## Global Sovereign Debt Roundtable — Cochairs Progress Report (October 12, 2023)

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---

### Introduction and mandate
- GSDR established in February 2023; co-chaired by the Managing Director of the IMF, the President of the World Bank, and the Finance Minister of India as G20 Presidency.
- Membership: representatives of official bilateral creditors from and outside the Paris Club, private sector creditors, and borrowing countries.
- Purpose: focus on processes and practices (not country-specific restructurings); build common understanding on debt sustainability and debt restructuring challenges; complement G20, Paris Club, and country-specific frameworks (including the G20 Common Framework).
- Meetings held since launch:
  - GSDR Principals met twice: April and October 2023.
  - GSDR Deputies met four times: February, April, June and September 2023.
  - Additional technical-level meetings and workshops organized.

### Key common understandings reached in April 2023
- Improve information sharing including on macroeconomic projections and debt sustainability analyses (DSAs) from the IMF and World Bank.
- MDBs provide net positive flows of concessional finance and grants; IDA can provide ex ante implicit debt relief through increased concessionality and grants to countries facing higher risk of debt distress.
- Need to clarify how comparability of treatment (CoT) will be assessed and enforced.
- Agreement to pursue further technical work to improve restructuring processes.

### Recent practices observed in restructurings
- Common practices and observations:
  - Debt restructuring perimeters often excluded short-term debt.
  - Cutoff dates were set by creditor committees at a date no later than the IMF’s staff level agreement (SLA).
  - State contingent debt instruments (SCDIs) identified as a potential tool in certain contexts, but not to become the norm.
- On comparability of treatment:
  - Common Framework discussions enhanced methodology understanding among official bilateral creditors.
  - Private creditors expressed that the methodology underestimates their contribution to debt workouts.
- Treatment of debt service suspension (when requested by the debtor) and of arrears has been discussed but without consensus.
- GSDR has started discussions on domestic debt and SOE debt.

### Momentum in actual restructuring cases and timeline comparisons
- Recent case developments:
  - Landmark agreement in June 2023 between Zambia and official bilateral creditors.
  - Continued progress in other cases: Ghana, Sri Lanka, Chad, Suriname, Ethiopia.
- Timelines from staff-level agreement (SLA) to IMF Executive Board approval:
  - Chad in 2021: 11 months.
  - Zambia in 2022: 9 months.
  - Sri Lanka in March 2023: 6 months.
  - Ghana in May 2023: 5 months.
  - Historical benchmark: previously observed timelines of 2-3 months (current cases remain beyond that).

### Policy work and technical engagements since April 2023
- G20 continued work addressing debt vulnerabilities at working group, Ministers and Central Bank Governors, and Leaders level.
- IMF and World Bank published staff guidance on information sharing in the context of sovereign debt restructurings.
- GSDR technical activities:
  - Technical Group meeting on June 9 covering cutoff dates, short-term debt exclusion, debt service suspension, treatment of arrears, domestic debt restructuring, and SCDIs.
  - Workshop on comparability of treatment on June 15, cochaired by Indian G20 Presidency, Paris Club Secretariat, and IIF.
  - Deputies meetings on June 30 and September 26 to take stock and consider ways forward.
  - Workshop on domestic debt restructuring on September 15 with broad participation (GSDR members, G20 members, Paris Club members, private creditors, borrowers, CSOs, debt experts, advisory firms).

### Developments in specific country cases (selected)
- Zambia:
  - OCC under the Common Framework (co-chaired by China and France) announced a landmark restructuring agreement on June 22, 2023.
  - Agreement paved way for IMF Executive Board approval of first program review in July 2023 and more decisive engagement with private external creditors.
  - Formal MOU between Zambia and official bilateral creditors being finalized.
- Ghana:
  - OCC formed in May under the Common Framework (cochaired by China and France); financing assurances supported IMF program approval in May 2023.
  - OCC discussions have advanced since.
- Ethiopia:
  - OCC created in 2021 under the Common Framework remains engaged; readiness to move forward once authorities reach agreement with Fund staff on IMF-supported program parameters.
  - China agreed with authorities on a temporary debt service suspension; OCC discussions ongoing on implementation by other official bilateral creditors.
- Suriname:
  - Almost completed sovereign debt restructuring: deals agreed with Paris Club and India; agreement in principle with Eurobond holders; authorities hope to conclude agreement with China soon.
- Sri Lanka:
  - Financing assurances from an ad hoc committee of official creditors (Paris Club and India; co-chaired by France, Japan and India) and China enabled IMF program approval in March 2023.
  - Work continues toward agreement in principle with official creditors on specific restructuring terms; domestic debt restructuring partly concluded; active negotiations with Eurobond holders ongoing.

### Restructuring perimeter — Domestic debt
- Trend and context:
  - Share of domestic debt in total public debt rose from about 31 percent in 2000 to 46 percent in 2020.
  - Domestic debt restructurings (DDRs) differ from external debt restructurings (EDRs): domestic law, domestic creditor base, potential for losses to spread to broader economy and society.
- Key considerations for DDR inclusion in perimeter:
  - No presumption to include or exclude domestic debt; decision should be data-driven and country-specific.
  - Factors to consider: overall level of public debt; share of domestic debt in total public debt; country’s financial depth; legal features; currency and creditor composition of domestic debt; social and political implications.
  - Decision should be anchored in scenario analysis assessing costs and benefits of different combinations of DDR and EDR, with objective to restore debt sustainability while minimizing potential costs (financial stability, growth, social cohesion, etc.).
- Communication and transparency:
  - Scenario analyses, communication and transparency are essential.
  - National authorities should explain approach to DDR (including possible absence of a DDR) and considerations behind scenarios analyzed.
  - Disclosure of domestic debt portfolio, regardless of pursuing DDR, helps give comfort to external creditors and can facilitate EDR.
- Planned work:
  - IMF and World Bank staff intend to work on a joint guidance note to help country teams using the LIC DSF where a DDR is (or could be) considered.

### Restructuring perimeter — External debt: short-term debt and SOE debt
- Short-term debt:
  - Growing support to generally exclude short-term debt (debt with an original maturity of one year or less) from restructuring perimeters.
  - Exclusion is common under Paris Club treatments and an explicit feature of the Common Framework; helps maintain access to trade finance.
- SOE debt:
  - Divergent views on treatment of government-guaranteed debt of financially viable SOEs (some suggest exclusion; others note joint IMF-WBG DSAs typically include this debt with limited exceptions).
  - Creditors and restructuring country can agree on a perimeter differing from DSA perimeter, but exclusion raises burden-sharing issues.
  - Agreement to pursue more technical exchanges, potentially a dedicated technical workshop, to inform discussion.

### Restructuring parameters — Cutoff dates
- Cutoff dates are key to protect new financing, including emergency support.
- Early clarity on the cutoff date is critical; flexibility warranted for case-specific circumstances.
- Practice in recent cases: cutoff dates decided case-by-case by creditors, generally not later than the date of the staff-level agreement (SLA) to protect new financing provided after the SLA.

### Restructuring parameters — Comparability of Treatment (CoT)
- CoT assessment and enforcement between official bilateral and private creditors remain divisive; no consensus on all aspects.
- Divergences exist particularly on the appropriate discount rate for net present value (NPV) calculations.
- Proposals have been made to estimate CoT differently than Common Framework or Paris Club approaches, including simpler, standardized approaches assessing only NPV debt burden reduction.
- Common Framework approach (builds on Paris Club practices) includes three parameters:
  - Changes in nominal debt service over the IMF program period.
  - Where applicable, debt reduction in net present value terms.
  - Extension of the duration of the treated claims.
- Common Framework gaps and practice:
  - CF does not specify the specific formula for “debt reduction in net present value terms” nor the discount rate for NPV calculations; nor how three parameters are factored or enforcement mechanisms detailed.
  - Private creditors view: using the discount rate of the LIC DSA framework (currently 5 percent) underestimates private creditors’ contribution to debt workouts.
  - Official bilateral creditors’ view: using the DSA discount rate is consistent with contributions to restoring debt sustainability per the DSA framework.
- Practical approach observed in recent Common Framework cases (e.g., Zambia, Ghana):
  - Assessment based on the three CF parameters.
  - Calculation of debt reduction in NPV based on comparison between NPV of claims after and before restructuring (“New NPV / Old NPV”).
  - Use of the discount rate of the LIC DSAs (currently 5 percent) to calculate NPVs.
  - Enforcement via mechanisms such as claw-back clauses and/or requests to remain in arrears vis-à-vis private creditors until an agreement respecting CoT is found.
- Experience outside Common Framework:
  - Limited completed cases; elements above appear used with NPV calculations sometimes based on two or more discount rates (5 percent baseline and alternative rates such as 7, 9 or 10 percent) for sensitivity analysis.
- Official bilateral creditors appear intent to maintain the CF-presented approach in future cases.

### Restructuring processes and approaches — State Contingent Debt Instruments (SCDIs)
- Growing recognition that SCDIs can help bridge gaps in restructurings where uncertainty is high, though they should not become the norm.
- Rationale:
  - A fully defined debt treatment early brings certainty to creditors and investors and is more efficient than prolonged restructuring.
  - When uncertainty around economic outlook and future repayment capacity is very high, SCDIs can help creditor-debtor consensus in a timely manner.
- When used, SCDIs should be:
  - well-defined;
  - include precise triggers, caps and contingent scenarios;
  - consistent with IMF program parameters and the DSA in all scenarios.

### Debt Service Suspension and Treatment of Arrears
- Debt Service Suspension (DSS) during negotiation, particularly for CF cases:
  - Some supported an automatic DSS on official bilateral claims from the point when an SLA has been reached for an IMF-supported program, to:
    - provide debtors with liquidity relief at a time of major stress; and
    - incentivize creditors to expedite the process.
  - Others preferred that creditors and creditor committees provide DSS at the country’s request (upon reaching an SLA), without automaticity.
  - Some consideration may be given to granting debtor countries a time-limited debt suspension.
- Treatment of arrears accumulated during the negotiation:
  - A 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).
  - 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.

### Support provided by Multilateral Development Banks (MDBs)
- GSDR Principals reached in April 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.
- 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.

### Next steps for GSDR work
- Further advance common understanding on technical issues through Technical Group meetings and targeted workshops on:
  - treatment of SOE debt;
  - domestic debt restructuring issues such as non-resident holders of domestic debt;
  - any other specific issues related to debt and efficient debt restructurings.
  - IMF and World Bank to develop guidance to staff to support countries faced by a potential domestic debt restructuring.
- Explore measures to address debt vulnerabilities and prevent further debt build-up, including:
  - further work on domestic debt restructuring and how to treat SOE debt;
  - engagement with credit rating agencies on restructuring-related issues;
  - analysis of the drivers of debt accumulation and ways to prevent debt build-up;
  - discussion on transparency of domestic and external debt and how to support countries confronted with both climate and debt vulnerabilities.

*Source: Global Sovereign Debt Roundtable — Cochairs Progress Report — October 12, 2023*

### Section 1

### Global Sovereign Debt Roundtable — Cochairs Progress Report (October 12, 2023) — Section 1

### Introduction and mandate
- GSDR established in February 2023; co-chaired by the Managing Director of the IMF, the President of the World Bank, and the Finance Minister of India as G20 Presidency.
- Membership: representatives of official bilateral creditors from and outside the Paris Club, private sector creditors, and borrowing countries.
- Purpose: focus on processes and practices (not country-specific restructurings); build common understanding on debt sustainability and debt restructuring challenges; complement G20, Paris Club, and country-specific frameworks (including the G20 Common Framework).
- Meetings held since launch:
  - GSDR Principals met twice: April and October 2023.
  - GSDR Deputies met four times: February, April, June and September 2023.
  - Additional technical-level meetings and workshops organized.

### Key common understandings reached in April 2023
- Importance of improving information sharing including on macroeconomic projections and debt sustainability analyses (DSAs) from the IMF and World Bank.
- Role of multilateral development banks (MDBs) through the provision of net positive flows of concessional finance and grants.
- Need to clarify how comparability of treatment (CoT) will be assessed and enforced.
- Importance of IDA providing ex ante implicit debt relief through increased concessionality and grants to countries facing higher risk of debt distress.
- Agreement to pursue further technical work to improve restructuring processes.

### Recent practices observed in restructurings
- Common practices and observations:
  - Debt restructuring perimeters often excluded short-term debt.
  - Cutoff dates were set by creditor committees at a date no later than the IMF’s staff level agreement (SLA).
  - State contingent debt instruments (SCDIs) identified as a potential tool in certain contexts, but not to become the norm.
- On comparability of treatment:
  - Common Framework discussions enhanced methodology understanding among official bilateral creditors.
  - Private creditors expressed that the methodology underestimates their contribution to debt workouts.
- Treatment of debt service suspension (when requested by the debtor) and of arrears has been discussed but without consensus.
- GSDR has started discussions on domestic debt and SOE debt.

### Momentum in actual restructuring cases and timeline comparisons
- Recent case developments:
  - Landmark agreement in June 2023 between Zambia and official bilateral creditors.
  - Continued progress in other cases (Ghana, Sri Lanka, Chad, Suriname, Ethiopia).
- Timelines from staff-level agreement (SLA) to IMF Executive Board approval:
  - Chad in 2021: 11 months.
  - Zambia in 2022: 9 months.
  - Sri Lanka in March 2023: 6 months.
  - Ghana in May 2023: 5 months.
  - Historical benchmark: previously observed timelines of 2-3 months (current cases remain beyond that).

### Policy work and technical engagements since April 2023
- G20 continued work addressing debt vulnerabilities, including meetings at working group, Ministers and Central Bank Governors, and Leaders level.
- IMF and World Bank published staff guidance on information sharing in the context of sovereign debt restructurings.
- GSDR technical activities:
  - Technical Group meeting on June 9 covering cutoff dates, short-term debt exclusion, debt service suspension, treatment of arrears, domestic debt restructuring, and SCDIs.
  - Workshop on comparability of treatment on June 15, cochaired by Indian G20 Presidency, Paris Club Secretariat, and IIF.
  - Deputies meetings on June 30 and September 26 to take stock and consider ways forward.
  - Workshop on domestic debt restructuring on September 15 with broad participation (GSDR members, G20 members, Paris Club members, private creditors, borrowers, CSOs, debt experts, advisory firms).

### Developments in specific country cases (selected)
- Zambia:
  - OCC under the Common Framework (co-chaired by China and France) announced a landmark restructuring agreement on June 22, 2023.
  - Agreement paved way for IMF Executive Board approval of first program review in July 2023 and more decisive engagement with private external creditors.
  - Formal MOU between Zambia and official bilateral creditors being finalized.
- Ghana:
  - OCC formed in May under the Common Framework (cochaired by China and France); financing assurances supported IMF program approval in May 2023.
  - OCC discussions have advanced since.
- Ethiopia:
  - OCC created in 2021 under the Common Framework remains engaged; readiness to move forward once authorities reach agreement with Fund staff on IMF-supported program parameters.
  - China agreed with authorities on a temporary debt service suspension; OCC discussions ongoing on implementation by other official bilateral creditors.
- Suriname:
  - Almost completed sovereign debt restructuring: deals agreed with Paris Club and India; agreement in principle with Eurobond holders; authorities hope to conclude agreement with China soon.
- Sri Lanka:
  - Financing assurances from an ad hoc committee of official creditors (Paris Club and India; co-chaired by France, Japan and India) and China enabled IMF program approval in March 2023.
  - Work continues toward agreement in principle with official creditors on specific restructuring terms; domestic debt restructuring partly concluded; active negotiations with Eurobond holders ongoing.

### Building further common understanding for efficient restructurings

Restructuring perimeter — Domestic debt
- Trend and context:
  - Share of domestic debt in total public debt rose from about 31 percent in 2000 to 46 percent in 2020.
  - DDRs differ from EDRs: domestic law, domestic creditor base, potential for losses to spread to broader economy and society.
- Key considerations for DDR inclusion in perimeter:
  - No presumption to include or exclude domestic debt; decision should be data-driven and country-specific.
  - Factors to consider: overall level of public debt; share of domestic debt in total public debt; country’s financial depth; legal features; currency and creditor composition of domestic debt; social and political implications.
  - Decision should be anchored in scenario analysis assessing costs and benefits of different combinations of DDR and EDR, with objective to restore debt sustainability while minimizing potential costs (financial stability, growth, social cohesion, etc.).
- Communication and transparency:
  - Scenario analyses, communication and transparency are essential.
  - National authorities should explain approach to DDR (including possible absence of a DDR) and considerations behind scenarios analyzed.
  - Disclosure of domestic debt portfolio, regardless of pursuing DDR, helps give comfort to external creditors and can facilitate EDR.
- Planned work:
  - IMF and World Bank staff intend to work on a joint guidance note to help country teams using the LIC DSF where a DDR is (or could be) considered.

Restructuring perimeter — External debt: short-term debt and SOE debt
- Short-term debt:
  - Growing support to generally exclude short-term debt (debt with an original maturity of one year or less) from restructuring perimeters.
  - Exclusion is common under Paris Club treatments and an explicit feature of the Common Framework; helps maintain access to trade finance.
- SOE debt:
  - Divergent views on treatment of government-guaranteed debt of financially viable SOEs (some suggest exclusion; others note joint IMF-WBG DSAs typically include this debt with limited exceptions).
  - Creditors and restructuring country can agree on a perimeter differing from DSA perimeter, but exclusion raises burden-sharing issues.
  - Agreement to pursue more technical exchanges, potentially a dedicated technical workshop, to inform discussion.

Restructuring parameters — Cutoff dates
- Cutoff dates are key to protect new financing, including emergency support.
- Early clarity on the cutoff date is critical; flexibility warranted for case-specific circumstances.
- Practice in recent cases: cutoff dates decided case-by-case by creditors, generally not later than the date of the staff-level agreement (SLA) to protect new financing provided after the SLA.

Restructuring parameters — Comparability of Treatment (CoT)
- CoT assessment and enforcement between official bilateral and private creditors remain divisive; no consensus on all aspects.
- Divergences exist particularly on the appropriate discount rate for net present value (NPV) calculations.
- Proposals have been made to estimate CoT differently than Common Framework or Paris Club approaches, including simpler, standardized approaches assessing only NPV debt burden reduction.
- Common Framework approach (builds on Paris Club practices) includes three parameters:
  - Changes in nominal debt service over the IMF program period.
  - Where applicable, debt reduction in net present value terms.
  - Extension of the duration of the treated claims.
- Common Framework gaps and practice:
  - CF does not specify the specific formula for “debt reduction in net present value terms” nor the discount rate for NPV calculations; nor how three parameters are factored or enforcement mechanisms detailed.
  - Private creditors view: using the discount rate of the LIC DSA framework (currently 5 percent) underestimates private creditors’ contribution to debt workouts.
  - Official bilateral creditors’ view: using the DSA discount rate is consistent with contributions to restoring debt sustainability per the DSA framework.
- Practical approach observed in recent Common Framework cases (e.g., Zambia, Ghana):
  - Assessment based on the three CF parameters.
  - Calculation of debt reduction in NPV based on comparison between NPV of claims after and before restructuring (“New NPV / Old NPV”).
  - Use of the discount rate of the LIC DSAs (currently 5 percent) to calculate NPVs.
  - Enforcement via mechanisms such as claw-back clauses and/or requests to remain in arrears vis-à-vis private creditors until an agreement respecting CoT is found.
- Experience outside Common Framework:
  - Limited completed cases; elements above appear used with NPV calculations sometimes based on two or more discount rates (5 percent baseline and alternative rates such as 7, 9 or 10 percent) for sensitivity analysis.
- Official bilateral creditors appear intent to maintain the CF-presented approach in future cases.

Restructuring processes and approaches — State Contingent Debt Instruments (SCDIs)
- Growing recognition that SCDIs can help bridge gaps in restructurings where uncertainty is high, though they should not become the norm.
- Rationale:
  - A fully defined debt treatment early brings certainty to creditors and investors and is more efficient than prolonged restructuring.
  - When uncertainty around economic outlook and future repayment capacity is very high, SCDIs can help creditor-debtor consensus in a timely manner.

*Source: Global Sovereign Debt Roundtable — Cochairs Progress Report — October 12, 2023 — Section 1*

### Section 2

### gsdr-cochairs-progress-report-october-12-2023 - Section 2

### Use of State-Contingent Debt Instruments (SCDIs)
- Delaying negotiations until uncertainty dissipates is costly for both debtors and creditors.
- SCDIs can help bridge debtor-creditor differences during negotiations.
- When used, SCDIs should be:
  - well-defined;
  - include precise triggers, caps and contingent scenarios;
  - consistent with IMF program parameters and the DSA in all scenarios.

### Debt Service Suspension and Treatment of Arrears
- Debt Service Suspension (DSS) during negotiation, particularly for CF cases:
  - Some supported an automatic DSS on official bilateral claims from the point when an SLA has been reached for an IMF-supported program, to:
    - provide debtors with liquidity relief at a time of major stress; and
    - incentivize creditors to expedite the process.
  - Others preferred that creditors and creditor committees provide DSS at the country’s request (upon reaching an SLA), without automaticity.
  - Some consideration may be given to granting debtor countries a time-limited debt suspension.
- Treatment of arrears accumulated during the negotiation:
  - A 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).
  - 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.

### Support Provided by Multilateral Development Banks (MDBs)
- GSDR Principals reached in April 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 explained 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.

### Next Steps for GSDR Work
- GSDR Principals discussed and provided guidance on the work agenda for the GSDR going forward. They supported work on:
  - Further advancing the common understanding on technical issues as appropriate, including:
    - discussions through Technical Group meetings or/and targeted workshops on issues related to the treatment of SOE debt;
    - follow up discussions on issues in domestic debt restructuring such as the situation of non-resident holders of domestic debt;
    - any other specific issues related to debt and efficient debt restructurings.
    - Participants expressed support for the IMF and World Bank to develop guidance to staff to support countries faced by a potential domestic debt restructuring, which could be further discussed in the context of the GSDR.
  - Exploring further measures and ways to help address debt vulnerabilities and debt restructuring challenges and prevent further build-up of debt, including:
    - further work on domestic debt restructuring and how to treat SOE debt;
    - engagement with credit rating agencies on restructuring-related issues;
    - analysis of the drivers of debt accumulation and ways to prevent debt build-up;
    - discussion on transparency of domestic and external debt and how to support countries confronted with both climate and debt vulnerabilities.

*October 12  , 2023*

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_Source: https://www.imf.org/-/media/files/miscellaneous/gsdr-cochairs-progress-report-october-12-2023.pdf_