The increase in over-indebtedness on sovereign debt encourages the action plan of the Bretton Woods group
LONDON (Reuters) – The Bretton Woods Committee has formed a task force of seasoned bankers, academics and lawyers to propose ways to address an increase in sovereign debt distress in emerging markets following the COVID-19 pandemic.
The influential US-based nonprofit said it would consider how to promote greater transparency around sovereign debt and achieve fair burden sharing among all creditors, namely the official, bilateral sectors. and private.
Poor countries around the world are grappling with sharply rising debt resulting from weaker economic growth and higher budget deficits as the coronavirus crisis tightened its grip.
The group formed by the Bretton Woods Committee will also examine how to involve private sector creditors in any debt relief program, as well as the analysis of conditional government financing options, which tie service payments to debt. a country’s debt to its ability to pay.
It aims to publish a series of articles over the next 12-18 months for policy makers, debtor countries and creditors.
According to the European Network on Debt and Development (Eurodad), countries using the G20 Debt Service Suspension Initiative (DSSI) are expected to pay just over $ 6 billion to bondholders and others. commercial lenders $ 6.5 billion.
The Bretton Woods Committee was established in 1983 and aims to champion global efforts to boost economic growth, reduce poverty and improve financial stability.
Among the ideas the task force will consider is a commitment by rating agencies to consider disclosure and transparency in sovereign credit rating.
To encourage greater private sector participation in debt restructuring processes, he will consider ideas such as swapping the debt of troubled sovereign borrowers for new bonds linked to the United Nations Sustainable Development Goals.
Another is whether to expand the use of clauses allowing sovereign borrowers to defer payments in extreme weather conditions such as hurricanes.
Last year, the International Monetary Fund and the World Bank launched the Debt Service Suspension Initiative (DSSI) and the accompanying common framework to help low-income borrowers.
But many governments seemed reluctant to exploit the latter, in part because of fears that private sector debt relief could trigger default in the eyes of credit rating agencies.
Ethiopia was demoted by Fitch and S&P after saying in January that it would be the first country with an international government bond, and not already in default, to use it.
Reporting by Tom Arnold; Edited by Alexander Smith