How Can The G20 Contribute To Debt Sustainability In Low- And Middle- Income Countries?

For the first time, and after many proposals have been mooted, a global debt governance system is emerging. After decades as an informal and ad hoc process under the aegis of the Paris Club, the governance of sovereign debt problems has evolved significantly since November 2020 and the introduction of the G20 Common Framework for Debt Treatments beyond the DSSI (CF). Notably, the CF brings all creditors together; official creditor committees have been chaired jointly by France and China, and a Global Sovereign Debt Roundtable (GSDR) has been formed to develop agreements on methodologies and implementation issues. Cases treated under the CF have been few and time-consuming. However, important learning and cooperation processes have been initiated, forming a basis for the CF to be further developed and become able to treat multiple and simultaneous cases more quickly. Even with an expansion of MDB lending, the risk of debt distress in many low-income countries (LICs) and lower-middle-income countries (MICs) remains acute. Thus, the international financial architecture needs a debt treatment system that acts swiftly and proactively to ensure that cases of debt distress do not lead to social and economic crises, but rather restore the investment process for sustainable growth. Associated reforms would include improving coordination mechanisms and transparency in a CF extended to include MICs and better linked to sustainable longer- term development pathways in line with the SDGs and climate transition. The recent reforms of the IMF policies on lending into arrears are helpful in supporting such debt treatment processes. The G20 provides the space and expertise to build on this progress to establish a new Global Sovereign Debt Treatment System (GSDTS). As part of this system, we also propose a new G20 Universal Code of Conduct under the G20 Financial Stability Board (FSB).