## Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues

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### Restructuring Timelines
- Timelines remain longer than typical historical practice and have negative impacts on the debtor and its creditors.
- Recommendation: where applicable, notably for Common Framework cases, the timeline to form an official creditor committee (OCC) could be shortened to take advantage of faster information sharing and to accelerate private creditor restructuring processes.
- Suggested aspirational timeline:
  - “Absent specific circumstances impeding a timely decision-making, and provided sufficient information is being shared early and potential concerns being discussed, the proposal for the next debt restructuring case should be set as a trial example to aim for program approval within 2–3 months of SLA.”

### Information Sharing
- IMF and World Bank publications:
  - IMF Paper No. 2023/027: Staff Guidance Note on Information Sharing in The Context of Sovereign Debt Restructurings (June 2023).
  - Bank Guidance: Staff Guidance Note on Information Sharing in the Context of Sovereign Debt Restructurings.
- Policy emphasis:
  - All relevant stakeholders, including the IMF, the World Bank and official bilateral creditors, should work expeditiously with the debtor to ensure sufficient information (in particular on DSAs and macroeconomic frameworks) is shared in a timely manner, while accounting for case-specific coordination needs.

### Restructuring Perimeter
- Short-Term Debt
  - Growing support to generally exclude short-term debt (debt with an original maturity of one year or less) from the restructuring perimeter.
  - Rationale: exclusion helps maintain access to trade finance and is common practice under Paris Club treatments and the Common Framework.

- Domestic Debt (DDRs)
  - DDRs differ materially from EDRs: domestic law issuance can give sovereigns more leverage, but domestic creditor losses can transmit distress to the broader economy and society.
  - No presumption to include or exclude domestic debt; decisions should be data-driven and country-specific.
  - Factors to consider when assessing inclusion/exclusion of domestic debt:
    - overall level of public debt;
    - share of domestic debt in total public debt;
    - country’s financial depth;
    - legal features and currency and creditor composition of the domestic debt;
    - social and political implications of the potential restructuring strategy.
  - Recommended approach:
    - Use scenario analysis to compare combinations of DDR and EDR, anchored in the objective to restore debt sustainability while minimizing costs to financial stability, growth, and social cohesion.
    - National authorities should explain the approach to domestic debt restructuring to creditors (including the possible absence of any DDR).
    - Transparency and disclosure of the domestic debt portfolio is important regardless of whether DDR is pursued.

- Non-Resident Holders of Domestic Debt (NRHs)
  - Emerging consensus: treat NRHs on a case-by-case basis in restructurings.
  - Divergent views:
    - Some advocate inclusion of NRHs in the restructuring envelope if they are included in the DSA.
    - Others note NRHs are external creditors from the DSA perspective but hold instruments governed by domestic law, complicating their treatment.
  - Further discussion is needed to deepen common understanding.

- SOE Debt
  - Limited progress toward consensus on treatment of SOE debt.
  - Positions:
    - Some participants: exclude SOE debt from DSA and restructuring perimeters.
    - Others: include SOE debt in DSA perimeter given SOE fiscal risks, especially in LICs, in application of the current LIC DSF (with limited exceptions).
  - Existing flexibility: creditors and debtor can agree on a restructuring perimeter different from the DSA perimeter, with inevitable burden-sharing consequences.
  - Issue will continue to be discussed, including in the review of the LIC DSF.

### Restructuring Parameters
- Cutoff Dates
  - Cutoff dates are key to protect new financing, including emergency support.
  - Early clarity on the cutoff date is critical, but flexibility should account for case-specific circumstances.
  - In practice, cutoff dates in recent cases have generally been decided case-by-case by creditors, generally not later than the date of the staff-level agreement (SLA), which protects new financing provided after the SLA.

- Comparability of Treatment (CoT) between Official Bilateral and Private Creditors; Consistency with Debt Restructuring Targets and IMF Program Parameters
  - CoT assessment and enforcement remain critical issues needing further clarification.
  - Official bilateral creditors’ approach in recent Common Framework cases:
    - CoT assessed using three Common Framework criteria:
      i. The changes in nominal debt service over the IMF program period;
      ii. Where applicable, the debt reduction in net present value terms (NPV), using a “New NPV / Old NPV” formula and the discount rate of the LIC DSAs (currently 5 percent);
      iii. The extension of the duration of the treated claims;
    - Enforcement mechanisms: claw-back clauses and/or requests to remain in arrears vis-à-vis private creditors until an agreement respecting CoT is found.
  - Outside the Common Framework: similar mechanisms used; NPV calculations sometimes use two or more discount rates for sensitivity analysis.
  - Practical support identified:
    - Enhanced information sharing and coordination across creditor groups on CoT metrics, including expected NPV relief, so debtor knows how CoT will be assessed and the room for maneuver.
    - Timely verification of consistency with debt targets and IMF program parameters: debtor should share restructuring strategy with IMF staff before any restructuring agreement is made public to confirm consistency.
    - Close coordination among the debtor, private creditors, official bilateral creditors, and the IMF is essential. Official bilateral creditors should communicate key data on CoT assessment; private creditors and the debtor should verify consistency with IMF staff and official bilateral creditors before finalizing announcements.
    - Parallel negotiations by official and private creditors are permissible and can be supported to strengthen timely resolution.

### Other Aspects
- Debt Swaps and Climate Resilient Debt Instruments
  - Debt-for-nature/debt-for-development swaps can be useful for liability management but are generally not appropriate where debt restructuring is required; a full cost-benefit analysis is necessary.
  - Need to standardize these instruments to make them more rapidly and cheaply scalable; public support should align with development outcomes and country priorities; increase transparency of documentation and governance.
  - Climate Resilient Debt Clauses (CRDCs) viewed as useful with broad support to scale up their use.
    - Technical issues to facilitate adoption beyond standard ICMA term sheet discussed.
    - Expansion beyond hurricane events is challenging due to limited data history, but work to define standard clauses for other events is promising.
    - Transparency and clarity about indicators triggering clauses are critical.

- Engagement with Credit Rating Agencies (CRAs)
  - CRAs classify Distressed Debt Exchanges (DDEs) by focusing on reduction of value to holders relative to contractual terms and whether the exchange aims to avoid default.
  - CRAs treat debt-for-nature/debt-for-development swaps like any debt exchange (which may or may not imply distress).
  - Liquidity relief operations assessed case-by-case to determine whether they qualify as DDEs.
  - Participants emphasized importance of transparency, information sharing and communication.
  - CRAs welcome closer engagement with issuers.

- State-Contingent Debt Instruments (SCDIs)
  - SCDIs can help bridge borrower-creditor gaps where uncertainty is high but should not be the norm.
  - Fully defined debt treatments early are generally preferred; SCDIs are helpful when uncertainty about economic outlook or repayment capacity is so high that timely agreement is otherwise infeasible.
  - Examples of situations warranting SCDIs: major assumptions affecting restructuring envelope (e.g., new revenue sources such as new oil fields).
  - Design principles for SCDIs:
    - well-defined verifiable triggers reflecting increased repayment capacity;
    - ensure payments from SCDIs do not compromise debt sustainability prospects (e.g., payout caps);
    - market-friendly design where feasible (one-time tests, shorter-maturity instruments) to limit uncertainty, subject to debt sustainability risks being managed.
  - CoT challenges:
    - SCDIs complicate CoT assessment due to higher uncertainty over cash flows and the question whether CoT should be assessed ex ante or ex post.
    - Different SCDIs across creditor groups (or SCDIs only for one group) can require additional iterations and may impact restructuring timelines.
  - Recommendation: early engagement across creditor groups and a proposed specific workshop to bring further clarity on SCDIs in CoT assessments.

- Collateralized Financing from Private Creditors
  - Benefits and risks depend on specific financing terms.
  - Potential benefits: secured project financing where future revenue streams are directly linked to debt repayment and adequate disclosure mitigates mispricing risks.
  - Potential harms when any of the following apply:
    - (i) it does not improve borrowing terms;
    - (ii) it weakens debt sustainability;
    - (iii) it is inadequately disclosed;
    - (iv) it does not respect negative pledge clauses.
  - Collateralized lending from private creditors poses important challenges in restructuring cases.

---

### Collateralization, creditor seniority, and restructuring dynamics
- Collateralization may provide a creditor with de facto seniority on its claim.
- Official sector coordination mechanisms (e.g., Paris Club, Common Framework) anchor negotiations around fair burden sharing even if some official claims are secured with collateral.
- Political will to find a solution is often more determining than the presence or absence of collateral.
- On the private sector side, private collateral can lead to an impasse.
- Official bilateral creditors may not provide additional relief to offset a lower private creditor contribution where private claims are collateralized, potentially undermining CoT.
- In such situations, the IMF may not be able to provide financial support given lack of prospects for successful debt restructuring to restore debt sustainability.
- Certain resource-backed loan contracts can make use of the IMF’s Lending into Arrears Policy (LIA) impossible because the debtor country cannot run arrears to its creditor.

### Awareness, guidance, and capacity building on collateralized transactions
- Broad consensus on importance of increasing awareness of benefits and risks of collateralized financing practices.
- IMF and World Bank referenced notes:
  - “Collateralized Transactions: Key Considerations for Public Lenders and Borrowers” (2020).
  - “Collateralized Transactions: Recent Developments and Policy Considerations” (2023).
- Support for helping debtor countries through trainings and technical assistance missions to assess and mitigate collateralization risks, including on transparency and disclosure.

### Debt service suspension and treatment of arrears (from October 2023 GSDR Cochairs Progress Report)
- Views on debt service suspension (DSS) during negotiation, notably for Common Framework cases:
  - Some support automatic DSS on official bilateral claims from the point when an SLA has been reached for an IMF-supported program to provide liquidity relief and incentivize expedited processes.
  - Others prefer creditors and creditor committees to provide DSS at the country’s request (upon reaching an SLA), without automaticity.
  - Consideration for time-limited debt suspension also noted.
- Growing support for a waiver on penalties on arrears accumulated during the negotiation, as opposed to arrears accumulated before.
- Arrears generally accrue at contractual rates (with a potential penalty).
- Treatment of arrears accumulated during negotiation has varied; many participants are open to waiving arrears penalties accumulated during negotiation, subject to internal procedures and domestic approval where needed.

### MDB support for countries undertaking debt restructuring (from October 2023 GSDR Cochairs Progress Report)
- GSDR Principals (April 2023) reached a common understanding on the role of MDBs to support countries undertaking a debt restructuring through provision of net positive flows of concessional finance and grants.
- IDA provides not only net positive flows, but also ex-ante implicit debt relief through increased concessionality and grants to countries facing higher risks of debt distress.
- Members underlined the importance of MDBs’ financial support.

*Source: Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues (Version as of: October 23, 2024).*

### Section 1

### Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues — Section 1

### Restructuring Timelines
- GSDR discussions, supported by the April 2024 GSDR Cochairs Progress Report, found that timelines remain longer than typical historical practice and have negative impacts on the debtor and its creditors.
- Recommendation: where applicable, notably for Common Framework cases, the timeline to form an official creditor committee (OCC) could be shortened to take advantage of faster information sharing and to accelerate private creditor restructuring processes.
- Suggested aspirational timeline: “Absent specific circumstances impeding a timely decision-making, and provided sufficient information is being shared early and potential concerns being discussed, the proposal for the next debt restructuring case should be set as a trial example to aim for program approval within 2–3 months of SLA.”

### Information Sharing
- From October 2023 GSDR Cochairs Progress Report:
  - The IMF and the World Bank have published staff guidance notes on information sharing in the context of sovereign debt restructurings (IMF Paper No. 2023/027: Staff Guidance Note on Information Sharing in The Context of Sovereign Debt Restructurings (June 2023); and Bank Guidance: Staff Guidance Note on Information Sharing in the Context of Sovereign Debt Restructurings).
- Policy emphasis:
  - All relevant stakeholders, including the IMF, the World Bank and official bilateral creditors, should work expeditiously with the debtor to ensure sufficient information (in particular on DSAs and macroeconomic frameworks) is shared in a timely manner, while accounting for case-specific coordination needs.

### Restructuring Perimeter

- Short-Term Debt
  - From October 2023 GSDR Cochairs Progress Report:
    - Growing support to generally exclude short-term debt (debt with an original maturity of one year or less) from the restructuring perimeter.
    - Rationale: exclusion helps maintain access to trade finance and is common practice under Paris Club treatments and the Common Framework.

- Domestic Debt (DDRs)
  - Key observations from October 2023 GSDR Cochairs Progress Report:
    - DDRs differ materially from EDRs: domestic law issuance can give sovereigns more leverage, but domestic creditor losses can transmit distress to the broader economy and society.
    - No presumption to include or exclude domestic debt; decisions should be data-driven and country-specific.
  - Factors to consider when assessing inclusion/exclusion of domestic debt:
    - overall level of public debt;
    - share of domestic debt in total public debt;
    - country’s financial depth;
    - legal features and currency and creditor composition of the domestic debt;
    - social and political implications of the potential restructuring strategy.
  - Recommended approach:
    - Use scenario analysis to compare combinations of DDR and EDR, anchored in the objective to restore debt sustainability while minimizing costs to financial stability, growth, and social cohesion.
    - National authorities should explain the approach to domestic debt restructuring to creditors (including the possible absence of any DDR).
    - Transparency and disclosure of the domestic debt portfolio is important regardless of whether DDR is pursued.

- Non-Resident Holders of Domestic Debt (NRHs)
  - From April 2024 GSDR Cochairs Progress Report:
    - Emerging consensus: treat NRHs on a case-by-case basis in restructurings.
    - Divergent views:
      - Some advocate inclusion of NRHs in the restructuring envelope if they are included in the DSA.
      - Others note NRHs are external creditors from the DSA perspective but hold instruments governed by domestic law, complicating their treatment.
    - Further discussion is needed to deepen common understanding.

- SOE Debt
  - From April 2024 GSDR Cochairs Progress Report:
    - Limited progress toward consensus on treatment of SOE debt.
    - Positions:
      - Some participants: exclude SOE debt from DSA and restructuring perimeters.
      - Others: include SOE debt in DSA perimeter given SOE fiscal risks, especially in LICs, in application of the current LIC DSF (with limited exceptions).
    - Existing flexibility: creditors and debtor can agree on a restructuring perimeter different from the DSA perimeter, with inevitable burden-sharing consequences.
    - Issue will continue to be discussed, including in the review of the LIC DSF.

### Restructuring Parameters

- Cutoff Dates
  - From October 2023 GSDR Cochairs Progress Report:
    - Cutoff dates are key to protect new financing, including emergency support.
    - Early clarity on the cutoff date is critical, but flexibility should account for case-specific circumstances.
    - In practice, cutoff dates in recent cases have generally been decided case-by-case by creditors, generally not later than the date of the staff-level agreement (SLA), which protects new financing provided after the SLA.

- Comparability of Treatment (CoT) between Official Bilateral and Private Creditors; Consistency with Debt Restructuring Targets and IMF Program Parameters
  - From April 2024 GSDR Cochairs Progress Report:
    - CoT assessment and enforcement remain critical issues needing further clarification.
    - Official bilateral creditors’ approach in recent Common Framework cases:
      - CoT assessed using three Common Framework criteria:
        i. The changes in nominal debt service over the IMF program period;
        ii. Where applicable, the debt reduction in net present value terms (NPV), using a “New NPV / Old NPV” formula and the discount rate of the LIC DSAs (currently 5 percent);
        iii. The extension of the duration of the treated claims;
      - Enforcement mechanisms: claw-back clauses and/or requests to remain in arrears vis-à-vis private creditors until an agreement respecting CoT is found.
    - Outside the Common Framework: similar mechanisms used; NPV calculations sometimes use two or more discount rates for sensitivity analysis.
    - Official bilateral creditors appear intent to maintain this approach in future cases.
  - Practical support identified in GSDR discussions:
    - Enhanced information sharing and coordination across creditor groups on CoT metrics, including expected NPV relief, so debtor knows how CoT will be assessed and the room for maneuver.
    - Timely verification of consistency with debt targets and IMF program parameters: debtor should share restructuring strategy with IMF staff before any restructuring agreement is made public to confirm consistency.
    - Close coordination among the debtor, private creditors, official bilateral creditors, and the IMF is essential. Official bilateral creditors should communicate key data on CoT assessment; private creditors and the debtor should verify consistency with IMF staff and official bilateral creditors before finalizing announcements.
    - Parallel negotiations by official and private creditors are permissible and can be supported to strengthen timely resolution.

### Other Aspects

- Debt Swaps and Climate Resilient Debt Instruments
  - From April 2024 GSDR Cochairs Progress Report:
    - Debt-for-nature/debt-for-development swaps can be useful for liability management but are generally not appropriate where debt restructuring is required; a full cost-benefit analysis is necessary.
    - Need to standardize these instruments to make them more rapidly and cheaply scalable; public support should align with development outcomes and country priorities; increase transparency of documentation and governance.
    - Climate Resilient Debt Clauses (CRDCs) viewed as useful with broad support to scale up their use.
      - Technical issues to facilitate adoption beyond standard ICMA term sheet discussed.
      - Expansion beyond hurricane events is challenging due to limited data history, but work to define standard clauses for other events is promising.
      - Transparency and clarity about indicators triggering clauses are critical.

- Engagement with Credit Rating Agencies (CRAs)
  - From April 2024 GSDR Cochairs Progress Report:
    - Meetings with CRAs clarified how CRAs classify Distressed Debt Exchanges (DDEs): focus on reduction of value to holders relative to contractual terms and whether the exchange aims to avoid default.
    - CRAs treat debt-for-nature/debt-for-development swaps like any debt exchange (which may or may not imply distress).
    - Liquidity relief operations assessed case-by-case to determine whether they qualify as DDEs.
    - Participants emphasized importance of transparency, information sharing and communication.
    - CRAs welcome closer engagement with issuers.

- State-Contingent Debt Instruments (SCDIs)
  - From October 2024 GSDR Cochairs Progress Report:
    - SCDIs can help bridge borrower-creditor gaps where uncertainty is high but should not be the norm.
    - Fully defined debt treatments early are generally preferred; SCDIs are helpful when uncertainty about economic outlook or repayment capacity is so high that timely agreement is otherwise infeasible.
    - Examples of situations warranting SCDIs: major assumptions affecting restructuring envelope (e.g., new revenue sources such as new oil fields).
    - Design principles for SCDIs:
      - well-defined verifiable triggers reflecting increased repayment capacity;
      - ensure payments from SCDIs do not compromise debt sustainability prospects (e.g., payout caps);
      - market-friendly design where feasible (one-time tests, shorter-maturity instruments) to limit uncertainty, subject to debt sustainability risks being managed.
    - CoT challenges:
      - SCDIs complicate CoT assessment due to higher uncertainty over cash flows and the question whether CoT should be assessed ex ante or ex post.
      - Different SCDIs across creditor groups (or SCDIs only for one group) can require additional iterations and may impact restructuring timelines.
    - Recommendation: early engagement across creditor groups and a proposed specific workshop to bring further clarity on SCDIs in CoT assessments.

- Collateralized Financing from Private Creditors
  - From October 2024 GSDR Cochairs Progress Report:
    - Benefits and risks depend on specific financing terms.
    - Potential benefits: secured project financing where future revenue streams are directly linked to debt repayment and adequate disclosure mitigates mispricing risks.
    - Potential harms when any of the following apply:
      (i) it does not improve borrowing terms;
      (ii) it weakens debt sustainability;
      (iii) it is inadequately disclosed;
      (iv) it does not respect negative pledge clauses.
    - Collateralized lending from private creditors poses important challenges in restructuring cases.

*Source: Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues (Version as of: October 23, 2024).*

### Section 2

### gsdr-compendium-of-common-understanding-on-technical-issues - Section 2

### Collateralization, creditor seniority, and restructuring dynamics
- Collateralization may provide a creditor with de facto seniority on its claim.
- On the official sector side, coordination mechanisms such as the Paris Club or the Common Framework, or informal coordination where formal processes are not in place, anchor the negotiation primarily around the objective of achieving fair burden sharing even if some official claims are secured with collateral.
- The political will to find a solution, or the absence thereof, is a more determining factor than the presence or absence of collateral.
- The situation is different on the private sector side, where the presence of private collateral can lead to an impasse.
- Official bilateral creditors may not stand ready to provide more debt relief to compensate a lower contribution of private creditors with collateralized claims than what would be consistent with the principle of comparability of treatment.
- In such situations, the IMF may not be in a position to provide financial support given the lack of prospects of a successful debt restructuring to restore debt sustainability.
- In some cases, the specific features of certain resource-backed loan contracts can also make the use of the IMF’s Lending into Arrears Policy (LIA) impossible because, in practice, the debtor country cannot run arrears to its creditor.

### Awareness, guidance, and capacity building on collateralized transactions
- There was broad consensus among GSDR participants on the importance of increasing awareness on the benefits and risks of collateralized financing practices.
- The IMF and World Bank underlined the findings and policy considerations included in their 2020 note on “Collateralized Transactions: Key Considerations for Public Lenders and Borrowers” and 2023 note on “Collateralized Transactions: Recent Developments and Policy Considerations“, which can help countries assess these benefits and risks, and adopt mitigating measures where needed, including on transparency and disclosure.
- There was also general support on the importance to help debtor countries address these issues through trainings and technical assistance missions.

### Debt service suspension and treatment of arrears (from October 2023 GSDR Cochairs Progress Report)
- On whether and how debt service could be suspended during the negotiation, in particular for Common Framework cases:
  - Some would support an automatic debt service suspension (DSS) on official bilateral claims from the point when an SLA has been reached for an IMF-supported program, which would provide debtors with liquidity relief at a time of major stress and incentivize creditors to expedite the process.
  - Others expressed preference for creditors and creditor committees to provide DSS at the country’s request (upon reaching an SLA), without automaticity.
  - Some consideration may be also given to granting debtor countries a time-limited debt suspension.
- The proposal to provide a waiver on penalties on arrears accumulated during the negotiation, as opposed to arrears accumulated before, gained growing support.
- Generally, arrears accrue at contractual rates (with a potential penalty).
- The treatment of arrears accumulated during the debt restructuring negotiation phase has varied.
- Many participants showed openness to provide a waiver on arrears penalties accumulated during the negotiation, subject to internal procedures and domestic approval where needed.

### MDB support for countries undertaking debt restructuring (from October 2023 GSDR Cochairs Progress Report)
- GSDR Principals reached in April 2023 a common understanding on the role of MDBs to support countries undertaking a debt restructuring through the provision of net positive flows of concessional finance and grants.
- Subsequent meetings helped explain how the International Development Association’s (IDA), for example, provides not only net positive flows, but also ex-ante implicit debt relief through increased concessionality and grants to countries facing higher risks of debt distress.
- Members underlined the importance of MDBs’ financial support.

*Source: gsdr-compendium-of-common-understanding-on-technical-issues - Section 2*

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_Source: https://www.imf.org/-/media/files/about/faq/gsdr/gsdr-compendium-of-common-understanding-on-technical-issues.pdf_