Mettis Global News
Mettis Global News
Mettis Global News
Mettis Global News

Trending :

Moody’s clashes with UN over G20 debt-relief efforts: Financial Times

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp

July 22, 2020 (MLN): Moody’s has clashed with the UN in recent weeks after placing five countries on review for a downgrade, saying that a G20-backed debt moratorium scheme poses risks to private creditors.

Financial Times (FT) in its recently published article has said that the rating agency took action against Ethiopia, Pakistan, Cameroon, Senegal and the Ivory Coast, after the countries opted into a G20-backed initiative that allows them to freeze official bilateral debt repayments due this year to member nations and members of the Paris Club, a group representing major credit countries.

As per the news organization, Moody’s said participation in the scheme which has been endorsed by the World Bank raises the risk of losses for investors in the countries’ bonds, because the G20 has called on private-sector creditors to offer “comparable” relief. Any such renegotiation with private lenders could constitute a default and cause investors to lose money, the agency said.

Accordingly, the U.N. Department of Economic and Social Affairs objected to Moody's stance, saying the plan “should improve the debt sustainability of countries and should therefore not be the basis for a credit rating downgrade.” It further added that “borrowers should come out of the programme with stronger credit than if they had not participated.”

Last weekend World Bank president David Malpass urged the G20 to extend the debt-relief scheme to the end of 2021, adding that commercial creditors of governments taking part in the scheme should “discontinue their collection” of principal and interest, FT revealed.

To recall, the debt relief programme was launched in April to help some of the world's poorest countries manage the impact of the covid-19 pandemic. It allows eligible borrowers to pause debt repayments to official bilateral creditors until the end of the year, and then to repay that money over a four-year period. None of the debt is cancelled.

According to World Bank’s estimation, up to $11.5bn in repayments could be postponed this year if all 73 eligible countries were to take part in the initiative. However, according to the G20, only 42 people have applied for debt relief so far, and 18 have signed agreements with the Paris Club, media house reported.

The G20 said the pace of signing of the scheme had “significantly accelerated” since last month, when it clarified that opting in did not force countries to ask private creditors to renegotiate the terms.

Furthermore, as per the media group, Moody’s said its reviews, which are open-ended, indicate that the agency was uncertain about whether private-sector creditors would incur losses as a result of countries signing up to the scheme. Matt Robinson, head of the sovereign risk group’s Middle East and Africa team at Moody’s, said that it would not be appropriate to assign the usual “stable outlook” to the ratings under such circumstances.

“We need to acknowledge there’s a risk,” he said. “The IMF and the World Bank are in a very influential position, able to exert pressure on sovereigns to implement measures that could ultimately be credit negative for the private sector,” reported FT.

Moody’s acknowledged that the governments of Senegal and the Ivory Coast had committed to repaying private creditors, rather than asking them to renegotiate terms, but noted that those promises were at odds with the G20’s call for private-sector lenders “to participate in the initiative on comparable terms,” it added.

The media house mentioned that Fitch, another major rating agency, said last week that relief from private-sector creditors could qualify as a default, but that it did not view this as “sufficiently likely” to affect its sovereign ratings. Neither it nor S&P Global, the third major agency, have put any countries on watch as a result of their participation in the scheme.

It further added that the Institute of International Finance, a trade group created in the wake of the Latin American debt crisis of the early 1980s, said last week that none of the banks and asset managers it had surveyed about the initiative which together manage almost $25 trillion in assets had received any formal requests for debt suspension from borrowers, though a few had received informal inquiries about the process.

Daniel Bradlow, professor of international development law and African economic relations at the University of Pretoria, said that it was sensible for borrowers to seek whatever flexibility is available to manage the Covid crisis. Such nations will be “best positioned to get new lending” in future, he said, rather than those that have “carefully paid back their debts on time, all the way through the crisis at the expense of people’s health,” it cited.

Copyright Mettis Link News

Posted on: 2020-07-22T12:43:00+05:00

35886