COMMON FRAMEWORK
The G20 Common Framework for Debt Treatments beyond the DSSI
What is the Common Framework?
The Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative (DSSI), or Common Framework, is a unique mechanism to provide low-income countries (LICs) with orderly and coordinated debt restructurings, with broad creditors’ participation.
The G20 set up the Common Framework in 2020 under Saudi Arabia G20 presidency. It was also endorsed by the Paris Club. It was designed to provide debt treatments to countries eligible to the DSSI that was rolled-out during the Covid-19 pandemic[1].
The Paris Club strongly supports the Common Framework initiative and continues to work actively with the other G20 creditors to implement it. A debt restructuring under the Common Framework brings together G20 and Paris Club creditors, as well as any other willing official bilateral creditor of a debtor country, under a single official creditor committee (OCC). The president of the Paris Club co-chairs the OCC, along with a representative from a non-Paris Club G20 creditor.
Main features of the Common Framework
The objective of a debt treatment under the Common Framework is to contribute to put a country back on a sustainable external public debt trajectory, within the context of an IMF program.
The Common Framework founding document lays out guidelines for debt treatments. It integrates many of the fundamental principles of the Paris Club, such as the case-by-case approach, the requirement for comparability of treatment with other official bilateral and private creditors, and the fact that the debt treatment need is based on a financing gap (which leads to a restructuring envelope) defined by an IMF-WBG Debt Sustainability Analysis (DSA). The Common Framework also adds the notion of “a collective assessment” from participating official creditors as to the debt treatment needed.
Steps of a debt restructuring process under the Common Framework
A debt restructuring process under the Common Framework is closely intertwined with the implementation by a debtor country of an IMF program. The debt treatment must be consistent with the parameters of an upper credit tranche (UCT) IMF-supported program.
For a debtor country to benefit from a debt treatment under the Common Framework, it must first conclude a Staff-Level Agreement (SLA) with the IMF to set program objectives and financing. The DSA produced as part of the SLA informs creditors of the macro-framework of the debtor country, and provides them with the targets that must be met via the debt treatment.
The OCC, bringing together G20, Paris Club and, when appropriate, other official bilateral creditors, is then expected to provide its financing assurances. Providing financing assurances means that the OCC understands the order of magnitude of efforts to be made, on the basis of the financing gap determined by the DSA and its collective assessment. This step paves the way for the approval of the IMF program by the IMF Executive Board, and allows the first disbursement of the program.
Once financing assurances are in place and the program has been approved, the debtor country and the OCC enter negotiations to reach an agreement on the terms of the debt treatment. These terms as well as other non-financial terms are formalized in a Memorandum of Understanding (MoU) to be signed by the debtor country and OCC members. Achieving these various steps may constitute conditions for the IMF Executive Board to approve the reviews and the disbursements as part of its program.
The last steps of a debt treatment involve the signature of legally binding bilateral agreements between the debtor and each of its creditors, based on the agreed MoU.
Common Framework cases
As of 2024, four countries have applied to the Common Framework for a debt treatment: Tchad, Zambia, Ethiopia and Ghana.
Each country-case is unique, with each country currently at a different stage of the restructuring process:
Comparability of treatment with other creditors
The Common Framework agreement states that the debtor country is required to seek from all its other official bilateral creditors and private creditors a treatment at least as favourable as the one agreed with the OCC in order to meet the “comparability of treatment” principle.
The debtor country then has to conclude agreements that are at least as favourable to itself as the one of the OCC with its other external creditors in the scope of the debt treatment.
[1] The DSSI included in its scope all IDA-countries and all least developed countries as defined by the United Nations, and who remained current on IMF and World Bank debt service. It was a historic and exceptional measure taken jointly by the G20 and Paris Club to offer support to 73 eligible low-income countries. 48 countries benefited from the DSSI, with $12.9bn of debt service suspended.