures for poor countries.
She said lowering trade barriers gives countries more opportunities to push down their debt-to-exports ratios, adding that addressing supply-side constraints and improving access to trade finance would help countries take better advantage of market opportunities.
Okonjo-Iweala called for debt service standstill among bilateral official creditors. She said the World Bank and International Monetary Fund (IMF) must play key roles in providing funds for countries with sustainable debts.
“As we saw with the example of Nigeria in 2004-2005, action on debt and financing can help rekindle investment, growth and trade,” she said.
“That is why the G20 Debt Service Suspension Initiative (DSSI) is so important, as is the Paris Club’s endorsement of the Common Framework.
“Nevertheless, fiscal sustainability for debt-distressed developing countries demands an enhanced DSSI: A debt service standstill till end 2022 and even mid-2023 by all bilateral official creditors. For countries with unsustainable debt burdens, this should be supplemented by haircuts to private creditors in the context of an IMF program. For countries with sustainable debt, the IMF and World Bank should provide financing even before official restructurings have finalized.
“Twenty years ago, multilateral debt relief paved the way for faster growth and human development. It is time to act again. Lost decades are a policy choice. We can — we must — do better.”
