Thank you very much, Kristalina. I am glad we are meeting today, and I am also glad to see creditor countries, debtors, and private sector representatives joining. I think this is the group that can help break through the debt impasse and reach meaningful debt restructuring – through early information sharing by the IMF and the World Bank and disclosure and debt transparency by bilateral and private sector creditors and debtors, improving timeliness of the process, and equal burden sharing.
I would like to emphasize once again the importance of making progress on the ongoing restructuring processes. It has been far too long for the people of Zambia and Ethiopia to be waiting for the debt relief that they desperately need.
Benefits are large, and this exercise is doable. The amount of debt owed by these countries, while very substantial to them and relative to the size of their economies, is relatively small for the creditors. I encourage creditors to think about business opportunities and new markets they will gain once countries return to sustainability. Progress can and should be made fast.
Kristalina has spoken already about the outcome of the discussions at the deputy level on information sharing, timelines, and achieving a clear and predictable process for milestones such as formation of creditors’ committees, providing financing assurances, and delivering actual debt treatment. Let me add and emphasize a couple points: (i) the importance of defining how to measure and apply comparability of treatment. The World Bank will move ahead with the IMF and organize a technical workshop in May. The issue of equal burden sharing is really at the center of restructuring process, (ii) we also should have a discussion on the treatment of arrears.
As countries default on their payments and restructurings last long, there is a danger that compounding arrears, especially penalty interest, will become a major obstacle to sustainability. This also brings me to the point of debt service standstill, which could incentivize the process to move faster, bring predictability, and avoid eroding debtors’ repayment capacity. This could help provide a flow relief and protect domestic resources for critical spending on education and health, while creditors discuss the debt treatment to restore sustainability.
I want to spend a minute on the role of IFIs in debt restructurings. For the last 16 years, the World Bank has incorporated ex-ante debt relief into IDA through grants to the poorest countries at higher levels of debt distress. There are three essential aspects to our framework.
First, IDA provides financing in many situations and circumstances when nobody else will: we provide flows during financial crises, debt crises, conflict, and in situations when other creditors have ceased new flows – such as has happened during the Common Framework.
Second, IDA financing terms are already at a level of concessionality that would be considered post-restructuring terms for many official lenders. In fact, in many cases, IDA provides outright grants.
Over the last 5 years, in Ethiopia, Zambia, Ghana and Chad, the countries that have applied to the Common Framework, IDA provided scaled up concessional support amounting to $17.5 billion, of which $7.5 billion were grants. Ethiopia and Chad receive 100% in grants as per IDA policy (up to a maximum of $1 billion per year per country). Zambia will also receive 100% in grants starting July 1, 2023. Even after incorporating the maximum NPV debt reductions (45%) as proposed on the basis of the Zambia DSA, most creditors’ financing will still be less concessional than what IDA has been providing the country.
I understand that there is a meeting of the official creditors’ committee for Zambia on April 18. I hope this will be an opportunity to discuss the draft Memorandum of Understanding and reach agreement on the debt treatment for Zambia.
Third, IDA has a unique financing model where we condition our financing terms – ranging from highly concessional to grants on country’s capacity to service debt. It is this customization to country context that underpins our flows and terms.
With that, I would now like to pass the floor to India as co-chair.