## Sovereign Debt Restructuring Process Is Improving Amid Cooperation and Reform _IMF Blog, June 26, 2024_ ## Source details **Canonical URL:** [Sovereign Debt Restructuring Process Is Improving Amid Cooperation and Reform](https://www.imf.org/en/blogs/articles/2024/06/26/sovereign-debt-restructuring-process-is-improving-amid-cooperation-and-reform) ## Other formats - [Markdown version](/en/blogs/articles/2024/06/26/sovereign-debt-restructuring-process-is-improving-amid-cooperation-and-reform/index.md) - [Structured JSON version](/en/blogs/articles/2024/06/26/sovereign-debt-restructuring-process-is-improving-amid-cooperation-and-reform/index.json) - [Bundle manifest](/en/blogs/articles/2024/06/26/sovereign-debt-restructuring-process-is-improving-amid-cooperation-and-reform/bundle-manifest.json) ## Bibliographic details - Authors: Ceyla Pazarbasioglu - Published: June 26, 2024 --- ### Overview and recent developments - 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. ### Progress in creditor cooperation and speed of restructurings - Common Framework outcomes: - Reduces time from IMF staff level agreement to financing assurances from official creditors required for program approval. - 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. - Ethiopia’s talks are likely to be faster, closer to the customary two or three months. - Improvements reflect increased experience and engagement with non-traditional official creditors such as China, India, and Saudi Arabia. - Emerging market restructurings outside the Common Framework: - Sri Lanka’s case was faster than the Suriname process in 2021, reflecting better creditor coordination and understanding of safeguards and assurances. - Global Sovereign Debt Roundtable (GSDR): - Introduced by the IMF, World Bank and the G20 Presidency early last year. - Helped address technical disagreements on comparability of treatment, debt coverage, information sharing, and processes and timelines. - Progress summarized in a recent report has accelerated ongoing cases and built foundations for future restructurings. ### IMF policy reforms to speed engagement - 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: - Enables disbursement as soon as financing assurances materialize. - Increases transparency and helps complicated cases move on a faster schedule. - New procedure for establishing financing assurances: - IMF would assess that a “credible official creditor process” is underway based on creditor actions and track record. - Intended to be considerably faster than waiting for formal letters over time. - Reforms will: - Facilitate faster engagement with debtor countries. - Provide more information to creditors (economic projections, policy commitments, debt sustainability analysis). - Complement Fund efforts to improve transparency and timely information sharing with stakeholders. ### Remaining risks and measured progress - 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: - Markets reopened earlier this year for low-income countries; Benin, Cote d’Ivoire, Kenya, and Senegal raised money from foreign investors. - Emerging market bond spreads are back to pre-pandemic levels. - Spreads for about 15 percent of emerging markets are at distressed levels. - Low-income country financing needs and risks: - 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. - Around 15 percent of low-income countries are in debt distress and another 40 percent are at high risk of distress. ### Next steps and policy recommendations - GSDR will continue to address outstanding restructuring challenges, including: - How official and private creditor processes can move in parallel. - Ways to address liquidity challenges. - 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. - IMF actions: - Publish a sovereign debt handbook later this year to distill policies and underpin more efficient processes. - Review the debt sustainability framework for low-income countries jointly with the World Bank to ensure fitness for purpose. - Broader policy priorities: - Borrowers must foster economic growth and boost government revenues to create fiscal space for development and climate-related spending while keeping debt sustainable. - Official creditors should consider mobilizing more funding at reduced cost, particularly grants, given the time needed for borrower policy reforms to deliver results. - The Fund will continue to support efforts and provide adequate financing, including through review of concessional facilities. - A forthcoming blog will elaborate on international cooperation to ease borrowing burdens and alleviate the liquidity squeeze facing many emerging and low-income countries. *Source: IMF blog post “Sovereign Debt Restructuring Process Is Improving Amid Cooperation and Reform” (June 26, 2024).* --- ## Content in this bundle - **Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues** - [Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues (Markdown version)](/-/media/files/about/faq/gsdr/gsdr-compendium-of-common-understanding-on-technical-issues.pdf.md){rel="alternate" type="text/markdown"} - [Global Sovereign Debt Roundtable — Compendium of GSDR Common Understanding on Technical Issues (PDF)](/-/media/files/about/faq/gsdr/gsdr-compendium-of-common-understanding-on-technical-issues.pdf){rel="external" type="application/pdf"} --- ## References - [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) _Source: https://www.imf.org/en/blogs/articles/2024/06/26/sovereign-debt-restructuring-process-is-improving-amid-cooperation-and-reform_