{
  "title": "Sovereign Debt Restructuring Process Is Improving Amid Cooperation and Reform",
  "publication": "IMF Blog, June 26, 2024",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2024/06/26/sovereign-debt-restructuring-process-is-improving-amid-cooperation-and-reform",
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  "summary": "Agreements taking shape at a faster pace are reducing uncertainty for countries and investors",
  "sections": [
    {
      "heading": "Overview and recent developments",
      "content": "- Author: Ceyla Pazarbasioglu; Date: June 26, 2024.\n- The global economy avoided a systemic debt crisis in recent years, but vulnerabilities persist because of high debt servicing costs that pose important challenges for low and middle-income countries.\n- When sovereigns falter, faster restructurings reduce human and economic costs; delays worsen poverty and creditor losses."
    },
    {
      "heading": "Progress in creditor cooperation and speed of restructurings",
      "content": "- Common Framework outcomes:\n  - Reduces time from IMF staff level agreement to financing assurances from official creditors required for program approval.\n  - Example timings: Ghana’s agreement this year took five months to cover those steps, roughly half the time it took for Chad in 2021 and Zambia in 2022.\n  - Ethiopia’s talks are likely to be faster, closer to the customary two or three months.\n  - Improvements reflect increased experience and engagement with non-traditional official creditors such as China, India, and Saudi Arabia.\n- Emerging market restructurings outside the Common Framework:\n  - Sri Lanka’s case was faster than the Suriname process in 2021, reflecting better creditor coordination and understanding of safeguards and assurances.\n- Global Sovereign Debt Roundtable (GSDR):\n  - Introduced by the IMF, World Bank and the G20 Presidency early last year.\n  - Helped address technical disagreements on comparability of treatment, debt coverage, information sharing, and processes and timelines.\n  - Progress summarized in a recent report has accelerated ongoing cases and built foundations for future restructurings."
    },
    {
      "heading": "IMF policy reforms to speed engagement",
      "content": "- Executive Board reforms (adopted in April) provide tools to generally allow IMF program approval within two or three months of a staff-level agreement, including through safeguards to proceed amid creditor coordination problems.\n- Approval in principle for programs:\n  - Enables disbursement as soon as financing assurances materialize.\n  - Increases transparency and helps complicated cases move on a faster schedule.\n- New procedure for establishing financing assurances:\n  - IMF would assess that a “credible official creditor process” is underway based on creditor actions and track record.\n  - Intended to be considerably faster than waiting for formal letters over time.\n- Reforms will:\n  - Facilitate faster engagement with debtor countries.\n  - Provide more information to creditors (economic projections, policy commitments, debt sustainability analysis).\n  - Complement Fund efforts to improve transparency and timely information sharing with stakeholders."
    },
    {
      "heading": "Remaining risks and measured progress",
      "content": "- Sovereign defaults and requests for comprehensive debt relief have tapered off since 2021 and 2022; the last notable request was Ghana’s more than a year ago.\n- Market indicators:\n  - Markets reopened earlier this year for low-income countries; Benin, Cote d’Ivoire, Kenya, and Senegal raised money from foreign investors.\n  - Emerging market bond spreads are back to pre-pandemic levels.\n  - Spreads for about 15 percent of emerging markets are at distressed levels.\n- Low-income country financing needs and risks:\n  - Low-income countries still need to refinance about $60 billion of external debt each year over the next two years—about triple the average in the decade through 2020.\n  - Around 15 percent of low-income countries are in debt distress and another 40 percent are at high risk of distress."
    },
    {
      "heading": "Next steps and policy recommendations",
      "content": "- GSDR will continue to address outstanding restructuring challenges, including:\n  - How official and private creditor processes can move in parallel.\n  - Ways to address liquidity challenges.\n  - Potential menu of options: use of the Common Framework for coordinated liquidity relief; liquidity management operations such as debt swaps or buy backs; ways to support new inflows including through risk-sharing instruments.\n- IMF actions:\n  - Publish a sovereign debt handbook later this year to distill policies and underpin more efficient processes.\n  - Review the debt sustainability framework for low-income countries jointly with the World Bank to ensure fitness for purpose.\n- Broader policy priorities:\n  - Borrowers must foster economic growth and boost government revenues to create fiscal space for development and climate-related spending while keeping debt sustainable.\n  - Official creditors should consider mobilizing more funding at reduced cost, particularly grants, given the time needed for borrower policy reforms to deliver results.\n  - The Fund will continue to support efforts and provide adequate financing, including through review of concessional facilities.\n- A forthcoming blog will elaborate on international cooperation to ease borrowing burdens and alleviate the liquidity squeeze facing many emerging and low-income countries.\n\nSource: IMF blog post “Sovereign Debt Restructuring Process Is Improving Amid Cooperation and Reform” (June 26, 2024).\n\n---\n\n Content in this bundle\n\n- Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues\n  - Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- an important challenge\n- reforms to our debt policies\n- share information\n\nSource: https://www.imf.org/en/blogs/articles/2024/06/26/sovereign-debt-restructuring-process-is-improving-amid-cooperation-and-reform"
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    "Authors: Ceyla Pazarbasioglu",
    "Published: June 26, 2024",
    "Author: Ceyla Pazarbasioglu; Date: June 26, 2024.",
    "The global economy avoided a systemic debt crisis in recent years, but vulnerabilities persist because of high debt servicing costs that pose important challenges for low and middle-income countries.",
    "When sovereigns falter, faster restructurings reduce human and economic costs; delays worsen poverty and creditor losses.",
    "Common Framework outcomes:",
    "Emerging market restructurings outside the Common Framework:",
    "Global Sovereign Debt Roundtable (GSDR):",
    "Executive Board reforms (adopted in April) provide tools to generally allow IMF program approval within two or three months of a staff-level agreement, including through safeguards to proceed amid creditor coordination problems.",
    "Approval in principle for programs:",
    "New procedure for establishing financing assurances:",
    "Reforms will:",
    "Sovereign defaults and requests for comprehensive debt relief have tapered off since 2021 and 2022; the last notable request was Ghana’s more than a year ago.",
    "Market indicators:",
    "Low-income country financing needs and risks:",
    "GSDR will continue to address outstanding restructuring challenges, including:",
    "IMF actions:",
    "Broader policy priorities:",
    "A forthcoming blog will elaborate on international cooperation to ease borrowing burdens and alleviate the liquidity squeeze facing many emerging and low-income countries.",
    "**Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues**",
    "[an important challenge](https://www.imf.org/en/Blogs/Articles/2024/01/24/how-to-ease-rising-external-debt-service-pressures-in-low-income-countries)",
    "[reforms to our debt policies](https://www.imf.org/en/Publications/Policy-Papers/Issues/2024/04/16/Policy-Reform-Proposals-To-Promote-The-Funds-Capacity-To-Support-Countries-Undertaking-Debt-547821)",
    "[share information](https://www.imf.org/en/Publications/Policy-Papers/Issues/2023/06/23/Staff-Guidance-Note-on-Information-Sharing-in-The-Context-of-Sovereign-Debt-Restructurings-535203)"
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