April 8th, 2021
Since its inception, the G20 has been involved in supporting the most vulnerable economies while working to ensure a global financial stability and putting the economy on a path of growth. A crucial challenge that needs to be addressed, especially since the onset of the COVID-19 pandemic which has exacerbated inequalities, compromised countries’ development prospects and increased pre-existing debt vulnerabilities in Low-Income Countries (LICs).
In this context, the G20 endorsed (November 2020) the Common Framework for Debt Treatments beyond the DSSI (Common Framework), a key initiative – developed together with the Paris Club – to support, in a structural manner, LICs facing unsustainable debt.
The Common Framework brings together G20 and Paris Club creditors to coordinate and cooperate on debt treatments, on a case-by-case basis, initiated at the request for a debt treatment by an eligible debtor country.
Negotiations start with the establishment of a dedicated Creditor Committee, and conclude with the signing of a Memorandum of Understanding by the debtor country and its creditors. Negotiations are also supported by the IMF and the World Bank, including through their Debt Sustainability Analysis.
While the Common Framework represents a step change for official creditors, this new approach will also encourage the participation of private sector creditors through the comparability of treatment clause included in the multilateral agreement, which will require debtor countries to secure a debt treatment from their private creditors on at least as favourable terms as from their official sector creditors.
To date, three countries have asked for Common Framework treatment. The first Creditor Committee was established in April 2021 to discuss a debt treatment for Chad.