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Does Pandemic Debt Relief Work?

Rather than pursue more debt relief to help the developing world weather the COVID-19 crisis, rich countries should provide pandemic-related necessities directly. Debt relief is so imprecise a mechanism that it is as likely to benefit private-sector creditors as it is to help the poor.

WASHINGTON, DC – The COVID-19 pandemic has spread globally and will not be over until it has been brought under control everywhere. Hence, international efforts are underway to support the world’s poorest countries. COVAX, a multilateral initiative organized by the World Health Organization and Gavi, the Vaccine Alliance, is arranging purchases of vaccines to be distributed equitably to developing countries.

This worthwhile program has already raised about $2 billion, but it will need more funding to complete its mission. As of December 2020, most of the world’s rich countries had ordered enough doses to vaccinate their own populations three times over, whereas 90% of people in the world’s poorest countries are unlikely to receive a vaccine until 2022. While any additional support for poor countries would certainly help, there simply aren’t enough resources to meet all needs. All available resources thus will need to be directed as efficiently and effectively as possible to combat the pandemic.

Though many commentators have called for debt relief to free up resources in poor countries, suspending payment obligations is almost certainly not the most effective option available. Last May, the G20 launched a Debt Service Suspension Initiative (DSSI) in coordination with the International Monetary Fund and the World Bank. By December 2020, about 40 eligible countries had been granted postponements on about $5 billion of debt service that would have come due before June 2021.