2023-10-23 15:01:45
A senior US Treasury official said on Monday that there were signs of “potential improvement” in sovereign debt restructuring cases and that more vulnerable countries should seek help, but that additional work was needed. necessary to speed up the process.
Assistant Treasury Secretary for International Finance Brent Neiman noted progress in the cases of Zambia, Ghana and Sri Lanka over the past year, as well as the development of new technical approaches, adding that he hoped that Ghana would reach an agreement on its external restructuring in the coming weeks.
“It is clear that we have not gone far enough or fast enough and there is still much more to do,” Mr. Neiman said in a speech at the Johns Hopkins School for Advanced International Studies.
“The critical test of any progress will be whether it is sustainable when, as seems likely, other countries seek debt treatment,” he added.
“But I am hopeful that our recent efforts will move us toward an improved international debt architecture that can help low- and middle-income countries when they need it.
He gave no details on which countries might be ready to seek help as long-stalled debt restructuring processes move forward for Zambia, Ghana and other countries.
The group of 20 major economies established the common framework for debt relief for low-income countries during the bird flu pandemic, but only two cases – Chad and Zambia – have completed the process, the request of Ethiopia still under study.
Slow progress on debt restructuring has dampened interest from other countries, although the majority of low-income countries are in or near debt distress.
Neiman said world leaders’ attention to the issue had helped elevate it to the top of the international economic agenda. The Global Sovereign Debt Roundtable (GSDR) brought together borrowers, official and private lenders and international institutions to help them agree on common terms and treatments.
Roundtable participants discussed Contingent Debt Instruments (SCDI) which have helped advance Zambia’s restructuring. Mr. Neiman said such securities can be useful when creditors disagree regarding a borrower’s future prospects, such as differences over the oil price outlook for a debtor-exporting country. oil.
These securities are designed to pay more interest when growth is stronger or prices of key commodities rise, or they can reduce interest payments in the event of an extreme weather event or other natural disaster.
“Since SCDIs can automatically reduce debt payments during times of economic stress, the hope is that they can reduce the need for debt treatments in the first place,” Mr. Neiman said.
Restructuring domestic debt can also help facilitate the process of restructuring external debt, as in the case of Ghana, Neiman added. But a simple insistence on comparable treatment of domestic and foreign debt – with the same reduction in net present value – might impose particularly large economic costs on the holders of the domestic debt, including the debtor country’s banks that hold the debt. debt, and is not always feasible.
“We hope that a simple insistence on comparability of treatment between domestic and external debt will not block restructuring cases in the future,” Neiman said.
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