Pakistan, several other countries likely to get Paris Club debt relief

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Pakistan and the number of countries to get Paris Club debt relief this year under a deal with the G20 is set to rise after the Club – a group of state creditors – clarified the terms, a French finance ministry source said on Tuesday.

The Group of 20 leading economies and the Paris Club, an informal group of state creditors coordinated by France’s finance ministry, agreed last month to freeze the debt payments of the 77 poorest countries this year to free up cash for them to fight the coronavirus pandemic.

The countries likely to sign off shortly include Cameroon, the Democratic Republic of Congo, the Republic of Congo, Ethiopia, Pakistan and Mauritania, another source familiar with the matter said. Usually, the Paris Club asks borrowing governments to seek the same debt repayment conditions from private-sector creditors.

However, some debtor countries have hesitated to sign up, fearing that it could hurt their credit rating after rating agencies said a failure to pay private creditors who had agreed to suspend debt payments in parallel with the Club could be considered a default. Kenya’s finance minister said last week that this was one of the reasons Nairobi would not apply.

So far, the Paris Club has signed agreements only with the Caribbean islands of Dominica and Grenada, and Mali and Nepal, the French source said. But the Club has now made clear that applicant countries can specify that they want relief only on their debts to state creditors. “We’ve got about 20 more in the process of finalising the documents to sign agreements and we are expecting another dozen to make requests in the coming days,” the source said.

With this exception to that rule, the rating agencies now understand that the debt relief programme is not negative for ratings, the source said. Countries eligible for the programme have a combined $36 billion falling due this year, composed of $13 billion owed to other governments, $9 billion to private creditors, and the rest to multilateral development lenders.

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