To address the risk of a major public debt crisis and to fill the huge funding gap for post-Covid-19 recovery in low-income countries (particularly those in Africa), the European Commission wishes to hold a joint discussion between EU finance ministers and their colleagues in foreign affairs and development so as to define the political and funding priorities for post-Covid-19 recovery in these EU partner countries.
On 22 January, a letter to this effect was sent by Executive Vice-President of the European Commission Valdis Dombrovskis and European Commissioner for Economy Paolo Gentiloni to the current president of the Ecofin Council, Portugal’s Minister of Finance João Leão.
While advanced economies have been able to mobilise 20% of their GDP in fiscal measures and liquidity provision, this figure is only 6% in emerging economies and 2% in low-income countries. The signatories of this letter, as seen by EUROPE, emphasise that, according to the IMF, the funding gap for recovery in Africa is estimated at 340 billion dollars, including 290 billion for sub-Saharan African countries.
While Zambia was the first African country to default on repayment of its public debt since the outbreak of the pandemic, the European Commission indicates that concerns about a potential “debt tsunami” have been raised.
In November 2020, the G20 and the Paris Club extended the Debt Service Suspension Initiative (DSSI) until the end of June 2021 to help poor countries severely affected by the Covid-19 crisis (see EUROPE 12602/5).
The aim [of the discussion] would be to identify “how to promote a global EU initiative for global recovery and its various components, both at the global level and in partner countries”, the signatories explain. This is in line with the proposal put forward by the President of the European Commission Ursula von der Leyen in May for a global initiative combining the discussion on public debt relief and investment with that on the agenda for sustainable development (see EUROPE 12495/11).
The signatories of the letter believe that, ideally, this joint discussion could take place during the Ecofin Council on 16 February, which will examine the preparations being made for the spring IMF and World Bank meetings. It will be up to the Portuguese Presidency of the Council to decide.
The idea of a joint discussion had already been suggested back in September 2020 by European Commissioner for International Partnerships Jutta Urpilainen (see EUROPE 12571/22). (Original version in French by Aminata Niang)