Zambia needs “desperate debt relief” and agreements under a Group of 20 restructuring vehicle are proving difficult, the World Bank’s managing director of operations said on Thursday.
“In the last two years, we have seen the limitations of the common framework,” Axel van Trotsenburg told a panel at the World Economic Forum’s annual meeting in Davos, moderated by Reuters Editor-in-Chief Alessandra Galloni.
Zambia has become a test case for the G20-led “Common Framework” restructuring vehicle launched during COVID-19 to streamline debt restructuring efforts as poorer countries buckle under the fallout from the pandemic hit. It aims to include non-Paris club members, such as China, in debt relief talks.
Non-Paris Club creditors “are now playing a very significant role and that is, I think the challenge, to bring these creditors into this process of dialogue and it is not only China, India as important creditors, (but also) Saudi Arabia and some of the Arab states,” van Trotsenburg said.
“Right now we have negotiations where there is not an established debt sustainability framework. What you see in the discussions is that different creditors are challenging all the underlying assumptions,” van Trotsenburg added, without specifying which creditors he was referring to.
“Take the Zambia case, but this will come up in Sri Lanka – we need to have a serious discussion on lending into arrears by financial institutions,” he added.
Speaking at the same panel, Jose Antonio Ocampo, Colombia’s finance minister, said there was a lack of institutional arrangements to manage debt issues.
“The lack of institutions for debt renegotiations is a major institutional problem in the world economy,” he said.
Ocampo also said that it would make “major sense” to enhance debt-for-climate swaps.
Debt-for-nature swaps usually replace expensive bonds or loans with cheaper financing for developing countries, often with the help of a credit guarantee from a multilateral development bank.
But Kenneth Rogoff, a former International Monetary Fund chief economist who teaches at Harvard University, challenged this idea.
Rogoff said that in such swaps, the debt still remained and investors that do not swap their debt still get paid by the sovereign governments.
Source: Reuters
