IMF endorses reforms to help faster debt restructuring

The International Monetary Fund (IMF) announced this week that it endorsed a set of reforms that would help speed up processes in supporting the countries struggling with debt restructurings.

According to the recommendations in the IMF staff paper ‘Policy Reform Proposals to Promote the Fund’s Capacity to Support Countries Undertaking Debt Restructurings’, the reforms are designed to ensure a more agile approach to the IMF support to the countries undertaking debt restructuring while maintaining adequate safeguards for the IMF financing and reinforcing the existing architecture for debt resolution.

“A number of recent Imfsupported programmes involving debt restructurings experienced significant delays from the time the Staff-level Agreement was reached until the time the necessary official creditor assurances were provided to allow the approval of the IMF financing,” the IMF acknowledged in a statement.

It noted that there has been a marked improvement lately and cases are moving forward more quickly, with substantial progress in collaboration among the official bilateral creditors.

For example, while it took Chad 11 months to move from a Staff-level Agreement with the IMF staff to secure the creditor assurances needed for approval of the IMF financing, it took Zambia nine months to reach this milestone, Sri Lanka six months and Ghana five months.

But “more progress is needed”, the IMF said.

The set of reforms are proposed in five areas, which should ensure a smoother and speedier process in the future.

The areas are (1) clarifying when and how to apply additional safeguards under the IMF’S financing into official arrears policy, (2) strengthening the effectiveness and broadening the applicability of financing assurances reviews when there is an ongoing debt restructuring, (3) establishing a more robust and agile approach for deriving financing assurances from official bilateral creditors, (4) adjusting the IMF’S Approvalin-principle procedures and (5) clarifying how the IMF can provide support to members facing arrears to official creditors when they also face an emergency situation, like a natural disaster.

The reforms are designed to support the existing architecture for debt resolution, preserving and complementing what works well while addressing time gaps that can be created by the IMF requirements and enhancing information flows.

While the reforms recognise different official creditor processes and provide a robust framework to support their participation in restructurings on terms consistent with restoring debt sustainability, the reforms are also consistent with different sequencing of official and private restructurings.

For the IMF, the reforms are overall expected to promote more agile engagement while maintaining adequate safeguards, the IMF said in the statement.

According to Martin Muhleisen, a former Director at the IMF’S key strategy, policy and review department, who is now a fellow at the Atlantic Council, as quoted by Bloomberg, the move is seen as an attempt from the IMF to accommodate China’s internal processes in a responsible way, rather than leaving countries such as Zambia in limbo for several years.