G-20: Talks are moving ‘slowly’ on expanding debt relief

Highlights:

• G-20 agenda includes multilateral development bank reforms
• India to push G20 to raise share of taxes on firms where they earn 'excess profit'
• Yellen says US investment curbs won't 'fundamentally' hurt China
  

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Group of 20 finance ministers and central bank governors begin two days of meetings Monday, with participants set to discuss items including reform of multilateral development banks, debt relief for stressed developing nations and sustainable finance.

The gathering in Gandhinagar, capital of Indian Prime Minister Narendra Modi's home state of Gujarat, is also serving as a setting for a raft of bilateral meetings. Treasury Secretary Janet Yellen on Monday engaged with her Indian counterpart, Nirmala Sitharaman — part of a broader push by the US to strengthen ties with the nation, according to a Bloomberg report.

The meetings occur against a backdrop of tensions among G-20 members, capped off by US-China geostrategic rivalry and divisions over Russia's invasion of Ukraine. The group's finance chiefs haven't agreed on a communique since February 2022, on the eve of the war.

"The G-20 has become a microcosm of global fractures," said Philippe Dauba-Pantanacce, an economist and global geopolitical strategist at Standard Chartered Plc. While developed democracies have a "newfound sense of unity," big emerging markets have "wide divergences in how/where each positions itself in this fragmenting world."

European Economy Commissioner Paolo Gentiloni said that "it is much needed" to use the recent debt-relief agreement for Zambia as a template for others, but negotiations among G-20 members continue.

"It is moving very slowly," Gentiloni told Bloomberg when asked about the talks. "Of course, part of the reason why we are meeting here in the G-20 is to resolve this issue. This is an open issue."

Yellen is among a number of G-20 policymakers who are hoping the Zambia deal will serve as a template for similar agreements between creditors and other countries, including Ghana, Ethiopia and Sri Lanka.

China, the developing world's biggest official creditor, has been reluctant to participate in multilateral agreements amid divided views over specific debt restructuring measures.

"We have seen a growing awareness of the debt problem, and the risk that it poses not only to the global economy and the financial system but particularly to dozens of countries that are maybe one step away from defaulting," said United Nations Development Program Administrator Achim Steiner. But there's a "very slow pace of actually addressing this problem," he said.

Speaking on Bloomberg TV, Steiner also said "most of the world's debt is held by private creditors. They are still reluctant to be part of a debt solution." They need "stronger guarantees, more certainty" from official creditors, he said.

Yellen says US investment curbs won't 'fundamentally' hurt China

US Treasury Secretary Janet Yellen said restrictions the Biden administration is crafting on outbound investments to China wouldn't significantly damage the nation's ability to attract US investment.

The restrictions would be "narrowly targeted" and would focus on "a few sectors, in particular semiconductors, quantum computing, and artificial intelligence," Yellen said Monday in an interview with Bloomberg Television. "These would not be broad controls that would affect US investment broadly in China, or in my opinion, have a fundamental impact on affecting the investment climate for China."

Yellen spoke from Gandhinagar, India where she's meeting with finance chiefs from the world's largest economies. A senior Treasury official said separately that other countries at the meetings have also been eager to ask Yellen about the coming restrictions.

The Treasury chief emphasised once again that the steps being planned, as well as existing export controls, weren't meant as retaliation for any specific actions from Beijing, or to curtail China's overall growth.

"What we're doing is not tit for tat," she said. "What we're doing is putting in place controls that are designed to protect US national security and in some cases to address fundamental human-rights abuses."

Asked why it's taken the Biden administration so long to propose the restrictions, she said officials "want to make sure if we do this, that we get it right, and we've been working on the details."

She added there is a "good chance" they will deliver the proposed restrictions, but wouldn't give a timeline.

Yellen meets India's Sitharaman to deepen economic partnership

US Treasury Secretary Janet Yellen used a meeting Monday with Indian Finance Minister Nirmala Sitharaman to declare their two countries were "among the closest partners in the world."

The bilateral sit-down is the latest in a series of engagements between the two nations. Prime Minister Narendra Modi's last month conducted a state visit to Washington, including his second address to the US Congress. Yellen also has singled out India in her "friend-shoring" push to revamp global supply chains in a way that reduces US dependence on China.

Yellen's visit marks her third trip to India as Treasury secretary.

"Today's discussions will highlight the commitment of India and the United States to activate and further the G-20 agenda, including addressing critical global issues such as strengthening the multilateral development banks and taking coordinated climate action," Sitharaman said in remarks preceding the bilateral session.

India to push G20 to raise share of taxes on firms where they earn 'excess profit'

 India will push its Group of 20 partners at a meeting it is hosting to support its proposal to raise the share of taxes multinational companies pay to countries where they earn "excess profits", government officials said.

India's proposal, which has not been previously reported, could temper optimism among G20 members such as Australia and Japan that the meeting of finance ministers and central bankers in Gujarat would make progress on a long-awaited overhaul of global corporate taxation, reports Reuters.

More than 140 countries were supposed to start implementing next year a 2021 deal overhauling decades-old rules on how governments tax multinationals. The present rules are widely considered outdated as digital giants like Apple or Amazon can book profits in low-tax countries.

The deal, pushed by the US, would levy a minimum 15% tax on large global firms, plus an additional 25% tax on "excess profits", as defined by the Organisation for Economic Cooperation and Development (OECD).

But several countries have concerns about the multilateral treaty underpinning a major element of the plan, and some analysts say the overhaul is at risk of collapse.

"India has made suggestions to get its due share of taxing rights on excess profits of multinational companies," one official said. The suggestions have been made to the OECD and will be discussed "extensively" during the G20 meeting on Monday and Tuesday, the official said.

Three officials, who asked not to be named as discussions with the OECD were ongoing and the G20 meeting had not begun, said India wants significant increases in the tax paid in countries where the firms do business. They did not specify how much India is seeking.

India's finance and external affairs ministries and the OECD did not respond to requests for comment.

Under the agreement, global corporations with annual revenues over 20 billion euros ($22 billion) are considered to be making excess profits if the profits exceed 10% annual growth. The 25% surcharge on these excess profits is to be divided among countries.

India, fighting for a higher share of taxes for markets where firms do business, is the world's most populous country and set to become one of the biggest consumer markets. Indian people's average income is set to grow more than 13-fold to $27,000 by the end of 2047, according to a survey by the People's Research on India's Consumer Economy.

The G20 host nation will also propose that withholding taxation be de-linked from the excess profit tax principle. The rules now say countries offset their share of taxes with the withholding tax they collect.

Withholding tax is collected by companies while making payments to vendors and employees, and remitted to tax authorities.

The OECD in a document issued on Wednesday said a few jurisdictions have expressed concerns over allocating taxing rights among countries.

"Efforts to resolve these issues are underway with a view to prepare the Multilateral Convention for signature expeditiously," it said.