How to Make Sovereign Debt Restructuring Work Now

CIGI Policy Brief No. 179

October 4, 2023

Advocates of international financial stability, economic development and process efficiency are broadly critical of global institutional arrangements for sovereign debt restructuring. When low-income and emerging-market countries get into debt trouble, these arrangements deliver reductions in debt obligations that are generally judged to be “too little, too late.” This policy brief advocates changes to policies and procedures relating to debt restructuring and the International Monetary Fund (IMF) in order to overcome the unwillingness or inability of non-Paris Club official creditors, including but by no means limited to Chinese lending agencies, to participate in a multilateral debt restructuring. Institutional arrangements for sovereign debt restructuring must facilitate negotiation progress and agreements even if a significant official bilateral creditor is slow or refuses to participate. The creditor majority and the IMF should require a commitment from the government undergoing restructuring not to service or redeem debt to any official holdout creditor until that creditor agrees to comparable treatment. The provision should be accompanied by complementary amendments to the IMF’s Lending into Official Arrears policy and changes to the implementation of the Financing Assurances policy.

About the Author

C. Randall Henning is professor of international economic relations in the School of International Service at American University in Washington, DC.