Finance officials from the Group of 20 major economies agreed on Wednesday to suspend debt service payments for the world's poorest countries from May 1 until the end of the year, as a group of private creditors also backed offering debt relief.
The moves to freeze both principal repayments and interest payments will free up more than $20 billion for the countries to spend on their health systems and help tackle the coronavirus pandemic, Saudi Finance Minister Mohammed al-Jadaan said.
Saudi Arabia is hosting the G20 meetings this year.
The debt standstill affects the world's poorest and least-developed countries, as defined by the World Bank and the United Nations, as long as they are current in their debt service payments to the World Bank and International Monetary Fund.
The initiative is part of efforts to bolster the global economy amid the coronavirus outbreak, which is pushing the world into the deepest recession since the Great Depression of the 1930s.
German Finance Minister Olaf Scholz called the move "an act of international solidarity with a historical dimension," adding it would let the countries invest in healthcare "immediately and without time-consuming case-by-case examination".
A source familiar with the agreement said it would cover $12-$14 billion in bilateral debt service payments.
The G20 also called on private creditors to participate in the initiative on comparable terms.
The Institute of International Finance, which represents 450 banks, hedge funds and other global financial firms, said it would recommend that private sector creditors voluntarily grant similar debt relief to the poorest countries, if they requested it.
A French finance ministry official on Tuesday said private creditors had agreed voluntarily to roll over or refinance $8 billion of the debt of the poorest countries, on top of $12 billion in debt payments to be suspended by countries.
A further $12 billion is owed to multilateral lenders, mainly the World Bank, French Finance Minister Bruno Le Maire told reporters.