WASHINGTON (Reuters) – Wealthy countries must provide more support to low-income countries, from increased COVID-19 vaccine supplies to debt relief, or they risk deeper and longer-lasting health and economic crises, a senior U.S. Treasury official said on Thursday.
Andy Baukol, Treasury acting undersecretary for international affairs, said the high and growing debt burden in many low-income countries is limiting their ability to respond to the crisis, especially in Africa.
“Without further international action to support low-income countries, we risk a stark divergence in economic growth prospects for advanced economies versus low-income and developing countries,” Baukol told an online event hosted by the Center for Strategic and International Studies in Washington.
“The result would be a deeper and longer-lasting crisis, with mounting problems of indebtedness, more entrenched poverty, and growing inequality.”
Baukol said the COVID-19 response will not be successful if it fails to help countries pursue sustainable and inclusive growth and strengthen long-term resilience.
He said the Treasury is working to make sure a lack of financing does not become an obstacle to increasing global vaccine supplies, supporting the COVAX vaccine initiative and urging the World Bank to boost vaccine financing for the poorest countries.
Baukol said the Treasury was targeting a “late summer” distribution of a $650 billion allocation of International Monetary Fund Special Drawing Rights to IMF member countries that was backed earlier this month by the G20 major economies.
Both Baukol and Mark Bowman, the British Treasury’s director general of international finance, told the CSIS event that options were being explored to allow richer countries to use their excess SDRs to support more lending to poor countries through the IMF’s Poverty Reduction and Growth Trust.
Bowman said there was a debate about “recycling options” for SDRs, including discussions about whether the IMF could design new instruments beyond the PRGT.
“My guess is we’ll end up with a sort of small menu of options and, you know, it will be for donor countries, for SDR holders to decide how they want to use their own SDRs,” Bowman added.
Baukol also said that the United States was open to the idea of extending the G20’s new common framework for poor-country debt restructuring to middle-income countries and small island states and other developing countries in debt distress.
Thus far Chad, Ethiopia and Zambia have requested restructurings under the common framework, and Baukol said it was important to implement it successfully, which will require the full participation of China and other non-traditional creditors.
(Reporting by David Lawder; Editing by Chris Reese and Daniel Wallis)
