Debt restructuring framework for poorer nations needs fixing, Paris Club says
Paris Club Highlights Challenges and Reforms Needed in Sovereign Debt Restructuring
By Libby George
LONDON, June 24 (Reuters) - Reforms are needed to a core sovereign debt restructuring initiative for low-income countries known as the Common Framework to make it faster and more efficient, the Paris Club of creditor nations said in its 2025 annual report on Wednesday.
The group released the report, a compendium of views from various officials, at the start of an annual meeting in Paris that brings together creditors, borrowing countries and investors to discuss sovereign debt issues.
Current State of Debt Distress and the Common Framework
The report said that debt distress, including in the world's poorest countries, had ebbed since a string of debt defaults following the COVID-19 pandemic prompted the G20 to launch the Common Framework platform to speed up restructurings.
But the writings focused heavily on needed improvements to the initiative, which critics say is slow and inefficient.
Calls for Improvement and Efficiency
"The Common Framework must deliver faster and swiftly embark all creditors in delivering comparable efforts," Paris Club Co-Chair Thomas Revial wrote in the report.
Proposals from Key Stakeholders
The proposals ranged from China's calls to strictly enforce comparability of treatment - a principle that demands other creditors take similar losses to official lenders - to those from the International Monetary Fund, World Bank and Ethiopia to allow all creditors to hash out agreements simultaneously during a restructuring.
Trouble for Ethiopia
For the first time since 2017, more low-income countries - 52% - are at low or moderate risk of debt distress than the 48% at high risk, or already in debt distress, the report said.
Ghana, Zambia and Chad have largely completed debt restructurings under the Common Framework.
Disputes and Legal Threats
But Ethiopia is caught in a dispute between investors holding its $1 billion defaulted bond and official creditors, who agreed a debt deal in principle in March 2025.
Official creditors, including China and France, rejected bondholders' initial agreement as inadequate. Bondholders have pushed back, arguing the country’s improving outlook does not justify their proposed losses. They have threatened legal action.
Design Flaws and Recommendations
"The CF’s implicit sequencing means that by the time a debtor engages bondholders, the analytical divergence between the IMF and private creditors has not been addressed," Astewaye Woldemichael, senior advisor at Ethiopia's Ministry of Finance, wrote in the report.
"The IMF and OCC need to engage private creditors earlier. Leaving the debtor to bridge this gap is a design flaw."
(Reporting by Libby George, editing by Karin Strohecker, Tomasz Janowski and Sharon Singleton)
