Bright Simons highlight structural issues of debt comparability of G20 Common Framework
Bright Simons, the Honorary Vice President of IMANI Ghana, has cast a critical eye on the G20 Common Framework for debt management in Africa, highlighting what he terms as “deeper structural issues” inherent in the initiative.
Speaking on the sidelines of the recently concluded IMF/World Bank Spring Meetings, Mr Simons underscored a fundamental inconsistency within the framework regarding the treatment of debt comparability between official bilateral creditors and commercial creditors.
Mr Simons elucidated what he referred to as the “comparability paradox chain,” wherein commercial creditors are expected to accept identical terms of debt treatment as their bilateral counterparts, despite potentially assuming higher risks or accepting riskier assets from indebted nations.
This, he contends, poses a significant challenge to coherence within the framework.
“We have a paradox chain in the way that we treat the common framework. So first we say that because commercial debts have high returns, commercial investors should therefore accept a higher risk of default. But then at the same time when we do a restructuring and refuse to accept that the commercial investors will insist that their returns on the new bonds or the new instruments that we’ve offered to them as a country remain higher, then that cannot be coherent, its either one or the other,” he said.
Moreover, Mr Simons pointed out the increasing reliance of developing economies on commercial debt, necessitated by a dearth of access to official development aid or loans from traditional sources.
“The other argument is of course, that, we accept that commercial debt is the mainstay nowadays of the developing economies. Because most of them will not be able to pull up or rely on these official development aid or official creditors. So they have to go to the market, but at the same time, we fail to acknowledge that concessional debt which is debt provided by rich countries or by multilateral funders cannot also then have higher returns given that they are a smaller piece of the entire debt stock,” he added.
Critically, Simons questioned the feasibility of enforcing comparative treatment between private investors and official creditors, citing their disparate market dynamics and incentives. He argued that amalgamating them under uniform terms is unlikely to be sustainable, given their divergent motivations.
The technical objectives of the framework for indebted nations, as outlined by Mr Simons, include averting repeat defaults in the subsequent five years post-debt treatment, maintaining a moderate level of debt distress according to IMF assessments, and re-establishing access to capital markets.
These objectives underscore the imperative for effective debt management in securing financial stability and debt sustainability across African economies.
Meanwhile, the International Monetary Fund (IMF) says the G-20 Common Framework has begun to deliver on its potential citing encouraging progress in Ghana’s ongoing external debt restructuring negotiations with particular reference to the debt treatment agreement between Ghana and its bilateral creditors.
“The Common Framework has begun to deliver on its potential, with encouraging progress in such countries as Ghana, which recently reached an agreement with official creditors on the treatment of debt,” said the Fund in its April 2024 Fiscal Monitor.
In January 2024, the Official Creditor Committee (OCC) reached an agreement in principle with the Government of Ghana on the terms of the treatment of official bilateral debt.
According to the IMF, the next key step for the country is to reach an agreement with its official bilateral creditors on an MoU consistent with the terms agreed in January 2024.
