The representatives of the Paris Club creditor countries agreed on 31 March 2020 with the Government of the Federal Republic of Somalia to restructure its external public debt. This was the first ever “virtual” negotiating meeting of the Paris Club. The Paris Club congratulates Somalia for having reached its Decision Point under the enhanced initiative for the Heavily Indebted Poor Countries (enhanced HIPC Initiative) in March 2020.

This agreement was concluded under the so called “Cologne terms” designed by the Paris Club to provide interim debt relief as part of the HIPC Initiative. This leads to the immediate non-ODA debt cancellation of US$ 1.4 billion in debt owed by Somalia to Paris Club creditors.

Somalia is expected to reach its HIPC Completion Point by 31^st March 2023 or earlier and receive the remainder of the debt reduction envisioned under the enhanced HIPC Initiative already endorsed by the international community in 1999. On an exceptional basis, considering Somalia’s very limited capacity of payment, and provided that it continues to implement satisfactorily an IMF supported program, no payments are expected from Somalia until at least 31^st March 2024.

Several creditors intend on a bilateral basis to grant additional debt relief to Somalia beyond the terms set today in the Paris Club agreement.

Somalia is committed to devote the resources that otherwise would have gone to Paris Club creditors to priority investments, as identified in its ninth National Development Plan (NDP-9). Somalia is also committed to seek comparable debt relief from non-Paris Club creditors.

Representatives from Kuwait Fund for Development, Saudi Fund for Development and the Abu Dhabi Fund for Development also attended the meeting as observers. They expressed their support to the terms of the agreement between the Paris Club and the Government of Somalia and indicated their willingness to provide to Somalia comparable terms under the framework of Enhanced HIPC Initiative and in accordance with terms and conditions adopted by their respective Boards of Directors.

The representatives of the Paris Club members expressed their commitment to implement the final component of debt relief contemplated under the enhanced HIPC Initiative as soon as Somalia meets the conditions to reach the Completion. The IMF and the World Bank currently estimate that those creditors will then have delivered total debt relief of approximately US$ 1.7 billion (in net present value terms). This amount does not include additional efforts that Paris Club members intend to provide at completion point.

Background notes

1. The Paris Club was formed in 1956. It is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by borrower countries.

2. The members of the Paris Club which participated in the reorganization of the Federal Republic of Somalia’s debt were the governments of Belgium, Denmark, France, Germany, Italy, Japan, the Netherlands, Norway, the Russian Federation, Spain, the United Kingdom and the United States of America.

Observers at the meeting were representatives of the government of the Brazil, Canada, Finland, Korea, Sweden and Switzerland, as well as the International Monetary Fund, the International Development Association, the African Development Bank, the European Commission and the Secretariat of the UNCTAD. Kuwait, the Saudi Arabia and the United Arab Emirates also observed this reorganization

3. The delegation of Somalia was headed by Dr. Abdirahman D. BEILEH, Minister of Finance. The meeting was chaired by Mr. Guillaume CHABERT, Co Chairman of the Paris Club, Assistant Secretary at the Directorate-General of the Treasury of the French Ministry of Economy and Finance.

Technical notes

1. Somalia’s economic program is supported by a three year arrangement under the Poverty Reduction and Growth Facility and an Extended Fund Facility, both approved by the Board of the International Monetary Fund on 24 March 2020. Somalia reached the decision point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in March 2020.

2. The stock of debt owed to Paris Club creditors and to participating non-Paris Club creditors as of 31^st October 2019 was estimated to be more than US$ 3.0 billion in nominal terms, of which more than 99% consisted of arrears and late interest.

3. The cut-off date (1^st October 1984 for Somalia) is defined when a debtor country first meets with Paris Club creditors. It is not changed in subsequent Paris Club treatments. In accordance with Paris Club rules, credits granted after this cut-off date are not subject to rescheduling or cancellation. In this case, on an exceptional basis, all these amounts were deferred until after 2024. The cut-off date is designed to protect credits granted by Paris Club creditors after this date. It therefore helps restore access to credit for debtor countries after a Paris Club treatment.

4. This agreement consolidates around US$ 2.7 billion, most of which is composed of arrears and late interests. It cancels a total of US$ 1.4 billion and reschedules around US$ 1.3 billion. These rescheduled amounts will be addressed for debt relief when Somalia reaches Completion Point.

5. On an exceptional basis, creditors have also agreed to defer until after 2024 the repayment of arrears accumulated by Somalia on short term and post cut-off date debts, the maturities falling due during the consolidation period under the post cut-off date debts as well as all moratorium interest due during the consolidation period on the rescheduled and deferred amounts.

Paris Club and the IIF: Discussion on debt vulnerabilities, sustainable financing and debt transparency

Paris, June 18, 2019 - Delegates representing official and private creditors participated to the 19th Annual Meeting of the Paris Club and the Institute of International Finance (IIF) to discuss debt vulnerabilities in emerging markets and developing countries. The meeting gathered all 22 Paris Club members, as well as the 3 ad hoc participants to the Paris Club (China, India and South Africa) and Saudi Arabia as the upcoming G20 Presidency. It also gathered more than fifty representatives from the private sector. The IMF and the World Bank also took part in this meeting. This annual meeting is a unique event designed to foster dialogue and cooperation between all creditors, official and private alike, and to reflect recent developments and longer-term trends in the field of sovereign debt.

Against the backdrop of growing concerns about rising public debt levels in several emerging and developing countries, combined with the increasing complexity of debt composition, official and private creditors exchanged views on debt vulnerabilities and perspectives for going forward. Notably, participants discussed the financial situation of countries in debt distress or with significant debt vulnerabilities in Latin America, Sub-Saharan Africa and Southern Asia.

Participants also discussed how to address the infrastructure gap in emerging markets and developing countries, and cover related financing needs, while keeping debt on a sustainable path. They also shared views on the use and features of climate-resilient debt instruments, which could provide debt service relief in countries regularly affected by natural disasters.

Finally, participants discussed ways of enhancing debt transparency to benefit lenders and borrowers alike and ultimately improve debt sustainability through sounder financing practices. In this context, the IMF reported on the implementation of the G20 Operational Guidelines for Sustainable Financing and the IIF presented its work on the Voluntary Principles for Debt Transparency, which was supported by the G20 in Fukuoka. These voluntary Principles provide a framework for private creditors to publicly disclose details on lending to low-income developing countries.

The Paris Forum, an informal body gathering sovereign lenders and borrowers willing to discuss challenges related to sovereign debt issues, organized on May 7th 2019, with the support of the Japanese G20 Presidency, a high level conference on how to ensure sound and sustainable financing for development.

This Conference brought together more than sixty international decision-makers, including around forty countries represented by some thirty Finance Ministers and Central Bank Governors as well as Heads of International Financial Institutions, in particular, Christine Lagarde, Managing director of the IMF ; David Malpass, President of the World Bank Group and Angel Gurria, Secretary-General of the OECD, and Senior Representatives from the civil society (academics, NGOs) and the private sector.

Participants discussed the best ways to meet the financing needs of developing countries and how to reach sustainable development goals, while keeping debt on a sustainable path and ensuring a level playing field for all actors.

Rising debt vulnerabilities worldwide, and notably in developing countries, is a growing source of concern for the international community. This conference allowed participants to build a common understanding on debt vulnerabilities and deliver recommendations to promote a sound and sustainable financing of development.

Conclusions from this high level conference will feed into the G20 Finance Ministers and Central Bank Governors' meeting, to be held in Fukuoka on 8-9th June 2019, as well as the joint IMF-World Bank agenda on debt vulnerabilities.

The video of the conference can be found here (to get the original or English version, click on the flag at the top right of the video): https://www.tresor.economie.gouv.fr/Articles/2019/05/13/conference-de-haut-niveau-du-forum-de-paris

In addition, a recent publication made by academics on debt restructuring is available at the following address: https://piie.com/publications/working-papers/how-restructure-sovereign-debt-lessons-four-decades

On May 6^th 2019, the Paris Club held its regular monthly meeting, with India attending as an observer for the first time.

This participation is based on India’s decision to work with the Paris Club. At present, the Club has 22 full members in addition to China and South Africa who are participating in the work of Paris Club on an ad-hoc basis.

The Paris Club welcomes India’s decision. It reflects the continued efforts towards broader inclusion of emerging creditors, which started with Brazil and Korea becoming full members in 2016, after Israel in 2014. India’s decision supports the role of the Club as the principal international forum for restructuring bilateral official debt.

Participation of the Paris Club in the Paris Peace Forum’s panel "Back to the future: Debt, a Returning challenge"

Odile Renaud-Basso, as Chair of the Paris Club, participated in a conference of the Paris Peace Forum on the challenges of sovereign debt, on 12 November 2018.

This session brought together various panelists: academics (Jean Pisani-Ferry and Yves Tiberghien), think tanks (Kenichiro Sasae of the Japan Institute of International Affairs), and international organizations (Hugh Bredenkamp of the IMF and Odile Renaud –Basso, Chair of the Paris Club).

The conference was designed to discuss sovereign debt issues in a context where the level and pace of debt growth in advanced economies and developing countries is a growing source of vulnerabilities. Several topics were discussed: debt dynamics in many developed countries following the financial crisis of 2007-2008 and vulnerabilities linked to external shocks such as interest rate shock, the reindebtedness of developing countries, despite the debt relief granted to the poorest countries in the years 1990-2000 (Heavily Indebted Poor Countries Initiative, HIPC); but also the situation of China, both a major emerging creditor and a dynamic borrower on the financial markets.

Odile Renaud-Basso explained the role of the Paris Club, the principal international forum for restructuring bilateral official debts. Its expertise in coordinating official creditors, built on 60 years of existence and more than 430 debt restructuring agreements, was highlighted. The flexibility of the Club and its relevance, including for non-Paris Club creditor countries, was underlined, as 35% of the Paris Club's debt treatments were concluded with non-member creditors. The Paris Club is also constantly evolving, with its enlargement to emerging creditors such Brazil and South Korea in 2016, and the regular participation of China and South Africa in some of his work. The Paris Club Chairperson emphasized the importance of the dialogue between all stakeholders on sovereign debt issues, highlighting the role played by the Paris Forum since 2013- a forum for dialogue between creditor and debtor countries alike- aiming at developing a common approach on sovereign debt issues and identifying good practices to prevent risks. For example, in 2016, the Paris Forum initiated the first definition of sustainable financing principles, which were then adopted by the G20 member countries in 2017, with the aim of enhancing transparency and sustainability of financings, and the coordination of sovereign creditors. The question of the implementation of these principles and the adoption of comparable best practices by private creditors are today an ongoing work in the G20 and in the Paris Club.