“China needs to come out openly and say what their debt is and how to settle it,” said Amitabh Kant, the sherpa for India during its presidency of the Group of 20 forum of the world’s biggest economies this year. “It can’t be that the International Monetary Fund takes a haircut and goes to settle Chinese debt. How is that possible? Everybody has to take a haircut.” 

About 60% of the world’s poorest nations are in or at high risk of debt distress, IMF data show. The G20 has set up a blueprint for restructuring struggling countries’ loans – known as the Common Framework – that brings the Paris Club of traditional rich debtor countries together with China to try to restructure the debts of low-income countries on a case-by-case basis. 

Disagreements on how to handle some debt have delayed resolution using the framework. Beijing has called for the debt of multilateral lenders to be included in restructuring of struggling nations’ loans, a move that the World Bank has firmly rejected. 

Western lenders – including the Paris Club of creditors – have asked China to stop going solo on debt relief. 

Debt roundtable

The International Monetary Fund, World Bank and India will host an inaugural meeting to deal with global debt issues Friday, bringing together creditors including China with borrowing countries to try to hash out solutions for nations with unsustainable debt levels.

Talks will be held before the meeting of G20 nations’ fiscal and monetary leaders in Bengaluru, India.

The 75 poorest nations owed their creditors about $326-billion at the end of 2021, World Bank data released in December show.

“Debt recast will be one of the issues” that India will focus on in its draft communique following the G20 meeting, Kant said in an interview on Monday.

World Bank plan

Finance ministers and central bankers will also discuss the World Bank’s plan to expand lending, said Kant, adding that support from US Treasury Secretary Janet Yellen has the “potential to push things”.

Kant’s comments come after Yellen last week deepened her call for an overhaul of the World Bank, urging the lender to more aggressively extend its balance sheet and to work harder at mobilising private-sector money to help address global challenges like climate change and pandemics.

“These institutions need to be redesigned,” Kant said. “You need the World Bank and IMF to do a lot more credit guarantees. They need to do first-loss guarantees. They need to do a lot of blended finance, which is not happening.” He added that multilaterals should focus on indirect lending. 

India Finance Minister Nirmala Sitharaman had said that rebuilding trust in multilateralism will be the nation’s priority during its G20 presidency. 

India will also focus on “inclusive and sustainable” growth and sustainable development goals during its presidency, Kant said, as well as a global regulatory framework for cryptocurrencies and climate financing. BM/DM