LONDON (Reuters) – The emerging world’s hopes for a deal between the world’s wealthiest nations and China over the torturous process of sovereign debt restructuring have again been dashed.

In April, talks took place aimed at strengthening the G20’s “common framework”, a process meant to speed up and simplify restructuring negotiations for over-indebted emerging countries.

However, although the situation in Zambia, which has been in default for almost three years, seems to be making some progress, the problems at the heart of the criticisms against the common framework remain.

One of them is how China, now the main bilateral lender to emerging countries, can absorb losses.

Another question is how much debt poorer countries can sustain in an environment of higher interest rates.

The result is that countries seeking to restructure their debt are reduced to negotiating tailor-made deals, as before.

“Stakeholders were hoping for a quick deal,” says Eswar Prasad, a professor at Cornell University and former director of the IMF’s China division, referring to the restart of talks on the common framework in April, “an optimism that proved to be unjustified”.

And even as Zambia’s official creditors are set to offer a debt restructuring deal, it is “unlikely to signal progress in negotiations on a broader framework for debt restructuring”, Eswar Prasad said. .

G20 countries launched the “common framework” in 2020, amid a pandemic-triggered debt crisis, but nearly three years later, while Zambia, Chad, Ethiopia and Ghana have integrated the device, it is far from proven.

The main difficulty has been determining how much debt countries should cancel and getting China to participate in negotiations that it considers to be in the hands of Western powers.

During the attempt to reform the common framework in April, the IMF promised to share more information, particularly on debt sustainability, and to provide countries in difficulty with more financing on preferential terms.

The hope was that in exchange, China would waive its demands on multilateral lenders to relax their “preferred creditor status” and bear some of the losses associated with the restructurings.

According to some observers, however, China is far from having given up on its demands, in particular that multilateral institutions also suffer losses on their loans.

Neither China’s central bank nor China’s finance ministry responded to requests for comment.

“To speak of a breakthrough in the negotiations has certainly been an exaggeration,” said Kevin Gallagher, director of the Global Development Policy Center at Boston University, adding that the amount of concessional loans that multilateral institutions can grant was also a point. of litigation.

In a note released earlier this month, JPMorgan analysts write that despite “incremental changes” to the common framework, the deadlocks still focused on the same issues, making indebted countries reluctant to trigger the process of restructuring.

According to analysts, the listed debt of 21 countries, worth a combined 240 billion dollars (219.85 billion euros), is currently trading at levels indicative of concerns about borrowers’ ability to repay (distressed levels ).

CLASHES BETWEEN CREDITORS

Bringing China into the “Paris Club” of official creditors, a traditionally Western-led group, and the “London Club” of private creditors, has posed enormous difficulties.

These high-profile frictions have even led US Treasury Secretary Janet Yellen to publicly accuse China of obstructing the completion of restructuring deals.

This situation has amplified the budgetary difficulties of countries like Zambia, which have been in default since 2020.

“I think these countries are all a bit fed up because they feel like they’re caught up in a conflict that’s beyond them,” said Thys Louw, emerging markets manager at Ninety One.

Beijing issued $138 billion in new loans between 2010 and 2021, according to the World Bank, making its participation in restructuring deals key to unlocking IMF funds.

Zambia owes China some $5.9 billion, or about 23% of its GDP and nearly half of the $12.8 billion in external debt it is trying to restructure.

Zambia even asked French President Emmanuel Macron to use his influence to help.

“TANGIBLE” PROGRESS

The IMF, the World Bank and the G20 set up a Global Sovereign Debt Roundtable (GSDR) at the beginning of the year, in order to improve the common framework and to accelerate the restructuring processes of debt.

The IMF said this month it expected “tangible” progress at GSDR meetings in June.

Thys Louw believes that the agreement reached by IMF teams on Ghana’s debt and the improvement in the situation in Zambia are positive signs.

But until a widely accepted framework is put in place, the indebted countries will remain in an uncertain situation.

Some observers point out that Ghana still has to get its creditors to accept the new terms of the agreement, a complicated exercise.

“Very often, the actors involved in these discussions let their optimism take precedence over the facts (…); and when it comes to knowing who will suffer what discount, everything falls apart”, sums up Eswar Prasad.

(Report Libby George, Joe Cash, Corentin Chapron, edited by Blandine Hénault)

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