Common Framework: Lessons Learned and Ways Forward

Under the 2024 G20 Brazilian presidency, the G20 endorsed a Note outlining the lessons learned and the ways forward for the Common Framework. Read more about the lessons learned from the first cases of the Common Framework in the excerpts below, or consult the full G20 Note (see attachment below).

Since its creation in November 2020 under Saudi Arabia’s G20 Presidency, the Common Framework (CF) has started to deliver concrete results through advancing the coordination between G20 and Paris Club (PC) official bilateral creditors for the provision of debt treatments to low-income countries (LICs) facing debt sustainability issues. In four years, the CF has emerged as a coordination platform bringing together G20 and Paris Club creditors. For a given debtor, the Official Creditor Committee (OCC), is composed of its official G20 and Paris Club bilateral creditors and is formed to address borrower countries’ debt treatment request to restore medium-term debt sustainability, contributing to the assurances often necessary for the approval of IMF programs and subsequent reviews. The CF aims at providing a debt treatment in a coordinated manner and on a case-by-case basis, tailored to each borrower country’s debt structure and to creditors’ specific constraints. Out of four countries which submitted a request for debt treatment, three restructurings of official bilateral loans have been achieved, giving leverage for these countries to negotiate debt treatment with the other creditors, above all, commercial and other external bilateral.

In sum:

• Chad: in December 2022, an agreement on a contingent debt treatment with official bilateral creditors was reached, allowing the sovereign to benefit from a debt restructuring from its main private creditor. Given that an increase in oil price reduced Chad’s financing gap over the program period to zero, official bilateral creditors agreed to reconvene and assess the need for a debt treatment before the end of the program period (2021- 2024), should a financing gap reappear.
• Zambia: in June 2023, an agreement was reached among official bilateral creditors, formalized by a MoU four months later. The “baseline treatment” consisted in lowering interest rates and extending maturities until 2043, resulting in a reduction of the debt stock in net present value terms. An “upside treatment” could also be triggered by creditors if the debt carrying capacity of Zambia improves by the completion of its IMF program. The “upside treatment” involved higher interest rates than those of “baseline treatment” and extending maturities for a shorter period, until 2038.
• Ghana: in January 2024, an agreement was reached on the main parameters of the debt treatment, formalized by a MoU as of June of the same year. The treatment notably entails a comprehensive rescheduling of the debt service due during the IMF program period for loans disbursed before December 2022, together with large maturity extension and reduced interest rate.
• Ethiopia requested a debt treatment within the CF in February 2021. The formation of the OCC followed 5 months after. Deteriorated domestic politics (including internal armed conflict), and then time taken to negotiate with IMF staff a new IMF supported program, have delayed the possibility for the official creditors committee to start working on the debt treatment. However, the CF has demonstrated flexibility by providing a tailored debt service suspension over 2023- 2024 to Ethiopia, alleviating liquidity pressures, and having granted financing assurances ahead of the release of the SLA allowing to approve the IMF program in July 2024. The OCC is currently working on debt treatment options for Ethiopia.

The following lessons can be drawn from the first years of the Common Framework:

• Lessons Learned #1: debtor countries could benefit from enhancing efficiency and more clarity, as appropriate, regarding the different steps of the debt treatments process, in line with the G20 call to step up the implementation of the CF in a predictable, timely, orderly and coordinated manner.

• Lessons Learned #2: To facilitate timely implementation of the CF, a reference paper could be produced by the co-chairs of the Official Creditors Committees (OCC), for internal use, and at the early stages, synthetizing discussions held in the different creditor committees while maintaining the principle of a case-by-case approach.

• Lessons Learned #3: Channels for information sharing between the IMF-WB, and official creditors, and other financial stakeholders could be improved to facilitate early and informed discussion on the DSA, together with necessary debt treatments.

• Lessons Leaned #4: Challenges on implementing the CoT. The case of Zambia stressed the need for enhanced coordination, appropriate sequencing/parallel work and information sharing between the official bilateral creditors, representative of the bondholders, and the commercial creditors.