Chad becomes the first country to request an overhaul of its debt within the common framework of the G20
Chad has officially requested debt restructuring, the first country to do so under a new common framework developed last year by China and other Group of 20 countries with the help of the Club de Paris, the International Monetary Fund (IMF) said on January 27. .
An IMF official said official creditors would soon begin discussions on what will be the first test of the new framework and whether China, the world’s largest official creditor, and private sector creditors would participate as agreed.
The IMF announced Chad’s decision in a statement for a new four-year program worth about $560 million under its Extended Credit Facility and Expanded Fund. The agreement has been accepted by IMF staff, but still needs to be approved by the IMF’s Executive Board.
Like several other African countries, Chad is struggling with high debt amid the coronavirus crisis and low oil prices, its main export.
The fund said the Chadian government had renewed its commitment to far-reaching reforms and expected IMF financial support to 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 settle for the temporary payment freeze offered by the G20 Debt Service Suspension Initiative (DSSI).
Investors tried to assess how the use of the framework, which provides for the participation of private creditors, could affect access to international capital markets for countries that have issued listed Eurobonds.
However, Chad has no Eurobonds outstanding. 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.
Glencore declined to comment.
“Chad is actually a country that lends itself perfectly to a common framework — it has no publicly traded external debt,” said an investor in the country.
“I think the negative side effects of the common framework are much greater if it was Kenya, Nigeria, Ghana or Angola.”
IMF data showed that 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 accounted for less than 4% of the total debt stock, while China held 8.6%. %, and the Glencore loan and other trade debts accounted for more than 40%.
“It’s important. It’s all up to China and whether it’s going to fulfill the obligations it has taken on with the common framework,” said Mark Rosen, who served as the US executive director at the IMF during the Trump administration.
World Bank President David Malpass told reporters this month that Chad may need a significant reduction in the net present value of its debt.
The novel coronavirus, which has infected more than 100 million people worldwide and killed more than 2.1 million, has hit emerging markets and developing countries hard, exacerbating the heavy debt burden many were already under. faced before the crisis.
G20 economies adopted the common framework for the poorest countries in November, bringing for the first time China, India and Turkey – which are not members of the Paris Club – in a coordinated process of restructuring their the debt.
“This is the first test of the G20 debt reduction process and the process should bring serious relief to Chad,” said Eric LeCompte of Jubilee USA Network, a charity that focuses on poverty reduction. .