Status: Draft -- Not PublishedWill be live at 10/31/2024 07:02
Principles for Stable Capital Flows and Fair Debt Restructuring: PCG Implementation Note
- Emerging markets and developing countries (EMDCs) have seen a notable recovery in international market access—driven by improved global financial conditions—despite ongoing geopolitical tensions and higher market volatility in recent months.
- However, rising geopolitical tensions and the outcome of the U.S. presidential election could disrupt global trade and investment, weighing on international investor appetite for EMDC assets.
- Recent policy discussions, including in the G20-IMF-World Bank Global Sovereign Debt Roundtable (GSDR) underscore the need to identify and address the root causes of liquidity and solvency crises, distinguishing temporary liquidity issues from deeper solvency challenges.
- Addressing such liquidity pressures requires policy and debt transparency—which can be well supported by robust investor relations programs, as noted in the Principles for Stable Capital Flows and Fair Debt Restructuring.
- Taking a longer-term view, building resilience requires addressing climate shocks; identifying barriers to cross-border capital flows (such as prudential regulation that can limit mobilization of private capital); and strengthening domestic policy frameworks.
- Improving information-sharing and holding parallel negotiations with both official and private sector creditor committees are seen to be key to expediting debt workouts.
- While promising, debt-for-nature swaps may be challenging to use extensively in debt restructuring. These structures take time to execute and can be complex given different creditor preferences and questions about comparability of treatment.
- Incorporating state-contingent debt instruments in debt restructurings can be helpful on a case-by-case basis. However, they should not be expected to become the norm, as they can complicate negotiations, prolong the restructuring process, and challenge the long-term debt management practices of debtor countries.
- Issuing collateralized debt can help attract much-needed international capital, but lack of transparency and complexity can hinder the smooth execution of debt restructurings and fair treatment of creditors when collateralization is present.
- The rise of unilateral debt relief initiatives, like the New York Sovereign Debt Stability Act, could harm investor confidence and undermine global efforts to strengthen the international debt architecture.