G20 debt relief: What we have learnt so far
Mozambique becomes the 32nd country to be accepted by the Paris Club for bilateral debt service relief under DSSI
Mozambique became the 32nd country to be accepted by the Paris Club for bilateral debt service relief under the G20’s Debt Service Suspension Initiative (DSSI) yesterday. There is now a wide and diverse enough sample of countries that have been approved for DSSI to enable us to make inferences about the experience so far and which may have relevance in thinking about how other countries may be handled in future.
This may be particularly pertinent as discussions about other potential debt relief candidates unfold (either within or outside the DSSI framework). Moreover G20 leaders are due to consider a possible extension of DSSI at next month’s IMF/WB Annual Meetings (see here). This is most likely to involve a 12-month extension of the debt service suspension period (eg through to end-2021) but could also include an expansion of scope to capture a wider set of countries.
We observe the vast majority of the 32 countries now approved for debt service suspension under DSSI by the Paris Club have been somewhat straightforward. 27 countries (84%) received Paris Club approval after having had emergency financing approved by the IMF (eg RCF/RFI disbursements). This is what we should expect under the DSSI rules. The G20 Term Sheet states as a requirement that eligible countries need to be “benefiting from, or have made a request to IMF Management for, IMF financing including emergency facilities (RFI/RCF)”. To that end, another two countries — Togo and Angola — seemingly qualified by virtue of their prevailing IMF programmes (although we note that over half — 17 countries — of the 32 countries have or had an IMF programme, but may have chosen to request RFI/RCF instead as the way in). The IMF approved an augmented sixth (and final) review of Togo’s ECF on 3 April, with Paris Club approval of DSSI following on 15 June. That means 28 countries (88%) — 27 plus Togo — received Paris Club approval after benefiting from IMF financing (emergency or programmes).
Curiously, two countries — Angola and Myanmar — both got their Paris Club approvals before IMF financing was approved, so they were less straightforward. In the case of Myanmar, Paris Club approval of DSSI occurred on 10 June, while its RCF was approved by the Fund on 26 June. In Angola’s case, while it may have technically been able to qualify as it was under a programme, the programme looked liked it was heading off track. In the event, it wasn’t. The Paris Club approved DSSI for Angola on 31 August, while the third review of its EFF programme wasn’t until 16 September (after a slight delay). Presumably, in both cases, and given the relatively short time lag between the Paris Club decision and the IMF decision, the Paris Club approval was made on the basis that the IMF decision would be forthcoming (although that reasoning might not necessarily follow in Angola’s case given the experience of Republic of Congo — as below).
That leaves two countries, which we view as somewhat special cases — Republic of Congo and Zambia. While both got Paris Club approvals for DSSI, seemingly without having IMF financing (recently) approved, technically it might be argued they met the Fund’s requirements (“benefitting from” financing in the case of REPCON or “requesting” financing in the case of Zambia). Republic of Congo is at least under an IMF programme, but the first review still hasn’t been completed after the staff mission in November 2019. So it’s a bit like Angola, but worse. Zambia, however, isn’t under a programme but may have qualified under the criteria of making a request, even if that request has been ongoing for some six years. Indeed, it may have been the authorities’ desire to benefit from DSSI treatment, finally securing Paris Club approval on 10 August, that finally forced their hand to engage more seriously with the Fund and its creditors (see here). Both cases might suggest, in our view, a flexible interpretation of the rules.
This article first appeared on Tellimer.com. To read more from our Head of Sovereign & Fixed Income Research, Stuart Culverhouse, go here.
