The G20 Common Framework for Debt Treatments Must Be Stepped Up

IMF Blog, December 2, 2021

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Canonical URL: The G20 Common Framework for Debt Treatments Must Be Stepped Up

Publication date: December 2, 2021.
Authors: Kristalina Georgieva, Ceyla Pazarbasioglu.
Despite COVID-19 relief measures, about 60 percent of low-income countries are at high risk or already in debt distress. In 2015 that number was below 30 percent.
The G20 debt service suspension initiative (DSSI) is ending; interest rates are poised to rise.
The international community scaled up support during the pandemic, including:
- $650 billion allocation of special drawing rights (SDRs).
- $21 billion of SDRs allocated directly to low-income countries.
- G20 leaders committed to support low-income countries with onlending $100 billion of their SDRs.

2022 expected to be more challenging due to tightening international financial conditions.
The DSSI will expire at the end of this year, forcing participating countries to resume debt service payments.
For low-income countries needing comprehensive debt treatment, the Common Framework will be critical to unlock IMF financing.
New COVID-19 variants continue to cause disruptions to economic activity.
Without accelerated debt restructurings and suspensions of debt service during negotiations, some countries may face economic collapse, arrears, or reductions in priority expenditures.

The Common Framework is intended to address insolvency and protracted liquidity problems alongside IMF-supported reform programs.
G20 official creditors (traditional Paris Club creditors and new creditors such as China and India) agreed to coordinate to provide debt relief consistent with debtors’ capacity to pay and to maintain essential spending.
The Common Framework requires private creditors to participate on comparable terms to ensure fair burden sharing.
Only three countries—Chad, Ethiopia, and Zambia—have requested debt relief under the Common Framework; each case has experienced significant delays.
Sources of delay:
- Coordination among Paris Club and other creditors and multiple government institutions within creditor countries slows decision-making.
- New creditors and relevant domestic institutions require time to gain comfort with restructuring processes.
- Case-specific complications:
- Chad: must restructure a large, collateralized obligation held by a private company, partly syndicated to many banks and funds.
- Ethiopia and Zambia: domestic challenges slowed progress.

Greater clarity on the different steps and timelines in the Common Framework process to accelerate decision making.
Earlier engagement of official creditors with the debtor and with private creditors.
A comprehensive and sustained debt service payment standstill for the duration of negotiations to:
- Provide relief to debtors under stress.
- Incentivize faster procedures to reach actual debt restructuring.
Clarify how comparability of treatment will be effectively enforced, including as needed through implementation of the IMF arrears policies, to give greater comfort to creditors and debtors.
Expand the Common Framework to other highly-indebted countries that can benefit from creditor coordination to enable timely and orderly debt resolution.

Chad: finalizing Chad’s restructuring quickly can serve as an essential precedent for other countries.
Ethiopia: the creditor committee should continue technical work to allow early provision of debt relief assurances once the situation stabilizes.
Zambia: G20 creditors should expeditiously form a committee of official creditors, begin engaging with authorities and private creditors on debt relief, and provide a temporary debt-service suspension for the duration of debt-restructuring discussions. Otherwise, Zambia could face cutting priority expenditures or piling up arrears.

The IMF stands ready to work with the World Bank and partners to help ensure the Common Framework delivers for intended beneficiaries.
Determined multilateral action is needed now to address vaccine inequality globally and to support timely and orderly debt resolution.

Source: The G20 Common Framework for Debt Treatments Must Be Stepped Up — IMF blog, December 2, 2021.