# Analysis-No China, no deal: Bid to break sovereign debt logjams gets weary thumbs up
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-04-14
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Breaking Sovereign Debt Logjams: China's Impact &
Meta Description: The latest bid by global institutions to speed up debt restructurings has cautious optimism. Standoffs between major lenders like IMF and China are in focus.
URL: https://financedigest.com/analysis-no-china-no-deal-bid-to-break-sovereign-debt-logjams-gets-weary-thumbs-uphtml

![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-04-13t184549z2lynxmpej3c0r0rtroptp4emerging-debt-1736814151178-compressed.jpg)

# Analysis-No China, no deal: Bid to break sovereign debt logjams gets weary thumbs up

By Libby George and Marc Jones

LONDON (Reuters) – The latest bid by the world’s leading institutions and creditors to speed up debt restructurings and get bankrupt countries back on their feet has been greeted by a mix of cautious optimism and weary scepticism by veteran crisis watchers.

Standoffs between major Western-backed lenders like the International Monetary Fund (IMF) and the world’s top bilateral creditor, China, have been blamed for keeping countries such as Zambia mired in default for nearly three years.

The somewhat loose framework around [sovereign restructurings](https://www.financedigest.com/sovereign-debtors-creditors-agree-on-steps-to-jumpstart-debt-restructurings.html "Sovereign debtors, creditors agree on steps to jumpstart debt restructurings") has seen Beijing seek to influence the traditional rules of engagement in these processes.

The renewed push to overcome the logjams came after a “roundtable” at the IMF Spring [Meetings and included pledges from the Fund and World Bank](https://www.financedigest.com/banking-stability-worries-go-behind-closed-doors-at-imf-world-bank-meetings.html "Banking stability worries go behind closed doors at IMF-World Bank meetings") to share assessments of countries’ troubles more quickly, provide more low-interest and grant funding and stricter timeframes on restructurings overall.

The idea is that Beijing would then drop its insistence that the multilateral lenders take losses, or “haircuts”, on the loans they have [provided or underwritten in crisis-hit countries](https://www.financedigest.com/patsnap-partners-with-wipo-to-provide-developing-countries-with-access-to-rd-analytics.html "PatSnap partners with WIPO to provide developing countries with access to R&D analytics").

Beijing has not commented directly on the demand for multilateral lender haircuts, but in remarks published on Friday [People’s Bank of China Governor Yi Gang reiterated China’s willingness to implement debt talks under the Common](https://www.financedigest.com/5-common-ways-people-end-up-in-debt-without-realising.html "5 Common Ways People End Up In Debt Without Realising") Framework, the platform introduced by leading G20 nations in 2020 to streamline talks with all creditors.

If the multilateral development banks are now making real commitments to provide fresh grants to distressed countries this is a breakthrough,” said Kevin Gallagher, director of the Boston University [Global Development](https://www.financedigest.com/global-economic-crisis-strangling-progress-for-poor-warns-u-n-development-chief.html "Global economic crisis strangling progress for poor, warns U.N. development chief") Policy Center.

But he added that as the new [plans lacked specific mention of China’s](https://www.financedigest.com/dutch-responds-to-us-china-policy-with-a-plan-to-curb-semiconductor-tech-exports.html "Dutch responds to US China policy with a plan to curb semiconductor tech exports") intentions it suggested the “lack of a strong and clear consensus” in Washington.

The IMF’s [managing director](https://www.financedigest.com/anya-libova-joins-apester-as-uk-managing-director.html "Anya Libova joins Apester as UK Managing Director") Kristalina Georgieva has stressed that with around 15% of low income countries already in debt distress and dozens more in danger of falling into it, far more urgency is needed.

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](https://www.financedigest.com/inmobi-and-coca-cola-win-mma-smarties-south-africa-award-for-beat-can-campaign.html "InMobi and Coca-Cola Win MMA SMARTIES South Africa Award for Beat Can Campaign") and Kuwait – but first and foremost China.

Beijing is now the largest bilateral creditor to developing nations, extending $138 [billion in new loans](https://www.financedigest.com/trafigura-enters-3-billion-loan-to-supply-germanys-sefe-with-gas.html "Trafigura enters  billion loan to supply Germany’s Sefe with gas") between 2010 and 2021, according to World Bank data, and some estimates put total lending at almost $850 billion.

![](https://www.globalbankingandfinance.com/wp-content/uploads/2023/04/Debt-composition-of-developing-countries-by-creditor.jpg)

## HEADWINDS

Global headwinds are about to get stronger too.

Financially weaker [countries with “junk”-grade sovereign credit ratings need](https://www.financedigest.com/5-countries-you-need-to-have-an-offshore-account-in.html "5 Countries You Need To Have An Offshore Account In") to repay or refinance $30 billion worth of government bonds next year between them, compared to just $8.4 billion for the remainder of this one.

The [rise in global borrowing costs](https://www.financedigest.com/suedzucker-quarterly-profits-surge-73-5-despite-cost-rise.html "Suedzucker quarterly profits surge 73.5% despite cost rise"), though, means that many countries under the greatest stress are now unable to borrow in the international capital markets or, if they can, only at unsustainably high interest rates.

The Chinese debt, meanwhile, is often opaque and muddied by arguments about whether the loans have been given by “official” entities – i.e by the government – or by “private” entities.

Authorities in Beijing also prefer to roll over [debt payments](https://www.financedigest.com/ukraine-seeks-debt-payment-freeze-as-war-ravages-economy.html "Ukraine seeks debt payment freeze as war ravages economy") rather than write them off, and given it is an increasingly dominant creditor, it has little incentive to follow co-operative Paris Club-like principles.

It would be great to have China on board (with the push to speed up restructurings) but I don’t really have high hopes because there is a lot of geopolitics involved,” said Viktor Szabo, an emerging [market debt manager](https://www.financedigest.com/event-management-software-market-to-rise-steadily-at-a-cagr-of-14-1.html "Event Management Software Market to rise steadily at a CAGR of 14.1%") at Abrdn in London.

![](https://www.globalbankingandfinance.com/wp-content/uploads/2023/04/Poor-nations-wait-for-months-to-secure-IMF-financing.jpg)

## COMMON PROBLEMS

Recent research by Boston University estimated that up to $520 billion in debt [needs to be written off to help developing nations](https://www.financedigest.com/if-the-nation-backs-fintech-we-need-to-address-a-few-things.html "If the nation backs FinTech, we need to address a few things") at greatest risk of default return to a sounder fiscal footing.

But lengthy delays in Zambia, and more recently in [Sri Lanka](https://www.financedigest.com/doctors-bankers-protest-impossible-situation-as-sri-lanka-runs-out-of-fuel.html "Doctors, bankers protest ‘impossible situation’ as Sri Lanka runs out of fuel"), have elicited widespread criticism of the Common Framework.

Wednesday’s promises by the IMF to provide its [assessments more quickly was an admission that the Common](https://www.financedigest.com/the-most-common-self-assessment-questions-answered-by-experts.html "The most common Self Assessment questions answered by experts") Framework was currently failing, Szabo added.

“You have to make it functional. The fact that it’s been in [place for three years](https://www.financedigest.com/see-in-the-new-year-with-a-new-home-at-jubilee-place.html "See In The New Year With A New Home At Jubilee Place") and there is nothing to really show for it, that is really appalling.

Anna Ashton, director of China research at Eurasia Group, said this week’s [developments underscored the benefits](https://www.financedigest.com/the-benefits-of-developing-online-stores-through-shopify.html "The Benefits of Developing Online Stores Through Shopify") for China to give some ground on some of its concerns.

Being willing to compromise and facilitate debt restructuring right now is likely crucial to [China’s continued credibility with the developing](https://www.financedigest.com/china-most-promising-source-of-funds-for-overseas-developers-reveals-investorist.html "China ‘most promising source of funds’ for overseas developers, reveals Investorist") world writ large,” Ashton said.

Patrick Curran, senior economist with Tellimer, added that China dropping demands for the [big multilateral development banks](https://www.financedigest.com/big-banks-can-be-challengers-too.html "Big banks can be challengers too") (MDBs) to swallow losses on their loans could also be “a major breakthrough.

There is likely to be broad support for the alternative proposal that MDBs mobilize their resources more aggressively, especially at a [time when most low-income countries are locked out of the market,”](https://www.financedigest.com/tough-times-and-risky-business-which-emerging-market-assets-are-a-bet-worth-taking.html "Tough times and risky business – which emerging market assets are a bet worth taking") Curran said.

Germany’s [finance minister](https://www.financedigest.com/scottish-finance-minister-kate-forbes-to-run-for-countrys-leadership.html "Scottish finance minister Kate Forbes to run for country’s leadership") Christian Lindner on Thursday too said all the talk now needed to be converted into action.

The group that took part in Wednesday’s roundtable [plans to meet again in coming weeks](https://www.financedigest.com/meta-plans-to-cut-thousands-of-jobs-as-soon-as-this-week-bloomberg-news.html "Meta plans to cut thousands of jobs as soon as this week – Bloomberg News") to address remaining issues, including how various creditors are treated, principles for cut-off dates and suspending debt payments.

Ultimately, whether the new terms help Zambia, and countries like Sri Lanka, Ghana and Ethiopia that are also in the midst of bailout talks, finalise [deals will be the only proof of whether the new terms work](https://www.financedigest.com/eu-us-working-on-deal-to-make-ev-minerals-eligible-for-tax-credits-eu-official.html "EU, US working on deal to make EV minerals eligible for tax credits -EU official").

China is a difficult partner to [talk](https://www.financedigest.com/exclusive-allianz-in-talks-with-banks-for-china-asset-management-venture-sources.html "Exclusive-Allianz in talks with banks for China asset management venture -sources") to but we need China at the table for the solution of debt problems, because otherwise we won’t see any progress,” Lindner said.

![](https://www.globalbankingandfinance.com/wp-content/uploads/2023/04/China-leads-bilateral-lending-to-poorer-nations-584x354.jpg)

(Additional [reporting by Rodrigo Campos in New York and Joe Cash](https://www.financedigest.com/more-than-two-thirds-of-american-and-chinese-millennials-say-they-hardly-use-cash-any-more-says-new-future-of-money-report.html "More than two thirds of American and Chinese millennials say they hardly use cash any more, says new Future of Money report. ") in Beijing; Editing by Mark Potter)


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---