The Washington-based Institute of International Finance (IIF), which represents private creditors worldwide, stated yesterday it considers Angola and Mozambique as some of the countries most likely to join the G20’s “Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative (DSSI)” to restructure their private debt.
Countries that have already participated in the DSSI and which are highly dependant in terms of debt service are the most likely to be able to adhere to the Common Framework, reads a note from the institution’s department of economic studies.
This means that African countries such as Angola, Mozambique, Ethiopia, Cameroon, Cabo Verde, Congo, Zambia, amongst others, fall under these conditions. (see full table at the bottom of this article).
In contrast, the report states that countries like Ivory Coast, Senegal and Zambia which may have a more active creditors base and with large volumes of unpaid private debt may be reluctant to adhere to debt treatment under the Common Framework due to concerns about potential downgrades in the rating and loss of market access.
The report comes at a time when Mozambique may be starting negotiations with the International Monetary Fund (IMF) for financial assistance and also on the heels of Angola’s recurrent guarantees that it will not seek to restructure the debt with private creditors, more specifically sovereign debt bonds (Eurobonds).
The DSSI is helping countries concentrate their resources on fighting the pandemic and safeguarding the lives and livelihoods of millions of the most vulnerable people. Since it took effect on May 1, 2020, the initiative has delivered about US$5B in relief to more than 40 eligible countries.
In all, 73 countries are eligible for a temporary suspension of debt-service payments owed to their official bilateral creditors. The G20 has also called on private creditors to participate in the initiative on comparable terms. The suspension period, originally set to end on December 31, 2020, has been extended through June 2021.
The IIF concludes the report stating that last year “a record number of sovereign debt defaults” was reached, pointing to the cases of Lebanon, Zambia, Argentina, Belize, Ecuador and Suriname.
The outlook was made slightly better, the report claims, due to a number of factors, including DSSI itself, as well as the increased support of multilateral finance institutions, which rose 30% in 2020 to more than US$120B.
Additionally, the report alludes to an increase in internal financing as another factor alleviating the crisis, with the issuance of bonds in local currency more than doubling, to US$105B in the 73 countries eligible for DSSI.
Fitch Ratings writes about G20’s Common Framework:
The “Common Framework for Debt Treatments beyond the DSSI” is a new instrument for dealing with sovereign debt vulnerabilities. This report analyses the main characteristics of the Common Framework, the implications for private-sector creditors and for sovereign ratings, and discusses some key factors affecting whether sovereigns may seek Common Framework treatment.
Focus on Unsustainable Debt Situations
The Common Framework is available to the same set of countries that are eligible for the Debt Service Suspension Initiative (DSSI) and involves the same group of 39 official bilateral creditors from the G20 and the Paris Club. But while the DSSI aims to provide fast relief to the pandemic shock for a broad range of low-income countries, the Common Framework focuses on cases involving a challenging debt burden. The priority is on maturity extensions, while haircuts are reserved for exceptional cases.
Private-Sector Involvement Required
Most importantly from a rating perspective, the Common Framework explicitly requires debtor countries to seek comparable treatment by other external creditors, including the private sector, while the DSSI had only encouraged private-sector participation.
There is still some uncertainty, not least because the Paris Club can make exceptions. However, past Paris Club agreements (other than the DSSI) have typically required private-sector participation.
You may download Fitch’s Report by accessing their website