The Monterrey Consensus stated that “debtors and creditors must share the responsibility for preventing and resolving unsustainable debt situations.” The Addis Agenda reaffirms that both sovereign borrowers and lenders must be responsible and that debtors and creditors must work together to prevent and resolve unsustainable debt situations. Member states emphasized the responsibilities of debtors to maintain sustainable debt levels and the responsibilities of creditors to lend in a manner that would not undermine a country's debt sustainability. The Addis Agenda also calls for work towards a global consensus on guidelines for debtor and creditor responsibilities in borrowing by and lending to sovereigns, building on existing initiatives and noting UNCTAD's Principles on Responsible Sovereign Lending and Borrowing in this regard.
In September 2015, the United Nations General Assembly adopted Resolution A/RES/69/319 on basic principles on sovereign debt restructuring processes. Adopted in a recorded vote, the resolution declared that sovereign debt restructuring processes should be guided by basic principles, as included in the report of the Ad Hoc Committee (A/AC.284/2015/2.). The nine principles (on sovereignty, good faith, transparency, impartiality, sovereign immunity, legitimacy, sustainability and majority restructuring), which have since been adopted in national law in one country, with a second having taken steps in this direction as well, may contribute to a norm setting process in the area of sovereign debt restructuring. They build on earlier work on principles on responsible sovereign lending and borrowing carried out under the aegis of UNCTAD. Guidelines have also been developed in the past by the private sector and the OECD, and efforts are under way in the G-20 to formulate operational guidelines for sustainable financing.
The UNCTAD Principles on responsible sovereign lending and borrowing highlight several areas of responsibility. The Principles cover areas i) for lenders such as agency, informed decisions, due authorization, responsible credit decisions, project financing, international sanctions, debt restructuring; and ii) for debtors fiduciary relationship, binding agreements. Its main international legal principles and norms were also integrated into Resolution A/RES/69/319. To facilitate implementation at national levels, UNCTAD has run a pilot project on identifying and addressing regulatory and institutional gaps in selected developing countries in 2015. Thus far, countries have made progress in identifying challenges faced in current institutional and regulatory frameworks. Case studies have been conducted to identify gaps in institutional and regulatory frameworks. UNCTAD also conducted a feasibility study to incorporate the Principles into the UNCTAD Debt Management and Financial Analysis Software (DMFAS). See here for more.
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The UNCTAD Principles highlight several areas of responsibility. The Principles cover areas i) for lenders such as agency, informed decisions, due authorization, responsible credit decisions, project financing, international sanctions, debt restructuring; and ii) for debtors fiduciary relationship, binding agreements.
At the international level, the main international legal principles and norms, established as central to a principle-based effort to promote guidelines for responsible sovereign lending and borrowing by international legal experts working with UNCTAD, were also integrated into Resolution A/RES/69/319, adopted by the General Assembly in September 2015.
Implementation of the UNCTAD PRSLB at national levels requires existing institutional and regulatory settings to be adjusted or adapted to promote responsible lending and borrowing practices. In 2015, UNCTAD ran a pilot project on identifying and addressing regulatory and institutional gaps in selected developing countries. Countries made progress in identifying challenges faced in current institutional and regulatory frameworks. Continued engagement with the target countries will focus on developing strategies for integrating the UNCTAD PRSLBs with relevant institutional processes, complemented by a study tours to a partner country employing responsible practices in line with the UNCTAD Principles.
UNCTAD also conducted a feasibility study to incorporate the Principles into the UNCTAD Debt Management and Financial Analysis Software (DMFAS). DMFAS offers countries tools to improve their capacity to handle the day-to-day management of public liabilities and the production of reliable debt data for policy-making purposes.
Initiatives began with the “Principles for stable capital flows and fair debt restructuring” of the private sector Institute of International Finance (IIF), originally issued in 2004, last updated with an addendum to the principles in 2012. The Addendum called for representative creditor committees as early as possible in the restructuring process and early discussions with such committee. This and other provisions, for example on the involvement of creditors in debt sustainability analysis, were not endorsed by the Executive Board of the IMF.
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The Group of Twenty’s (G20) “Operational guidelines for sustainable financing” were endorsed in 2016. Building on the commitment in the Addis Ababa Action Agenda to work toward a global consensus on guidelines for debtor and creditor responsibilities, the G20 started to work on operational guidelines for the sustainable financing of development, under the German presidency. The guidelines aim to build on previous efforts, such as General Assembly resolution A/RES/69/319 and the UNCTAD principles, and aim to focus on adequate financing for sustainable development, transparency, consistency of financial support policies, coordination of all stakeholders, and promotion of new instruments to strengthen resilience.
Members of the OECD Working Party on Export Credits and Credit Guarantees adhere to a set of principles and guidelines to promote sustainable lending practices in the provision of official export credits to countries eligible to the IMF PRGT or to World Bank IDA financing. These principles and guidelines were revised in November 2016 and commit members to refrain from providing official export credit support for public sector transactions in countries where zero limits under the IMF’s debt limits policy or the World Bank’s non-concessional borrowing policy are in place.
In the context of changes to the measurement and eligibility of concessional international public finance as Official Development Assistance (ODA) carried out in 2014, the OECD Development Assistance Committee also introduced debt sustainability safeguards in ODA lending. Loans whose terms are not consistent with the IMF Debt Limits Policy and/or the World Bank’s Non-Concessional Borrowing Policy are no longer reportable as ODA.
While the IIF initiative focused on recommendations to debtor governments, the other initiatives have focused on the responsibility and accountability of borrowers and lenders alike. The UNCTAD Principles also focus on the safeguarding of the public interest in sovereign debt financing and contracting. The G20 guidelines emphasize best practice and are concerned with the sustainability of financing tools and practices. These different foci and emphasis provide ample opportunity for the exploration of complementarities as well as incongruities, in line with the commitment in the Addis Agenda to work towards global consensus.
The IMF reformed its debt limits policy in December 2014 and has implemented it since end June 2015 (see here). The reform took place in an environment where social and investment needs of developing countries were high and the financing landscape has been changing. In particular, new financing opportunities have emerged while the supply of traditional concessional financing has become more limited. Against this backdrop, the aim of the new policy is to provide countries with greater flexibility to finance productive investments, while safeguarding debt sustainability.
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As a result, limits on government debt were removed from the IMF-supported programs in some cases, while in others, limits on present value of external debt replaced old non-concessional targets. In LICs with a low risk of external debt distress—such as, Kenya, Rwanda, Senegal, Tanzania, and Uganda—debt limits were removed from the IMF-supported programs. And in other countries where the risk of debt distress is moderate and capacity in public debt recording and monitoring is adequate—such as, Côte d'Ivoire, Honduras, Kyrgyz Republic, Liberia, and Sierra Leone—debt targets under the IMF-supported programs are now in the form of limits on present value of government external debt rather than separately on concessional and non-concessional debt.
The IMF’s debt limits policy places a strong emphasis on strengthening debt recording and monitoring capacity to ensure that in the medium term, all countries with the IMF-supported programs, which are in a moderate risk of debt distress category, are covered by debt limits on present value of government external debt. For countries at a high risk of external debt distress, zero limits on non-concessional debt will continue to be in place in the IMF-supported programs. Exceptions may be warranted if financing is needed for a project integral to the authorities’ development program for which concessional financing is not available, and if borrowing is used for debt management operations that improve the overall public debt profile.