How the Debt Service Suspension Initiative works

THE DEBT Service Suspension Initiative (DSSI) was approved in April. It offers a temporary suspension of “official sector” or governmentto-government debt payments. The proposed extension will see it run until June next year.

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

The World Bank (WB) estimates that, to date, 43 of a potential 73 eligible DSSI countries have deferred just over $5 billion of debt.

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 freedup 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.

So far, no country has publicly applied for similar treatment from private-sector creditors. —