"Cash-strapped countries face IMF bailout delays as debt talks drag on"

" Cash-strapped countries face IMF bailout delays as debt talks drag on \r\n Countries in debt distress such as Zambia and Sri Lanka turning to the International Monetary Fund ( IMF ) for financial help are facing unprecedented delays to secure bailouts as China and Western economies clash over how to provide debt relief. \r\n IMF funding is often the sole financial lifeline available to countries in a debt crunch, and key to unlocking other financing sources, with delays putting pressure on government finances, companies and populations. \r\n For Zambia , it took 271 days between reaching a US$1.3 billion staff-level agreement with the IMF \u2013 a preliminary financing deal usually agreed during a country visit \u2013 and the fund\u2019s executive board signing off, a prerequisite for actual disbursements. \r\n The first African country to default in the\u00a0 COVID-19 pandemic \u00a0era in 2020, Zambia\u2019s ongoing debt relief negotiations involving China have been closely watched by other countries as a test case for the major emerging market lender. \r\n Though staff agreements can be reached without financing assurances, the IMF board needs them to approve the programme. These are guarantees that sovereign lenders \u2013 and to some extent commercial creditors \u2013 will negotiate a restructuring in line with the IMF\u2019s debt sustainability analysis, providing relief and financing when needed. \r\n Sri Lanka has been waiting for 182 days to finalize a bailout after a US$2.9 billion September staff level deal while Ghana, having defaulted on its overseas debt in December following a preliminary IMF deal, has yet to get board approval 80 days later. \r\n This compares to a median of 55 days it took low- and middle-income countries over the last decade to go from preliminary deal to board sign-off, according to public data from over 80 cases compiled by Reuters. \r\n These delays have been caused by a number of reasons, but debt experts mainly point to the fact that China is still reluctant to offer debt relief in comparable terms with other external creditors. \r\n \u201cThey are part of the reason why these negotiations are so painfully slow,\u201d said Kevin Gallagher, director of the Boston University Global Development Policy Center. \u201cIt\u2019s not just the Paris Club and a few New York banks anymore.\u201d \r\n China\u2019s Ministry of Foreign Affairs didn\u2019t immediately respond to a request for comment. \r\n Chinese Premier Li Keqiang\u00a0said on Wednesday (1 March)\u00a0the country is willing to \u201cconstructively\u201d participate in solving debt problems of relevant countries under a multilateral framework. But Beijing\u00a0has always emphasised\u00a0all creditors should follow the principle of \u201cjoint action, fair burden\u201d in debt settlements. \r\n An IMF spokesperson said it was a \u201cvery small number of countries\u201d that suffered \u201csignificant delays,\u201d acknowledging this was in particular where there was a need to restructure debt owed to official bilateral lenders. \r\n However, the time from staff level agreement to lending approval had remained \u201cbroadly consistent for a vast majority of countries,\u201d the spokesperson added. \r\n\r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n Reuters Graphics \r\n Besides members of the Paris Club of creditor nations such as the United States, France and Japan, cash-strapped nations now have to rework loans with lenders such as India, Saudi Arabia, South Africa and Kuwait \u2013 but first and foremost China. \r\n Beijing is the largest bilateral creditor to developing nations, extending $138 billion in new loans between 2010 and 2021, according to\u00a0World Bank\u00a0data. \r\n For countries such as Sri Lanka facing shortages of food, fuel and medicines as well as painful reforms to alleviate a debt crisis after years of economic mismanagement, the delays can be devastating. The war in Ukraine added pressure as global commodity prices soared. \r\n \u201cSri Lanka going beyond March without an IMF programme will be challenging for us,\u201d said the country\u2019s State Minister of Finance Sehan Semasinghe. \r\n \u201cWe need the programme to justify the reforms that need to be made for the economic stabilization process.\u201d \r\n\r\n A MORE COMPLEX DEBT WORLD \r\n After the COVID-19 pandemic raised pressure on highly-indebted economies, the Group of 20 economies launched in 2020 the Common Framework, a platform designed to help low-income nations restructure sovereign debt. For the first time, China joined a multilateral effort aimed at reworking sovereign debt. \r\n Chad, Ethiopia and Zambia signed up in early 2021. Chad secured a deal in November with its creditors, including Swiss commodities trader Glencore, an outcome without debt reduction that some analysts said undermined the Common Framework efforts. Ethiopia\u2019s progress was delayed by civil war, and Ghana joined the platform earlier this year. \r\n In a recent letter sent to Sri Lanka, a non-Common Framework country due to its middle-income status, China\u2019s Export-Import Bank offered a two-year debt moratorium, raising concerns over how much of a hit Beijing was prepared to take. \r\n \u201cThe question remains whether China is willing to accept a real extension of maturities that locks in a concessional interest rate for a long period of time,\u201d said Brad Setser, senior fellow for international economics at the Council on Foreign Relations (CFR), in Washington. \r\n\r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n \r\n Reuters Graphics \r\n Gregory Smith, emerging markets fund manager at London-based M&G Investments, said China had a legacy of providing debt relief \u201cbut it typically involves maturity extensions or temporary freeze in interest payments\u201d, while face-value reductions in the principal are rare. \r\n Unlike the Paris Club, Chinese lenders tackle restructuring or cancellation on a loan-by-loan basis rather than for the entire portfolio, according to a\u00a0working paper\u00a0of the China Africa Research Initiative (CARI), which found 1,000 Chinese loans commitments in 49 African countries since 2000. \r\n Adding another layer of complexity to these debt talks, the Common Framework doesn\u2019t lay out precise rules on how a debt restructuring with bilateral creditors should work. \r\n The IMF recognized that \u201cgreater clarity\u00a0on the different steps and timelines\u201d is vital, as well as clear mechanisms to enforce the comparability of treatment. \r\n For Setser, time is slipping away for Zambia. \r\n \u201cIf there isn\u2019t an agreement at least on the basic outlines of the financial terms of restructuring in Zambia by this quarter, it\u2019ll be time to declare the Common Framework a failure,\u201d he said. "

"Cash-strapped countries face IMF bailout delays as debt talks drag on"

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