Chad requests for debt overhaul under G20 common framework

The International Monetary Fund said on Wednesday that Chad has officially requested a debt restructuring, the first country to do so under the new common framework forged last year by China and other Group of 20 countries with the help of the Paris Club.

An official of the IMF said official creditors would soon begin discussions on what will be the first test of the new framework and whether China, the world’s biggest official creditor, and private sector creditors would participate as agreed.

The IMF announced Chad’s move in a statement about a new four-year program worth about $560 million under its Extended Credit and Extended Fund facilities. The deal was agreed by staff, but must still be approved by the IMF’s executive board.

Like several other African countries, Chad is struggling with a high debt burden against a backdrop of the coronavirus crisis and low prices for oil, its major export.

The fund said Chad’s government had renewed its commitment to wide-ranging reforms, and expected that IMF financial support would help “catalyze substantial financial support from development partners and debt relief from creditors.”

The G20 framework aims to streamline the process for poor countries to reduce their stock of debt rather than just the temporary freeze in payments offered by the G20 Debt Service Suspension Initiative (DSSI).

Investors have been trying to gauge how using the framework, which foresees participation by private creditors, could affect access to international capital markets for countries that have issued publicly traded Eurobonds.

However, Chad has no outstanding Eurobonds. Analysts say its largest external commercial debt is an oil-backed loan to mining company Glencore, which had already been restructured in 2018 to secure an IMF bailout.

“Chad is actually a country that is quite suitable for a common framework – it doesn’t have any publicly traded external debt,” said one investor in the country.

“I think the negative side effects of the common framework are much larger if it were a Kenya, Nigeria, Ghana or Angola.”

IMF data showed Chad had $2.8 billion in public or publicly guaranteed debt or 25.6% of GDP at the end of 2019. Debt owed to the Paris Club of official bilateral creditors made up less than 4% of the total debt stock, while China held 8.6%, and the Glencore loan and other commercial debt made up more than 40%.

“This is important. It’s all about China and whether they are going to fulfill the obligations they signed on to with the common framework,” said Mark Rosen, who served as the U.S. executive director at the IMF under the Trump administration.

World Bank President David Malpass told reporters this month that Chad may need a deep reduction in the net present value of its debt.

The novel coronavirus, which has infected over 100 million people worldwide and killed more than 2.1 million, has hit emerging market and developing countries hard, exacerbating heavy debt burdens many already faced before the crisis.

G20 economies adopted the common framework in November for the poorest countries, bringing China, India and Turkey – which are not members of the Paris Club – into a coordinated debt restructuring process for the first time.

“This is the first test of the G20 debt reduction process and the process must deliver serious relief for Chad,” said Eric LeCompte of Jubilee USA Network, a charity that focuses on reducing poverty.

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