Written by Andrea Shalal and Karen Strohecker
WASHINGTON (Reuters) – Top U.S. and Chinese officials will join the Global Sovereign Debt Roundtable on Wednesday, where the main topic will be the lack of transparency over bank loans that has complicated developing country debt restructuring efforts.
Sela Pazarbacioglu, Director of Strategy at the International Monetary Fund, said that the continued participation of the world’s two largest economies in the round table, despite the fierce trade war that divides them, shows their commitment to continuing to address the high levels of debt that are hurting developing countries.
Speaking to reporters at the annual meetings of the International Monetary Fund and World Bank, Pazarbacioglu said the roundtable established in 2023 had led to progress in shortening timelines for official debt restructuring and bond debt restructuring, but there was more work to be done on non-bond debt.
“These discussions were important to get everyone on the same page,” she said. He added: “The fact that US Treasury Secretary (Scott Besent) will be there tomorrow, China will be there, there will be others, is a sign that they remain committed to this discussion.”
Advocating for transparency on debt
Pazarbacioglu said transparency was a common concern, especially regarding non-bond debt holdings. “They would like to see more transparency regarding debts. They fully support this effort to publish data by debtors.”
“Non-bond debt is the laggard at this stage,” she said, noting that some countries have moved through the debt restructuring process but still face banking or other exposures that have prevented credit rating agencies from bringing them out of default and increasing their ratings.
She added: “This is a crucial step to ensure that countries are able to access lower-cost financing. This is what we are focusing on now.”
A recent IMF study detailed the challenges faced by countries such as Ghana, Sri Lanka, Zambia and Suriname, which have gone through debt restructuring, but are still negotiating with creditors, delaying debt upgrades by rating agencies.
The Group of 20 major economies, which launched the Common Framework for Debt Restructuring during the Covid pandemic, is also expected to issue a statement on debt issues later this week, activists and officials from G20 countries said.
Global debt is at record levels
Global debt has reached record levels, but many emerging markets have already reduced their debt-to-GDP ratios, even though they still face crushing debt service payments, and advanced economies have pushed them out of the capital market.
Investors and debt experts say high borrowing costs in international capital markets have effectively disadvantaged many of the riskiest borrowers, prompting governments to opt for loans for which they rarely publish terms and conditions.
There is a clear need for more transparency, said Jose Viñals, former chairman of Standard Chartered Group – one of the private creditors along with BlackRock that form part of the global sovereign debt roundtable.
“This is something that greatly complicates restructuring processes and I think it is one of the things on which progress must be made,” he said during an event hosted by the Bretton Woods Committee on Tuesday evening.
The loans lack mechanisms such as collective action clauses often written into bonds that help simplify sovereign debt restructurings by allowing the majority of bondholders to tie up the minority to a new deal and block out “holdout” creditors.
“When you talk about bank loans, we don’t have these positions, so it’s more complicated,” Vinals said, calling for accelerating discussions on this issue in the coming months.
He also pointed to working groups such as the London Alliance on Sustainable Sovereign Debt, which the British government launched in June to help make debt contracts clearer and more transparent, improve the way loan terms address natural disasters, and address problems with syndicated lending practices.
England and New York are jurisdictions used for almost all international bond and loan contracts across emerging markets.
(Reporting by Andrea Shalal and Karen Strohecker; Editing by Frances Kerry)
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