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FACTBOX-How the G20's Debt Service Suspension Initiative works

(Updates to add extension, repayment period extension, 2021 reassessment, and common framework for aid beyond DSSI)

LONDON, Oct 15 (Reuters) - The G20 group of rich nations and big emerging powers extended their Debt Service Suspension Initiative (DSSI) this week to help the world’s poorest countries cope with the fallout of the COVID-19 crisis until the middle of next year.

Below is an explanation of how the DSSI works:

The DSSI was approved in April. It offers a temporary suspension of "official sector" or government-to-government debt payments to 73 countries here although only 43 have signed up so far.

The six-month extension announced this week will see it run until at least June 30, 2021.

The payments covered are not forgiven but delayed, with a repayment period of five years and a one-year grace period. The re-scheduling is intended to be what is known as Net Present Value (NPV) neutral.

The World Bank estimates that, to date, the 43 countries that have signed up for DSSI have deferred just over $5 billion of debt.

Charity groups estimated that the six-month extension of the temporary freeze will provide a further $6.4 billion of relief for the 43 countries that have signed up. That would rise to around $11.5 billion if the extension was lengthened to the end of 2021 and nearly $16 billion if all 73 eligible countries took up the initiative.

To receive DSSI relief, countries are required to apply for an arrangement with the International Monetary Fund. That could be either a regular programme or a shorter-term emergency facility. [Rapid Financing Instrument (RFI) or Rapid Credit Facility (RCF)]

Countries have to commit to use freed-up resources to increase social, health, or economic spending in response to the current crisis. Beneficiaries also commit to disclose all public sector debt and debt-like instruments.

Eligible countries would include all International Development Association (IDA) countries and all least developed-countries (as defined by the United Nations) that are current on debt service to the IMF and the World Bank. This means 72 active IDA borrowing countries plus Angola.

Estimates suggest that official bilateral debt service payments in these countries would have totalled almost $14 billion in 2020, including interest and amortization payments. Less than $4 billion of that is owed to the Paris Club group of major creditor countries, so other official bilateral creditors such as China and Russia are also being urged to take part.

The G20 has also called on commercial creditors such as banks and investment funds to participate on comparable terms, but there has been no sign of that happening so far.

At the IMF and World Bank spring meetings in 2021, the G30 will decide if the scheme should be extended by an additional six months.

So far, no country has publicly applied for similar treatment from private-sector creditors although Zambia has asked for some $200 million worth of bond payments to be pushed back to April 2021. That request has so far been refused.

At the Riyadh G20 leaders’ summit in November 2020, the G20 will publish a framework for providing debt relief outside of the DSSI, which may be required on a case-by-case basis.

Compiled by Marc Jones Editing by Paul Simao and Steve Orlofsky

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