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Thomson Reuters, Jul 16, 2021
PARIS (Reuters) – The Paris Club of sovereign creditors called on Friday for a creditor committee to be formed quickly to restructure Ethiopia’s debt, increasing pressure on China to engage under a new joint G20 framework to grant debt relief to poor countries.
Chad, Ethiopia and Zambia are the only countries so far to have sought debt relief under the G20 framework which lays out how to agree debt restructurings under the same terms for all creditors, whether public or private.
Before debt negotiations can take place, a country seeking debt relief first has to agree an economic programme with the International Monetary Fund aiming at restoring sound public finances.
A committee involving the debtor country’s main public creditors must then be formed and they have to come up with a debt relief outline consistent with guidance from the International Monetary Fund.
Paris Club chairman Emmanuel Moulin told journalists that forming a creditor committee for Ethiopia was proving complex because one creditor needed formal internal approval to proceed.
Moulin did not name China, but it is Ethiopia’s biggest creditor and a source familiar with the situation said Beijing was still on the sidelines.
“We have expressed urgent concerns, which are shared with the International Monetary Fund. We are doing everything possible to form a creditor committee as soon as possible to handle Ethiopia’s request,” Moulin said.
He added that Ethiopia’s current IMF programme was expiring in September, which made it all the more important to get a debt relief outline in the coming weeks.
While the process is dragging on for Ethiopia, Chad’s case is more advanced, with a creditor committee formed and the IMF-backed debt relief guidance in place.
Moulin said that the Paris Club was prepared to reschedule Chad’s debt over a long period, but expected a big private creditor that is currently holding out to do the same.
He did not name the private creditor, but around 40% of Chad’s $2.8 billion external debt at the end of 2019 was owed to commercial creditors, comprised mainly of an oil-backed loan from Swiss commodities trader Glencore.
Zambia, which has been in default since November last year after the coronavirus pandemic added to its long-running debt problem, has made little progress under the G20 framework ahead of elections in August.