The following are questions and answers related to the Debt Service Suspension Initiative.
What did the DSSI offer eligible countries?
From May 2020 to December 2021, official bilateral creditors suspended debt-service payments from the poorest countries (73 low- and lower-middle-income countries) that requested the suspension. All active International Development Association (IDA) and United Nations Least Developed Countries (UN LDC) as of FY20 were deemed eligible to participate in the DSSI.
The 2020 DSSI provided an NPV-neutral debt-service rescheduling with a one-year grace period and four-year maturity. For debt service suspended in 2021, the total repayment period was six years, including a one-year grace period.
What did the DSSI achieve?
The DSSI enabled a fast and coordinated release of additional resources to beneficiary countries that were severely affected by the COVID-19 crisis. As of February 2022, forty-eight out of 73 eligible countries participated in the initiative. It delivered an estimated $12.9 billion in debt-service suspension from May 2020 to December 2021. Paris Club creditors accounted for an estimated $4.6 billion of total amount suspended.
A fiscal assessment showed that the DSSI helped countries to respond to the pandemic as it was complemented by additional financing provided by the World Bank Group (WBG), International Monetary Fund (IMF), and other Multilateral Development Banks (MDBs).
Did private creditors participate in the DSSI?
The World Bank, IMF, and G20 encouraged private creditors’ participation in the debt service suspension. The Institute of International Finance (IIF) also engaged in discussions with private creditors and agreed on terms of reference for voluntary private sector participation. Regrettably, only one private creditor participated.
How did the World Bank Group support the DSSI and DSSI-eligible countries?
The World Bank Group, together with the IMF, assisted on outreach and provided technical support to participating countries. The support included monitoring spending, enhancing public debt transparency, and ensuring prudent borrowing. The World Bank published detailed data on external public debt and potential debt service suspension amounts from the DSSI based on the International Debt Statistics (IDS) database.
The World Bank Group significantly increased its financial support for the 73 low- and lower middle-income countries, with the aim of providing positive net transfers. From April 2020 through June 2021, the World Bank Group committed $52.4 billion in International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) financing to DSSI-eligible countries. The Bank Group’s total gross disbursements to these countries amounted to $31.1 billion, of which $8.8 billion was on grant terms ($28 billion in net transfers). The International Finance Corporation (IFC) provided $4.9 billion in commitments (including mobilization) and $2 billion in disbursements (from IFC’s own account).
What obstacles did DSSI-eligible countries face?
In some countries, the authorities saw modest benefits from the DSSI because of the composition of their debt (they had little or no exposure to official bilateral creditors).
Early in the DSSI implementation, there were other concerns:
- Some countries worried that applying for DSSI participation might send a negative signal about their creditworthiness. At this point, however, there is limited evidence that DSSI participation affected credit ratings.
- Several countries expressed concerns that non-payment to official creditors before the signing of bilateral legal agreements could inadvertently place them in default. The G20 and the Paris Club clarified that was not the case.
- Some countries expressed concerns about cross-default clauses, particularly in a limited number of commercial-bank loan agreements, which they needed to address by consulting with their legal advisors and creditors.
How were debt-service savings under DSSI monitored?
A key DSSI objective was to provide financial resources to help eligible countries battle the COVID-19 pandemic. Accordingly, a requirement to participate in the initiative was that the beneficiary country commits to use these resources to safeguard social, health or economic spending in response to the crisis. The country also committed to work closely with the World Bank Group and the IMF, which were expected to put in place a monitoring system.
World Bank and IMF staff coordinated the development of a suitable and feasible monitoring system. The framework was straightforward and drew on existing public financial management reporting systems and revenue and spending aggregates. The monitoring system aimed to compare actual data for health and social spending (including COVID-19-related items) with 2020 pre-COVID budget (if available) or 2019 estimates.
Results of the fiscal assessment show that the 2020 beneficiaries devoted substantial resources to tackle the COVID-19 crisis. On average, the beneficiaries spent 1.6 percent of GDP on COVID-related items in 2020, having received the equivalent of 0.5 percent ($5.7 billion) of GDP in DSSI relief during the relevant period.
Were countries participating in the DSSI subject to a non-concessional borrowing ceiling?
The DSSI did not impose any non-concessional borrowing ceilings on countries other than those required under the IMF’s Debt Limits Policy and the World Bank’s Sustainable Development Finance Policy (SDFP). Countries that were not required to have non-concessional borrowing ceilings under an IMF program or the SDFP did not need to implement ceilings under the DSSI.
Why was debt transparency so important to the DSSI?
Comprehensive, accurate, and timely public debt data is critical for borrowers and creditors to take informed decisions on fiscal and debt policies—and for countries to manage financial risks. Yet important gaps in data coverage and quality remain. As of May 2020, in about 80 percent of Debt Sustainability Analyses in IDA countries, public debt data covered central government and loan guarantees. Coverage needs to be expanded to include other forms of public debt, especially those arising from state-owned enterprises and other contingent liabilities—and data quality should be improved. Analysis suggests that potential losses from contingent liabilities in many low-income countries could be steep—as much as 12 percent of GDP.
Strong cooperation of all creditors was needed to support comprehensive disclosure of public debt as part of the DSSI.
Participating countries committed to disclose all public sector financial commitments (debt), respecting commercially sensitive information. This involved full disclosure by creditor and lending institution of information on public and publicly guaranteed debt public debt and debt service payments suspended under the DSSI.
What are the next steps for DSSI-eligible countries facing unsustainable debt levels or large financing needs?
The DSSI provided a swift and coordinated response to liquidity problems in the world's poorest countries and helped them meet increased financing needs, complementing scaled up financing from the World Bank Group and other multilateral development banks. Although the DSSI provided much-needed liquidity to a large number of countries, it was not designed to address structural debt issues or protracted financing challenges.
DSSI-eligible countries that require debt relief beyond the DSSI have been encouraged to seek such relief under the Common Framework (CF) endorsed by the G20 and supported by the Paris Club. The CF is designed to provide debt relief in a tailored way for countries with unsustainable debt or with sustainable debt and large medium-term financing needs while also supporting fair burden-sharing among official and private creditors.