Summits |  Meetings |  Publications |  Research |  Search |  Home |  About the G7 Research Group Follow @g7_rg

Analytical and Compliance Studies

The G7 on Development:
A Respectable Track Record on Debt Relief

Sonja Dobson, Senior Researcher, G7 Research Group
February 18, 2021

When British prime minister Tony Blair hosted the G8 Gleneagles Summit in July 2005, he had it produce one of the most successful G7 summits ever. This was largely due to its striking achievements on development assistance and, above, all debt relief for the poorest countries in the world.

Will Prime Minister Boris Johnson do so again when he hosts his G7 summit at Cornwall on June 11–13, 2021, after a strong start at his virtual summit on February 19? Certainly, the need is even greater now, as so many of the world's poorest countries are suffering from the economic and human devastation caused by the continuing COVID-19 crisis, facing the immediate need to save lives while burdened by mounting debts they will never repay. The G20 summit started to respond with its modest Debt Service Suspension Initiative (DSSI) in 2020. But as the need grows in 2021, and no G20 summit scheduled before the end of October, the key question is what will the G7 summit do as the fast-moving, first responder.

The answer starts with an analysis of what all G7 summits have done on debt relief in the past. This analysis suggests that, based on the G7's respectable records so far, the 2021 summits could make an important contribution.

G7 Summit Performance on Debt Relief, 1975–2019

The G7 has had a positive track record on development and debt relief since its inception in 1975, when four commitments were made on development (see Appendix A). The leaders pledged to, through the International Monetary Fund (IMF) and other relevant international forums, to assist developing countries to stabilize their export earnings and finance their deficits, prioritizing the poorest developing countries. In 1977, at the first London Summit, G7 leaders made 13 commitments focused mainly on development aid. In 1983, the topic of debt made an appearance, with G7 leaders coming to consensus on a strategy to contribute to lifting the debt burden of developing countries. This topic was revisited with gusto at the 1984 London Summit, leading to a commitments on debt rescheduling.

Four years later, G7 leaders reached a consensus on rescheduling the official debt of the poorest countries at the 1988 Toronto Summit. This first major G7 contribution came from the leaders, led by conservatives Brian Mulroney as the Canadian host, US president Ronald Reagan and British prime minister Margaret Thatcher, producing the innovative "Toronto terms" for debt relief. This commitment was improved and faithfully implemented in the following years (Kokotsis 1999).

At the 1996 Lyon Summit, G7 leaders launched the initiative "Implementing a New Global Partnership for Development: An Ambition for the 21st Century" under the summit's theme of "Making a Success of Globalization for the Benefit of All." Its aim was to revisit the approach to development aid and development policies (IMF 2020a). Building on the theme of the summit, the leaders declared "we look forward to a concrete solution being agreed by next autumn at the latest on the following basis: the solution should provide an exit for unsustainable debt and be based on a case by case approach adapted to the specific situation of each country concerned, once it has shown its commitment to pursuing its economic adjustment" (G7 1996). Subsequently, the IMF and the World Bank launched the Heavily Indebted Poor Countries (HIPC) Initiative (IMF 2020a).

The HIPC Initiative "was designed to ensure that the poorest countries in the world were not overwhelmed by unmanageable or unsustainable debt burdens" (World Bank 2018). It allowed all creditors, multilateral creditors included, to provide debt relief to countries that met certain criteria. There is a two-step process to receive full and complete debt relief. If a country fulfills the conditions for the first step, it receives interim debt relief and then must continue fulfilling the conditions for the second step for final debt relief (IMF 2020a). In March 2020, Somalia became the 37th country to join the list of HIPC countries, with the previous 36 having already received full debt relief (IMF 2020d).

Following the launch of the HIPC Initiative, G7 members remained committed to debt relief. They pledged to continue to support the initiative, and also to assist poor countries that did not qualify to receive debt reduction and support. At the 1998 Birmingham Summit, hosted by British Labour Party prime minister Tony Blair, civil society members from many communities surrounded the summit site, chanting "break the chains of debt." G8 leaders, now including Russia's, called on countries to forgive aid-related bilateral debt and to further their commitment to debt relief mechanisms (G7 1998).

The next year, when Germany hosed, the G8 (1999) launched the Köln Debt Initiative, "designed to provide deeper, broader and faster debt relief through major changes to the HIPC framework." G8 members complied with this commitment at a level of 93%, as assessed by the G8 Research Group (see Appendix B). The Köln Debt Initiative was able to write off half the debt of the poorest, which allowed those countries to return to sustainable growth (G8 Research Group 1999).

The start of a new century saw more progress on the HIPC Initiative and on debt relief. By 2000, nine countries had been granted HIPC status, receiving a total of more than USD15 billion in nominal terms in debt relief, and the G8 (2000) hoped to increase the list of HIPC countries to 20 by the end of that year. At the Japanese-hosted Okinawa summit G8 leaders reaffirmed their commitment to provide 100 per cent debt reduction of official development assistance and made a new commitment to reduce eligible commercial claims by 100 per cent. The G8 again led the way for debt relief.

At the 2002 Canadian-hosted Kananaskis Summit, G7 leaders announced that 26 countries had benefitted from the HIPC Initiative, receiving USD40 billion in net present value terms in debt relief, or almost two thirds of their total debt.

Then, at the historic 2005 Gleneagles Summit, the second hosted by Tony Blair, the G8 leaders agreed that all debts owed by HIPC countries to the International Development Association (IDA), IMF and African Development Fund would be cancelled. This led directly to the creation of the IMF's Multilateral Debt Relief Initiative (MDRI). It allowed all member countries with a per capita income of USD380 per year or less, whether HIPC qualified or not, to be eligible for MDRI debt relief. HIPC countries would still be eligible for MDRI debt relief, but from an existing pool of funds initially donated by individual countries. On January 6, 2006, 19 countries were granted a total of USD3.4 billion in debt relief under the MDRI (IMF 2017). They were eligible if they spent the money they thus saved in interest and debt repayments on health and education for their people at home.

Debt relief remained on the G7/G8 agenda for several more years. But from 2010 until 2017, leaders shifted their focus to sustainable development, development aid, the Millennium Development Goals (MDGs) and the 2030 Agenda's Sustainable Development Goals (SDGs). In 2018 and 2019, debt relief re-emerged, two years before the catastrophic year of 2020 when public debt in the poorest countries skyrocketed to levels not seen in half a century (World Bank 2020b).

G7 Debt Relief in 2020

In February 2020, when large parts of the world were not yet affected by COVID-19 and by the impending pandemic's human and economic devastation, the IMF (2020b) released a paper discussing the evolution of debt in the 76 lowest income economies. The report concluded that half of those countries were at high risk or already in debt distress and that many emerging market economies were at significant risk of debt distress. Once the pandemic spread to all corners of the world, debt repayment was not a focus.

In response to the pandemic and to ensure the most vulnerable and poorest countries would be able to survive, G7 leaders held an emergency, virtual summit on March 16. They focused on health but also committed "to marshalling the full power of our governments to … restore confidence, growth and protect jobs" (G7 2020). Soon after, G7 finance ministers and central bank governors (2020) stated their support "to provide a time-bound suspension on debt service payments due on official bilateral claims for all countries eligible for World Bank concessional financing, if joined by all bilateral official creditors in the G20 and as agreed with the Paris Club."

As the COVID-19 crisis and its debt burdens spread, on September 25, the G7 finance ministers (2020) confirmed they would implement the G20–Paris Club DSSI to suspend official bilateral debt for the poorest countries through the end of the year. By December 21, 2020, the DSSI had delivered more than USD5 billion in debt relief to more than 40 eligible countries, although there are 73 eligible countries in total. At the G20's Riyadh Summit on November 21–22, 2020, the suspension period was extended from December 31, 2020, to June 2021 (G20 2020). However, the total external debt stock of those countries eligible for DSSI reached USD744 billion and the total external debt stocks for the 120 low- and middle-income countries hit USD8.1 trillion at the end of 2019 (World Bank 2020c).

Conclusion

The G7 summit has thus played a significant role in debt relief for the poorest countries. It has made 704 commitments on development, of which 56 or 8% have been on debt relief (see Appendix A). Its members have complied with G7/G8 development commitments at a level of 75%, with those on debt averaging 73%, those on both debt and non-debt components 73%, and those only on non-debt components 69% (see Appendix B).

The HIPC Initiative and the MDRI, which G7 summits have supported, have provided around USD99 billion in debt relief since 1996 (World Bank n.d.). The G7 also launched its own initiative for debt relief, the Köln Debt Initiative. Most recently, on 25 September 2020, G7 Finance Ministers committed to implementing the G20-Paris Club DSSI "to suspend official bilateral debt payments for the poorest countries through end-2020" (G7 Finance Ministers 2020).

Individually, G7 members have also contributed to debt relief. In 1999, Canada created the Canadian Debt Initiative (CDI) and by 2012 had forgiven more than CAD1 billion in the debts of 15 countries by 2012 under the HIPC Initiative and CDI (Canada, Department of Finance n.d.). In April 2020, France's President Emmanuel Macron called for a moratorium on African debts (Nussbaum 2020). In May 2020, German chancellor Angela Merkel went even further to call for debt relief measures that went beyond a moratorium (Reuters Staff 2020b). Italy declared debt relief a priority of the G20 agenda for the summit it will host in 2021 (Reuters Staff 2020a). In April 2020, Japan provided USD100 million and the United Kingdom pledged USD185 million to the IMF's Catastrophe Containment and Relief Trust, to cover the debt obligations of the most vulnerable and poorest countries for six months (IMF 2020c). The UK also contributed approximately GBP140 million to the African Development Fund and almost GBP960 million to the IDA for debt relief under the MDRI (UK, Foreign, Commonwealth and Development Office 2021a, 2021b). In November 2020, the European Union (2020) pledged EUR183 million to the IMF's Catastrophe Containment and Relief Trust for debt relief of 29 low-income countries. In December 2020, the United States removed Sudan from its list of state sponsors terrorism, which removed another obstacle for Sudan to be added to the HIPC countries list (Reuters Staff 2020c).

The G7 thus remains a leader in debt relief for the poorest. It should continue in that role as the world continues to struggle against the COVID-19 pandemic and beyond. At the virtual meeting of G7 finance ministers and central bank governors on February 12, 2021, UK chancellor of exchequer Rishi Sunak "called on private sector creditors to play their full part to help ensure sustainable debt treatments for the poorest countries, paving the way for a truly global recovery" (UK, HM Treasury 2021). The UK is already maintaining the G7's leadership position in debt relief for the poorest; however, the issues of global vaccine distribution should not overshadow the need for debt relief as the end of the suspension period for debt repayments will coincide with the G7 summit in June 2021. On February 19, 2021 Prime Minister Boris Johnson will host a virtual meeting for the G7 leaders, the first of the UK's G7 presidency. He will focus on COVID-19 vaccine production and distribution but ideally will also build on the discussions of the G7 finance ministers and central bank governors on February 12. As the G7's commitment to implement the DSSI only extended to the end of 2020, the February 19 meeting should include an extension to June 2021, at the earliest, to be in line with the commitment by the G20. The G7 leaders need to ensure that support for the poorest countries is delivered in all forms: from vaccines to debt relief.

The UK's policy priorities for its G7 presidency focus on global recovery and resilience against future pandemics, free and fair trade, climate change and shared values (G7 United Kingdom 2021, n.d.). On June 11—13, 2021, G7 leaders will gather in Cornwall on the southwest coast of England to discuss these priorities and make commitments for a world that will hopefully be on its way to recovering from the COVID-19 pandemic and the subsequent economic impacts. These commitments need to include one by the G7 to continue the DSSI, and also to encourage the G20 to extend its own commitment, but commitments on debt relief need to go much further than that. Considerable actions are required to build a sustainable global economy and achieve the SDGs by 2030 following the global economic collapse of 2020, such as the complete debt cancellation for all low-income developing countries. IMF projections for emerging markets and developing economies' economic growth is at 6.3 per cent for 2021 and 5 per cent for 2022, higher than growth projections for advanced economies (IMF 2021). Projections for low-income developing countries are 5.1 per cent for 2021 and 5.5 per cent for 2022. For the poorest countries to benefit from this economic growth and to build more sustainable economies, all their resources should go toward achieving the SDGs and their own development instead of being diverted to repaying debts that they will never be able to fully repay.

References

Canada, Department of Finance (n.d.). "Canada's Contributions to Bilateral and Multilateral Debt Relief Initiatives," Last modified September 20, 2012. https://www.canada.ca/en/department-finance/programs/international-trade-finance-policy/bilateral-multilateral-debt-relief-initiatives.html.

European Union (2020). "EU Contributes €183 Million to Debt Relief for 29 of the World's Poorest and Most Vulnerable Countries," Press release, November 23. https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2183.

G7 (1996). "Economic Communiqué: Making a Success of Globalization for the Benefit of All," June 28, Lyon, France. http://www.g7.utoronto.ca/summit/1996lyon/communique.html.

G7 (1998). "Communiqué," May 17, Birmingham, UK. http://www.g7.utoronto.ca/summit/1998birmingham/finalcom.htm.

G7 (2002). "Statement by G7 Leaders Delivering on the Promise of the Enhanced HIPC Initiative," June 27, Kananaskis, Canada. http://www.g7.utoronto.ca/summit/2002kananaskis/hipc.htmlg.

G7 (2020). "G7 Leaders' Statement," March 16. http://www.g7.utoronto.ca/summit/2020usa/covid-200316.html.

G7 Finance Ministers (2020). "G7 Finance Ministers' Statement on the Debt Service Suspension Initiative and Debt Relief for Vulnerable Countries," September 25. http://www.g7.utoronto.ca/finance/200925-dssi.html.

G7 Finance Ministers and Central Bank Governors (2020). "Chair's Summary: G7 Finance Ministers and Central Bank Governors Virtual Meeting," April 14. http://www.g7.utoronto.ca/finance/200414-statement.html.

G7 United Kingdom 2021 (n.d.). "Policy Priorities." Access Date: February 15, 2021. https://g7-uk.shorthandstories.com/-/index.html#group-section-Policy-Priorities-FYvaB1Ah6t.

G8 (1999). "G8 Communiqué Köln 1999: Final," June 20, Cologne, Germany. http://www.g7.utoronto.ca/summit/1999koln/finalcom.htm.

G8 (2000). "G8 Communiqué Okinawa 2000," 23 July, Okinawa, Japan. http://www.g7.utoronto.ca/summit/2000okinawa/finalcom.htm.

G8 Research Group (1999). "An Assessment of the 1999 Cologne G7/G8 Summit by Issue Area," June 20. http://www.g7.utoronto.ca/evaluations/1999koln/issues/kolnperf.htm.

G20 (2020). "Leaders' Declaration," November, Riyadh, Saudi Arabia. http://www.g20.utoronto.ca/2020/2020-g20-leaders-declaration-1121.html.

International Monetary Fund (2017). "Multilateral Debt Relief Initiative — Questions and Answers," July 28, Washington DC. https://www.imf.org/external/np/exr/mdri/eng/index.htm.

International Monetary Fund (2020a). "Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative," March 25, Washington, DC. https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/16/11/Debt-Relief-Under-the-Heavily-Indebted-Poor-Countries-Initiative.

International Monetary Fund (2020b). The Evolution of Public Debt Vulnerabilities in Lower Income Economies, February 10, Washington DC. https://www.imf.org/en/Publications/Policy-Papers/Issues/2020/02/05/The-Evolution-of-Public-Debt-Vulnerabilities-In-Lower-Income-Economies-49018.

International Monetary Fund (2020c). "IMF Executive Board Approves Immediate Debt Relief for 25 Countries," April 13, Washington. https://www.imf.org/en/News/Articles/2020/04/13/pr20151-imf-executive-board-approves-immediate-debt-relief-for-25-countries.

International Monetary Fund (2020c). "Somalia to Receive Debt Relief under the Enhanced HIPC Initiative, March 25, Washington DC. https://www.imf.org/en/News/Articles/2020/03/25/pr20104-somalia-somalia-to-receive-debt-relief-under-the-enhanced-hipc-initiative.

International Monetary Fund (2021). World Economic Outlook Update, January. https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update.

Kokotsis, Eleonore (1999). Keeping International Commitments: Compliance, Credibility and the G7, 1988-1995 (New York: Garland).

Nussbaum, Ania (2020). "France Expects G-20 to Offer African Nations Debt Moratorium," April 15, Bloomberg. https://www.bloomberg.com/news/articles/2020-04-15/africa-debt-moratorium-is-essential-amid-outbreak-macron-says.

Reuters Staff (2020a). "Italy to Pursue Africa Debt Relief During G20 Presidency -Diplomat," November 20, Reuters. https://www.reuters.com/article/g20-italy-africa-debt-idUSL1N2I61BD.

Reuters Staff (2020b). "Poor Countries Need More Debt Relief During Pandemic, Germany's Merkel Says," May 20, Reuters. https://www.reuters.com/article/us-health-coronavirus-germany-merkel/poor-countries-need-more-debt-relief-during-pandemic-germanys-merkel-says-idUSKBN22W2TW.

Reuters Staff (2020c). "U.S. Move is First Step on Sudan's Long Road to Get Debt Relief: IMF," December 14, Reuters. https://www.reuters.com/article/sudan-usa-imf-int-idUSKBN28O2PQ.

United Kingdom, Foreign, Commonwealth and Development Office (2021a). "Multilateral Debt Relief Initiative (MDRI) Debt Relief to African Development Fund (AFDF)," January 15. https://devtracker.fcdo.gov.uk/projects/GB-1-110990.

United Kingdom, Foreign, Commonwealth and Development Office (2021b). "Multilateral Debt Relief Initiative (MDRI) Debt Relief to World Bank's International Development Association (IDA)," January 15. https://devtracker.fcdo.gov.uk/projects/GB-1-110951.

United Kingdom, HM Treasury (2021). "Chancellor Prioritises Climate Change and Urged Support for Vulnerable Countries in First UK G7 Finance Meeting," February 12. http://www.g7.utoronto.ca/finance/210212-finance.html.

World Bank (2018). "Heavily Indebted Poor Country (HIPC) Initiative," January 11, Washington DC. https://www.worldbank.org/en/topic/debt/brief/hipc.

World Bank (2020a). "COVID-19 Debt Service Suspension Initiative," December 21, Washington DC. https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiative.

World Bank (2020b). "Debt Service Suspension and COVID-19," December 21, Washington DC. https://www.worldbank.org/en/news/factsheet/2020/05/11/debt-relief-and-covid-19-coronavirus.

World Bank (2020c). International Debt Statistics 2021. Washington DC. https://openknowledge.worldbank.org/bitstream/handle/10986/34588/9781464816109.pdf.

World Bank (n.d.). "Debt Relief," Washington DC. https://www.worldbank.org/en/topic/debt-relief.

[back to top]

Appendix A: G7 Summit Commitments on Development and Debt Relief ↩

[back to top]

Appendix B: G7 Summit Development and Debt Relief Compliance ↩

Note: ODA = official development assistance.

—	This Information System is provided by the University of Toronto Libraries and the G7 Research Group at the University of Toronto.
	Please send comments to: g7@utoronto.ca This page was last updated February 18, 2021.

All contents copyright © 2024. University of Toronto unless otherwise stated. All rights reserved.