## Questions and Answers on Debt Restructuring in Low Income Countries ## Source details **Canonical URL:** [Questions and Answers on Debt Restructuring in Low Income Countries](https://www.imf.org/en/about/faq/questions-and-answers-on-debt-restructuring-in-lics) ## Other formats - [Markdown version](/en/about/faq/questions-and-answers-on-debt-restructuring-in-lics/index.md) - [Structured JSON version](/en/about/faq/questions-and-answers-on-debt-restructuring-in-lics/index.json) - [Bundle manifest](/en/about/faq/questions-and-answers-on-debt-restructuring-in-lics/bundle-manifest.json) --- ### Overview - Publication: Questions and Answers on Debt Restructuring in Low Income Countries, IMF Strategy, Policy and Review Department. - Date: April 6, 2022. - Core message: Some low-income countries will likely have to restructure their debt; restructurings are becoming more complex and require timely, efficient, and orderly mechanisms. ### Debt trends and risk indicators - The IMF notes that debt challenges in low-income countries have risen over the last decade, exacerbated by COVID-19 and the fallout of the war in Ukraine. - The 73 low-income countries that were eligible for the G20 Debt Service Suspension Initiative (DSSI) in 2020–21 and are now eligible for the G20 Common Framework: - About 60 percent are now at high risk or already in debt distress, compared to less than 30 percent in 2015. - Among the 41 DSSI countries at high risk or in debt distress: 4 have already undertaken a debt treatment and around 20 exhibit significant breaches of applicable high-risk threshold, half of which also have low levels of reserves and rising gross financing needs in 2022. - Historical context: Debt levels and accumulation of arrears in low-income countries are far from the situation in the 1990s before the Heavily Indebted Poor Countries (HIPC) initiative, but have been on the rise in the last decade. ### Domestic debt issues and financial stability trade-offs - Local currency debt for the median DSSI country: - Rose from 7 percent of GDP in 2010 to 15 percent of GDP in 2021. - For DSSI countries with market access: - Local currency debt increased from 8 percent of GDP in 2010 to 28 percent of GDP in 2021. - Sovereign-bank links have deepened, with larger holdings of domestic sovereign debt at domestic banks. - Key trade-off: Restructuring sovereign debt owed to domestic banks may be necessary but can affect financial stability and domestic banks’ ability to finance growth. ### External creditor composition and coordination challenges - Creditor composition has diversified, complicating coordination for restructurings: - In 2006, 28 percent of DSSI countries’ external debt was owed to Paris Club creditors; by 2020 this share had fallen to 11 percent. - Over the same period, the share owed to China rose from 2 to 18 percent. - Eurobonds’ share rose from 3 to 11 percent. - Distribution and concentration: - Among 68 DSSI countries with available data: - 22 countries have debt to private creditors that exceeds 15 percent of their total external debt; these 22 countries represent 83 percent of the total exposure of private creditors. - Only 26 countries report bonded debt; 18 do not report any private debt. - 22 countries have a debt to China that exceeds 20 percent of their total external debt; these 22 countries represent 76 percent of China’s total exposure to DSSI countries. - Six countries (Angola, Ethiopia, Kenya, Lao PDR, Pakistan, and Zambia) together account for about half of China’s total exposure to DSSI countries. - China is the biggest official bilateral creditor in more than half of the DSSI countries (counting all 22 Paris Club creditors as a single pool), with a median share of China in the total debt owed to official bilateral creditors reaching 43 percent. - Implication: China would play a key role in most DSSI countries’ debt restructurings involving official bilateral creditors. ### Policy implications and recommended institutional responses - The increased frequency and complexity of restructurings in DSSI countries implies an urgent need for mechanisms that ensure: - Coordination among diverse creditor types (official bilateral creditors, China, private bondholders, multilateral institutions). - Confidence among stakeholders to enable timely, orderly, and efficient restructurings. - Potential role for the G20 Common Framework: - Improvements in the G20 Common Framework could play an important role in enhancing coordination and timely resolution of debt problems. - Rationale: Timely, orderly, and efficient debt restructurings serve the interests of debtor countries, their creditors, and broader global stability and prosperity. --- ## Content in this bundle - **The Common Framework: Utilizing its Flexibility to Support Developing Countries’ Recovery** - [The Common Framework: Utilizing its Flexibility to Support Developing Countries’ Recovery (Markdown version)](/-/media/files/publications/covid19-special-notes/enspecial-series-on-covid19-the-common-framework-utilizing-its-flexibility-to-support-developing-cou.pdf.md){rel="alternate" type="text/markdown"} - [The Common Framework: Utilizing its Flexibility to Support Developing Countries’ Recovery (PDF)](/-/media/files/publications/covid19-special-notes/enspecial-series-on-covid19-the-common-framework-utilizing-its-flexibility-to-support-developing-cou.pdf){rel="external" type="application/pdf"} --- _Source: https://www.imf.org/en/about/faq/questions-and-answers-on-debt-restructuring-in-lics_