Global Courant 2023-04-13 17:04:05
In February, it was announced that the IMF – along with the World Bank and G20 leader India – would Global Roundtable on Sovereign Debt (GSDR), the third meeting of which took place in Washington on April 12 on the sidelines of the spring meetings of the IMF and the World Bank.
There have been a number of debt roundtables in the past, but these have been dominated by creditor-focused discussions and groups – such as the Paris Club, or even the G20 Common Framework discussions that started in November 2020. The most remarkable thing about this roundtable is that borrowing countries are included in a break from the creditor-core norm. Six borrowing countries are taking part – from Latin America these include Ecuador and Suriname and from Africa, Ethiopia, Zambia and Ghana with Sri Lanka the only Asian borrower at the round table.
Like we did argued elsewhere, this is progress but not enough. Borrowers themselves should come together exclusively to coordinate views on debt restructuring and to share lessons learned and ideas for securing new financing to meet these challenges.
As all three of these African countries are in talks with the IMF or considering the IMF lending route, it is essential that they come together to discuss various terms and offers from the IMF, US, China and others and work out what is the best are conditions. they can suggest. Accounts Payable coordination has been the norm for far too long – it’s this kind borrower coordination this can and should become standard practice.
Four suggestions for borrowers
However, there may still be a useful role for this roundtable, especially if the borrowers in the room have fairly clear and similar views. But what could those views be about? We have four suggestions.
First, borrowers could express their views on the challenges of the existing creditor-centric architecture.
As we saw with Sri Lanka’s bilateral creditor guarantees during the February 2023 roundtable talks, Ghana, Ethiopia and Zambia will try to buy similar creditors in April. However, a glaring concern as we go into the next meetings on sovereign debt is how long the restructuring talks have lasted. It sets a negative precedent for future participants in the roundtables, where it is likely that debt service will default before any agreements between borrower and lender are in place, tarnishing borrowers’ perceptions before debt negotiations even begin.
For example, in 2022, the financial authorities of Ghana suspended debt service and effectively defaulted on the national debt. But even though Ghana reached a staff-level deal with the IMF in December 2022, the IMF’s $3 billion financial package remains on hold pending the formation of a creditors’ committee and creditors’ guarantees.
Discussions on the common framework and formulation of the creditors’ committee for Chad and Zambia have lasted one to two years. The sooner such obstacles to debt restructuring are overcome, the more efficient future debt restructuring will be – both for African and other countries in need of multilateral and bilateral debt relief and access to much-needed development finance.
Second, borrowers could express their views on which creditors should be involved in the debt restructuring and in what way.
For example, do they agree Our colleagues that every creditor should be involved? For example, the IMF and the World Bank account for a significant portion of the debt service for many countries. Take Zambia, where multilateral development banks (MDBs) account for 23% of external debt. Debt relief from the MDBs could be based on the Multilateral Debt Relief Initiative (MDRI) or draw on capital hitherto unused, as indicated in the Capital adequacy framework report.
Aside from that, they could also help Europe, the UK and the US legislate for private sector participation in debt restructuring. For China, bilateral debt relief could be negotiated one by one or in groups of loan categories to speed up the process.
Third, borrowers could make it clear that this is not a one-off issue for them, as low- and middle-income countries are fundamentally under-indebted.
Often, African governments get loans from creditors to invest in much-needed debt-creating infrastructure. However, this debt can be wealth-producing and has a wide range of positive externalities, such as job creation, productivity gains and trade relations.
Us recent forecast analysis at Development Reimagined about financing gaps in infrastructure illustrates this. To meet the SDGs, Ethiopia would need to have an average annual expenditure between 17-25% of its GDP ($23.6-$34.8 billion)! For Zambia and Ghana, this is 26-38% ($7.4-$10.8 billion) and 9.7-12.6% ($7-$9.1 billion) respectively!
Now let’s look at the debt service for these countries. Ethiopia’s debt service was just under $2 billion in 2020, while Zambia’s and Ghana’s were $1.9 billion and $2.7 billion, respectively. Compared to total debt forgiven or reduced between 2000 and 2020, debt service in 2020 alone represented 29% of debt forgiveness in Ethiopia. The figures are more alarming in Zambia and Ghana, at 31% and 43% respectively.
Using Ethiopia, Zambia and Ghana as regional examples, these comparisons highlight the importance of urgent debt restructuring for countries facing fiscal constraints, balancing domestic growth and enabling investment with unnecessarily burdensome liabilities abroad. A clear lesson from the pandemic era is that a crippled recovery in one economy jeopardizes the robustness, speed and sustainability of growth in the rest of the world.
Fourth and finally, the borrowers in the room were able to comment on the current conditionality of the G20 common framework and the specific reforms demanded in return for debt relief.
For example, all three African countries that have signed up to the Common Framework must agree to IMF programs that target austerity measures and austerity, which in turn can curb growth, demand and revenues. Countries need more flexibility to determine their own growth paths.
All in all, the debt roundtable is not enough, but those at the table can use it strategically to support borrowers’ goals and strengthen borrowers’ voice and agency in the creditor-centric international financial system.
GSDR meets in Washington
The Global Sovereign Debt Roundtable (GSDR) meet in Washington on April 12, 2023 and discussed debt sustainability and debt restructuring challenges and ways to address them. The discussion focused on the actions that can be taken now to speed up and make debt restructuring processes more efficient, including in the context of the G20 common framework.
The meeting agreed on the importance of urgently improving information exchange, including on macroeconomic forecasts and debt sustainability assessments, early in the process. The IMF and World Bank have pledged to provide prompt guidance to staff on information sharing at every stage of the restructuring process.
The meeting discussed the role of MDBs in these processes by providing net positive flows of concessional finance.
It was announced that a workshop on assessing and enforcing comparability of treatment will be held in the near future and further work will be done on principles related to cut-off dates, formal suspension of debt service at the start of the process, treatment of arrears , and the size of the debt to be restructured, including with regard to domestic debt. It was hoped that this work will also help clarify possible timeframes to accelerate debt restructuring.
