The International Monetary Fund (IMF) and The World Bank (WB) in a joint statement to the G-20 called on official creditors to suspend debt payments for all low-income countries that request forbearance in the wake of the global coronavirus shock.
The joint statement also affirmed the two institutions’ readiness to assess International Development Association (IDA) countries’ debt relief needs should the G-20 ask them to do so.
“Official debt relief from the coronavirus-prompted global economic downturn and financial market dislocation will mitigate the significant and rising liquidity and external pressure on the weakest of our rated frontier market sovereigns.”
In itself, such a step by official sector creditors would be credit positive for those issuers.
However, it is unclear whether official debt relief will be conditioned on the participation of private-sector creditors in some or all cases, or whether pressure will be placed on borrowers or on private-sector creditors to procure their participation. Many frontier market sovereigns, particularly in Sub-Saharan Africa and parts of Asia, shifted towards issuance of non-concessional market-based debt instruments in recent years, complicating the process of achieving meaningful debt relief through traditional official channels alone.
The lack of clarity so far around potential private-sector participation suggests a heightened risk of delay to debt service payments, which could constitute defaults under our definition. For sovereigns such as Ghana (B3 positive), Pakistan (B3 stable), Zambia (Caa2 negative), Mongolia (B3 stable) and Sri Lanka (B2 stable3), the sharp fall in economic activity (either directly as the virus spreads or indirectly because of much lower trade and tourism), the collapse in key commodity prices (such as oil, coal and copper) and accompanying effects on government revenue, and the recent financial market dislocation all raise risks to debt sustainability.
0 comments: