Written evidence submitted by the Foreign, Commonwealth and Development Office in partnership with Her Majesty’s Treasury who lead HM Government policy on international debt.




List of Abbreviations


African Development Bank


African Legal Support Fund


Collective Action Clauses


Catastrophe Containment and Relief Trust


Common Framework


Conference of the Parties


Climate Resilient Debt Instrument


Development Assistance Committee


Debt Sustainability Analysis


Debt Service Suspension Initiative


Debt Transparency Initiative


European Union


Foreign, Commonwealth and Development Office


Gross Domestic Product


Heavily Indebted Poor Countries Initiative


Her Majesty's Treasury


International Development Association


International Development Committee


International Finance Corporation


International Financial Institution


International Monetary Fund


Multilateral Development Banks


Multilateral Debt Relief Initiative


Middle Income Country


Majority Voting Provisions


Overseas Development Assistance


Organisation for Economic Co-operation and Development


People's Democratic Republic


Poverty Reduction and Growth Trust


Poverty Reduction Strategy Paper


Private Sector Working Group


Sustainable Development Finance Policy


Special Drawing Rights


Currency Exchange Fund


United Kingdom


UK Export Finance


United Nations




1.     Lower-income country debt-to-Gross Domestic Product (GDP) ratios peaked in the 1990s before falling, in part thanks to debt relief initiatives such as the Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI). However, since the early 2010s these countries’ debt ratios have been rising again. This trend has been exacerbated by the economic impact of the Covid-19 pandemic, and many countries face high debt servicing costs, in part due to rising interest rates, along with other uncertainties and challenges. These high debt levels constrain spend on public services and slow investment and growth. Some countries now need debt relief in order to restore debt sustainability.


2.     The composition of lower-income countries’ debt now includes a higher share of private sector lending and loans from emerging creditors such as China. This makes debt restructuring and relief efforts more complicated and challenging than they were previously, due to the larger number and greater diversity of creditors.


3.     The UK has helped to champion major debt relief initiatives of recent decades, including HIPC and MDRI. The Government has already provided debt relief worth £650 million through HIPC[1], and £1.4 billion through MDRI, and is committed to significant further amounts of relief. Recently, the UK played a leading role in helping Somalia and Sudan’s HIPC debt relief process, including clearing arrears to certain International Financial Institutions[2] (IFIs).


4.     The Government cancelled a large portion of its historic loans under the HIPC initiative. The total amount of debt owed to the UK by lower-income countries is now low at $1.79 billion[3], compared to the total amount of debt owed to the Paris Club at $70 billion by the same group of countries[4]. Given this relatively small portfolio, and therefore the limited role the UK plays in active debt restructurings to lower-income countries, the Government seeks to ensure debt sustainability through working in international fora such as the G7, G20 and Paris Club to influence coordinated approaches to debt relief and to enhance the wider international debt architecture.


5.     As such, the Government played a leading role in establishing the G20 Debt Service Suspension Initiative (DSSI), which was agreed in response to the Covid-19 pandemic. This short-term tool provided approximately $12.9 billion worth of temporary fiscal space to enable the world’s poorest countries to respond to the impact of the crisis. To deliver a longer-term more sustainable approach to dealing with lower-income country debt vulnerabilities, the Government also played a leading role in establishing the G20 Common Framework for Debt Treatments beyond the DSSI (CF). It is widely acknowledged that progress in delivering debt restructurings under this initiative for the three countries that have requested it so far has been regrettably slow. The Government is working closely with its international partners and with multilateral institutions to speed up implementation.


6.     IFIs such as the International Monetary Fund (IMF) and World Bank do not typically participate in international debt treatments, unless compensated for repayments foregone by donors. This is due to their ‘preferred creditor status’, which requires borrowing countries to give priority to meeting their debt obligations to the IFIs over other creditors, and the importance of the IFIs being able to maintain large-scale development financing.


7.     However, early in the Covid-19 pandemic, the Government led the way in committing to provide £150 million to the IMF’s Catastrophe Containment and Relief Trust (CCRT), which provides debt relief on repayments to the IMF. CCRT helped to free up fiscal resources in countries to mitigate the impact of the pandemic. The UK called on others to contribute and in total the CCRT has provided $964 million of debt relief to 25 poorer IMF member countries. As a shareholder to the Multilateral Development Banks (MDBs) the Government has for many years supported action to ensure MDB funding reflects the debt risks that a lower-income country has. For example, in 2005 the UK supported the World Bank’s concessional arm, the International Development Association (IDA) and the African and Asian Development Funds to adopt a policy of providing grants (not loans) to countries at high risk of debt distress. Additionally, under its G7 Presidency in 2021, the UK and other G7 countries led the largest allocation of IMF Special Drawing Rights (SDRs) in history to boost global liquidity, equivalent to $650 billion, which allowed beneficiary countries to either strengthen reserves, import priority goods, or to service external debts.


8.     Beyond bilateral (known as ‘official’) debt, the Government is actively working to improve private sector participation in debt restructurings, including through establishing and chairing the G7 Private Sector Working Group (PSWG), which explores improvements to how the private sector lends and restructures its debt.


9.     More widely, the Government is continuing to support developing countries to better manage their debt and public finances. The UK played a leading role in shaping the World Bank’s Sustainable Development Finance Policy (SDFP) for IDA in 2020, which links concessional financing to debt-related actions. The Government also finances a range of bilateral Overseas Development Assistance (ODA) programmes that: provide technical advice and capacity-building on debt, economic and financial management; provide legal advice on financial negotiations; and support access to local currency financing to reduce exposure to exchange rate fluctuations of foreign-denominated debt.


10. The Government is committed to ensuring its own lending meets international standards of sustainable finance. This includes our commitment to the Organisation for Economic Co-operation and Development (OECD) sustainable lending rules that apply to export finance provided to lower-income countries. These consider for each project being supported with export finance: the borrowing country’s debt sustainability; whether the project has net positive economic returns (and so is ‘productive expenditure’); and whether it promotes good governance and transparency (by following the required processes both in the UK and in the borrowing country). The Government also supports the G20’s Operational Guidelines on Sustainable Finance, has provided self-assessments of our practices and processes against these Guidelines, and supports on-going efforts to encourage adherence and improvements across all G20 countries’ practices.


11. The Government has also been a consistent advocate for greater debt transparency. Debt transparency provides borrowing countries with reliable information to make informed borrowing decisions, and investors to accurately assess risk. During the UK’s G7 Presidency, the UK secured a commitment from the G7 to follow the UK’s lead in publishing details of all official overseas lending on a quarterly basis - improving best practice. The UK has also driven the Debt Transparency Initiative (DTI) of the OECD: providing initial funding and currently serving as Chair of its Advisory Board. The DTI collects, analyses and reports on private sector lending to vulnerable low-income countries. The Government continues to advocate in the G20 for all members to publish the details of all their lending to developing countries.


12. It is important to note external debt from multilateral, bilateral and private sources is one of a number of important sources of development finance for lower-income countries, alongside grant aid, domestic resources such as tax, domestic debt, and foreign direct investment. Accessing development finance across these sources of funding is critical for lower-income countries to meet their development needs, and strong public financial management and sound economic policies help to support this. Debt relief may also play a role where a country faces either a short-term or more fundamental difficulty in repaying its debts.


13. HM Treasury (HMT) leads the UK Government’s international policy on debt, including debt relief, working closely with the Foreign, Commonwealth and Development Office (FCDO) and UK Export Finance (UKEF) on country debt issues.



Architecture for sovereign debt resolution

14. The sovereign debt relief architecture is guided by several key principles, which while not universally applied, are typically adhered to. Firstly, transparency through information sharing is paramount to both understand the scale of the problem and promote trust. Secondly, a borrower country that seeks debt relief must have a clear need, i.e., debt is unsustainable, and be willing to take actions to restore debt sustainability, including relevant economic and fiscal reforms. Thirdly, creditors are expected to act in solidarity and reach consensus. Fourthly, creditors are expected to share the burden of debt relief - set by the Paris Club, this is known as ‘comparability of treatment’ - and incentivises creditors to work together, driving coordination. It also prevents one creditor from trying to hold-out and seek better treatment. The main organisations and initiatives are listed below.

15. The Paris Club: a permanent group of official creditors established in 1956. It finds coordinated and sustainable solutions to payment difficulties of debtor countries while seeking to ensure that creditors receive appropriate debt repayments. There are 22 permanent members, including the UK, some associate members, and some observers[5].

16. The IMF and World Bank: provide independent advice to the Paris Club and other debt relief initiatives, such as the CF, on the debtors' macroeconomic position, nature and extent of debt restructuring likely to be required, based on their Debt Sustainability Analysis (DSA). An IMF programme is typically required to give creditors the reassurances that a debtor country is committed to the policy reforms required to support debt sustainability.

17. The Heavily Indebted Poor Country (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI): designed as a one-off debt relief scheme, and now largely completed, the HIPC was launched in 1996 to provide a comprehensive debt treatment across bilateral and multilateral debt for poor countries with unsustainable debt burdens. Beneficiary countries commit to poverty reduction through policy changes set out in Poverty Reduction Strategy Papers (PRSPs) and to demonstrating a good economic and poverty reduction policy track record over time. In 2005 to deepen the relief provided, the UK championed the MDRI as an extension of HIPC to provide 100% cancellation of eligible debts owed by HIPC eligible countries to the concessional lending arms of the World Bank, IMF, and African Development Bank (AfDB). 36 of 39 eligible countries have completed the HIPC process; Somalia and Sudan are partway through it and Eritrea has not sought HIPC treatment to date.

18. Although HIPC and MDRI were successful in relieving the debt burdens of eligible poor countries, the current international debt landscape would make any revival of such an initiative challenging. Today’s heterogenous global creditor base has a higher share of debt held by non-Paris Club members and commercial creditors, which would make it challenging to find consensus on such a comprehensive debt relief initiative. HIPC and MDRI were also conceived at a time when debt levels spiked; debt levels have not since returned to those levels. Furthermore, debt reduction alone is not sufficient to address the multiple drivers of debt sustainability; the UK and its international partners are also working in partnership with the IFIs to ensure improvements in fiscal management and public debt management.

19. The Debt Service Suspension Initiative (DSSI): a temporary mechanism that started in May 2020 in quick response to the Covid-19 pandemic, it enabled any country that is International Development Association (IDA)-eligible or on the UN’s list of Least Developed Countries (73 in total) to suspend debt service payments to its bilateral creditors. The DSSI was extended twice, ending in December 2021, and over this period suspended approximately $12.9 billion debt service payments[6] to the 43 countries that participated, and rescheduled these for payment later.

20. The Common Framework for Debt Treatments Beyond the DSSI (CF): is an initiative and coordination mechanism of the G20 and Paris Club agreed in November 2020 for DSSI-eligible countries. For the first time it brings all G20 and Paris Club creditors together for delivering debt treatments to lower-income countries, as well as seeking broad creditor participation, including the private sector. It considers debt treatment on a case-by-case basis. To date Chad, Ethiopia and Zambia have requested a CF treatment.

21. Private Sector Debt Relief: the architecture for restructuring private sector debts has evolved over the decades. From the late 1970s, the London Club operated as an informal group of commercial banks to coordinate private debt rescheduling. As bonded debt became more prevalent as a source of funding, a so-called market-based or contractual approach to private sector debt restructuring has predominated, strongly associated with the development and use of Collective Action Clauses (CACs), which allow a majority of bondholders to bind all bondholders to a debt agreement with the country in question. CACs were enhanced in 2014.


Debt in lower-income countries

22. Regarding countries of interest to this Inquiry: the OECD Development Assistance Committee (DAC) currently classifies 27 countries as low-income countries, but we provide information here on the wider grouping of 73 developing countries that were eligible for the DSSI and refer to them as ‘lower-income countries’, unless otherwise stated. Several lower-income countries were not eligible at the time of the DSSI as they were in protracted arrears to the IMF or World Bank. These include Zimbabwe, Sudan, Eritrea, and Syria. Currently, Sudan is going through the HIPC process, and Zimbabwe and Eritrea are in debt distress.

The current debt levels in lower-income countries


23. Since the early-2010s debt levels in developing countries have been gradually rising. The stock of foreign debt of lower-income countries more than doubled between 2010 and 2020, to $392 billion[7]. Government debt for these countries has now reached roughly 57% of GDP on average[8], with domestic debt larger than external debt. While total debt is not as high as the 70% of GDP peak in the early 1990s, a variety of factors are making these countries' debt position vulnerable to distress and default.


24. Debt vulnerabilities can reflect a range of economic problems. These can include public investments that do not generate sufficient economic growth to make a positive return; a lack of exports resulting in insufficient foreign exchange to repay loans in foreign currency; low revenue collection – 34 out of 79 low and lower-middle income countries have seen a decline in revenue to GDP ratio in the last 10 years[9]; and sometimes waste or misuse of funds raised from borrowing. Such problems have contributed to reduced fiscal space to deal with shocks. GDP growth – so important for the ability to repay borrowed funds – has slowed in the past decade compared with the previous two decades for low and lower-middle income countries[10].


25. In recent years, lower-income countries have been increasingly able to borrow from more diverse sources. As countries have developed, some have gained access to global capital markets, and many have deepened domestic financial markets, all while benefiting from low global interest rates over the last decade. However, as lending has shifted away from publicly backed long-term multilateral lending, to more diverse, variable interest, and shorter-term instruments debt has become more expensive[11]. Lending by private creditors increased from 10% to 19% of GDP for lower-income countries from 2006 to 2020. Over the same period the share of multilateral debt fell from 55% to 48%[12]. Shares of official lending have shifted from Paris Club members to emerging economies including China. At the same time domestic borrowing, not included in the external debt figures given above, has also risen as a share of total debt.


26. Related to this, lower-income country governments are paying more to service debts as a share of revenue: from below 7% in 2010 to 12% in 2018[13]. To service external debts denominated in foreign currencies, countries use foreign exchange mostly earned from exports. Many low-income countries’ exports are concentrated in primary commodities, the price of which can be volatile, sometimes leading to challenges in servicing debt.


27. The situation is likely to become more precarious in the next few years. For example, the amount of debt repayments that African countries are due to make in 2024 and 2025 is six times higher than their total debt service in 2021[14].


28. The IMF assesses that over 60% (41) of lower-income countries are at high risk of, or are already in, debt distress[15]. Ratings by independent Credit Rating Agencies also show rising debt vulnerability for developing countries (a mix of low and middle-income) that have access to capital markets – 28 developing economies have ratings in category ‘C’, which is ‘very high risk’, compared with 11 in 2019.


Where lower-income debt is concentrated, and who holds it


Where is lower-income debt concentrated?

29. Half of lower-income countries are in Sub-Saharan Africa, while most of the remainder are in Asia. Among lower-income countries with available data (published by the IMF), total government debts were roughly $1.2 trillion in 2020. The table below shows the ten countries by largest volumes of debt, debt-to-GDP, and risk of debt distress.


Table 1: Lower-income country debt positions, by debt volume


Debt ($m)

Debt-to-GDP (%)

Risk of debt distress[16]
























In debt restructuring









Côte d'Ivoire







In debt restructuring


Sources: World Bank/IMF International Debt Statistics and World Economic Outlook, 2021; latest IMF Debt Sustainability Analysis and Credit Rating Agency ratings


Who holds the debt?

30. Debt is split between domestic and external (foreign) creditors. The domestic banking sector is usually the main holder of domestic debt, and therefore as a group often counts for the largest share of total lower-income country debt. A lack of economic statistics and debt transparency in many countries makes it difficult to compare domestic debt figures across countries; external debt data is somewhat more reliable and comparable and is reported below.

31. The major types of external lenders to lower-income countries, as of 2020 by outstanding stock of debt, are given below[17], and then considered in turn:


Table 2: Major creditors to lower-income countries, by percentage share











Bilateral (official)


    Paris Club

    Non-Paris Club (excl. China)






    1. Multilateral lending: IFIs remain a core source of external funding for lower-income countries. The UK is a member of the World Bank Group, IMF and six regional development banks that lend to developing countries. The IFIs lend to countries more cheaply than the countries can borrow from markets and the terms of finance reflect the country’s income level and risks of debt distress.
    2. Private Sector: historically, commercial banks made up most private lending to lower-income countries, but since the mid-2010s private bondholders have been the majority, on average[18]. According to the IMF, in 2020 the external debt owed to private creditors exceeded 15% of total external debt in 22 lower-income countries. The five largest borrowers were: Angola ($25 billion), Ghana ($14.5 billion), Cote D’Ivoire ($12.5 billion), Nigeria ($11 billion), and Pakistan ($10.5 billion).

Bilateral (official) creditors

    1. China: The Chinese government lends via a number of different institutions and agencies and on a variety of terms. Since 2011 lending from public Chinese institutions has tripled in total volume. However, rates of lending have slowed recently. Low and middle-income countries owed China $170 billion at end-2020, roughly 45% of the size of debt owed to the World Bank[19]. China is now the largest official creditor in more than half of lower-income countries, including when Paris Club creditors are counted as a single grouped total. Overall, China’s share for this group has increased from 2% in 2006 to 18% in 2020. By volume, Angola, Ethiopia, Kenya, Lao PDR, Pakistan, and Zambia are the largest borrowers from China, accounting for about half of the Chinese government’s exposure to lower-income countries. While China has been lending to countries for decades, this is their first period of entering coordination debt restructurings with other bilateral creditors.
    2. Paris Club: as explained in the ‘debt relief architecture’ section.
    3. Non-Paris Club (excluding China): This group includes any bilateral creditor beyond the above countries. The largest bilateral creditors to lower-income countries, by size of debt stock as of 2020, are: Saudi Arabia, United Arab Emirates, Kuwait, South Korea, Singapore, and India[20]. Many of these have been invited to the Paris Club as ad-hoc members on occasion to participate.


The pandemic’s impact on debt levels and the impact of the Debt Service Suspension Initiative

32. Debt levels were already high before the pandemic at 44% of GDP, after the decade with the largest broad-based increase of debt in the past 50 years. According to the World Bank, 2020 was the largest single-year percentage point increase in debt-to-GDP since at least 1970. The sum of lower-income country debt grew by 12% in 2020, and in nine of these countries it rose by 20%[21]. This was driven by a variety of factors, in particular, the pandemic.

33. Domestic economic growth fell and was negative in some cases, increasing debt-to-GDP levels, reducing government revenues, and reducing export revenues to cover imports and external debt servicing costs. Lower-income country governments struggled to finance adequate stimulus packages to limit the economic and social scarring and provide the health service response needed for the pandemic. Other expenditures were cut, additional IFI financial support secured, and limited additional borrowing occurred.

34. IFIs provided unprecedented levels of financing to help with liquidity constraints, predominantly with greater concessional lending but also grants. The MDBs committed to mobilising $250 billion, and the IMF mobilised over $110 billion[22]. The IMF also added to global liquidity in 2021 through a $650 billion worth allocation of its SDRs, including $21 billion directly to lower-income countries[23]. As noted above, the CCRT also provided $930 million of debt-relief over the first two years of the pandemic.

35. To ease liquidity constraints further, the Government supported the creation of the G20 DSSI, and committed to participate fully as an official creditor. It avoided certain outflows of funds, and therefore contributed to maintaining social spending during the pandemic. The impact was constrained by initial country hesitation, and limited private sector participation[24].

36. The DSSI ended in December 2021. Countries will therefore resume their debt repayments to G20 creditors and begin to repay the rescheduled debt service once the agreed grace periods ends. Repayments of deferred debt will be made over several years to reduce the impact, biannually between June 2022 and December 2027. The DSSI was ended to encourage countries to seek more structural approaches to address their debt vulnerabilities, notably through the CF.

The impact of high levels of debt on development and countries’ response to climate change and the pandemic

37. Debt is an important part of long-term financing of a country’s growth and development. All governments borrow to enable investment to drive growth. When terms are affordable and the funds are used productively, debt is a positive source of development finance.


38. However, when public debt levels are too high, government borrowing can be a drag on economic growth: government borrowing out-competes (‘crowds out’) the private sectors ability to borrow and invest; higher interest rates slow investment; and government borrowing can create inflationary pressure[25]. High debt servicing as a result requires either increased taxation or cutting expenditure needed for public investment and to run public services. Eventually a vicious cycle can arise, whereby additional borrowing – at more costly rates given increased risk - is required to cover existing debt servicing. This reduces growth further, and if not addressed can result in an economic crisis and/or be a burden for years to come.


39. As the Government has heard during our COP26[26] Presidency, high debt levels can therefore constrain governments’ ability to respond to shocks, including climate shocks - increasing their vulnerability. High debt levels also constrain a countries’ ability to make the required investments to adapt to climate change and transform their economies. To finance major investments required to counter climate change, countries should borrow at rates that make financial sense while taking onboard the risk of climate change on debt sustainability and future development.


40. The Government is playing a leading role in supporting countries to increase their resilience to climate shocks within the area of debt, as part of the Government’s broader commitment to supporting developing countries combat climate change. For example, the UK was one of four Paris Club negotiating members that agreed to the addition of a ‘Hurricane Clause during Grenada’s 2015 restructuring process. This clause enables Grenada to fast-track debt suspension in the case of a hurricane occurring. Building on this success, the Government is currently developing so-called climate resilient debt instruments (CRDIs) as part of the G7 PSWG the Government chairs (see below for detail). CRDIs would help countries respond to severe climate shocks, such as hurricanes, drought, or famine, by automatically deferring debt payments.



Debt initiatives for lower-income countries


Reflections from previous debt-restructuring initiatives 

41. While not an initiative, the Paris Club is historically the main coordination mechanism for debt restructuring. Since its inception in 1956, the terms on which the Paris Club has offered debt treatments have evolved. In its first 20 years, Paris Club agreements were made on “classic terms”, but as concerns grew about poorer countries being unable to repay their debts, the Paris Club considered more generous terms (described in the penultimate section).

42. Today, the Paris Club uses the “Evian approach” as its framework for debt restructurings. Adopted in 2004, the Evian approach provides tailored debt restructurings that considers long-term debt sustainability considerations, rather than just exclusively providing short-term debt restructurings. It provides greater flexibility to the Paris Club through a case-by-case principle, allowing creditors to respond to the specific situations of each debtor country. The Evian approach also provided the opportunity for debt cancellation to a greater number of countries than was available under previous Paris Club rules.

43. Reflections from the HIPC and MDRI include:

    1. The importance of political leadership: The G7 championing HIPC allowed it to become a reality. The UK used its Presidencies of the G8 and EU in 2005 to go further and promote 100% of eligible debt relief by multilateral institutions – creating the MDRI.
    2. Debt relief initiatives can take time and need to evolve as implementation challenges emerge: quite a few countries reportedly experienced delays during the HIPC process[27]. HIPC evolved modestly over time: giving countries more time to meet the poverty-reduction criteria set; and providing more relief for more countries more quickly.
    3. Benefits to linking debt relief to development and improved debt management: this was built into the HIPC process, with countries required to develop a PRSP and deliver progress against it to secure full debt relief. This also supported increased social spending, which is on average five-times greater than debt-service payments post-HIPC whereas before HIPC both expenses where similar in size. Debt management has also improved[28]. IMF programmes now already include a floor on social spending, building on the wider learning that came from PRSPs.
    4. Debt relief alone is not a solution to debt problems: As has been seen, despite full cancellation, many countries have once again developed high debt vulnerabilities. This emphasises the need for efforts to strengthen countries’ own economic and debt management, and for lenders and borrowers to focus on sustainable lending and borrowing practices to help avoid future problems.

Debt Service Suspension Initiative (DSSI)

44. Reflections from the rescheduling of debt under DSSI include:

    1. The DSSI was an effective way to rapidly provide fiscal space: an IMF/World Bank assessment[29] found the DSSI helped countries respond to the pandemic by providing fiscal breathing space and was complemented by additional financing from multilateral institutions.
    2. The need to consider early-on how to encourage full participation by DSSI-eligible countries (while recognising their sovereign right not to request debt relief): 48 out of 73 countries participated. Reportedly some countries were concerned that applying for the DSSI might send negative signals about their creditworthiness. However, the World Bank has found limited evidence of DSSI participation affecting credit ratings[30].
    3. The need to engage the private sector earlier to encourage participation: according to the World Bank only one private creditor participated in the DSSI. The UK, G20, IMF and World Bank encouraged participation. The lack of private sector participation limited the overall impact and scale of the debt service suspension.
    4. The importance of information sharing among creditors: The DSSI was the first time that the Paris Club and the G20 formally coordinated on sovereign debt policy. One key issue was the absence of verifiable information sharing by G20 creditors, despite several shared ‘data calls’ being initiated.





Implementation of the Common Framework for Debt Treatment


45. Recognising that the DSSI was only meant to provide rapid and temporary relief during the worst phase of the pandemic, the CF was created to provide a long-term, sustainable approach to dealing with debt vulnerabilities for eligible countries (the 73 low-income countries that were eligible for the DSSI). Debt treatments under the CF can include both the reprofiling of debt or, depending on need, a full restructuring where debt is also cancelled. This is intended to pave the way for more efficient, equitable, and effective restructurings, allowing lower-income countries to benefit from a more transparent and responsive approach.


46. The CF is driven by a request from eligible debtor countries and considers debt treatments on a case-by-case basis, reflecting the different circumstances faced by each country. In response to a request for debt treatment, a Creditor Committee will be convened. Private sector participation on at least as favourable terms as official bilateral creditors is a fundamental principle of the CF.


47. So far, Chad, Ethiopia and Zambia have applied for treatments under the CF (note these cases continue to progress at a technical level at the time of writing)[31]:


    1. Zambia: following elections in August 2021, Zambia reached a Staff-Level Agreement with the IMF in December of the same year. At Spring Meetings, the People’s Bank of China indicated that China had agreed to join the creditor committee for Zambia. As a creditor to Zambia, it is a priority for the UK to work with our G20 partners to ensure swift progress on a debt treatment.


    1. Chad: following the provision of Financing Assurances from official bilateral creditors on 16 June 2021 and private creditors on 10 November 2021, the IMF approved a Programme for the country in December 2021. Discussions around the parameters of a debt treatment are ongoing and have been complicated by the recent – and significant – rise in the price of oil, which constitutes Chad’s main source of revenue. As the largest creditor, Glencore is critical to progress, as the CF requires comparability of treatment between official bilateral and private creditors.


    1. Ethiopia: the creditor committee first met in September 2021. The conflict in Ethiopia has since slowed progress on a potential new IMF financing programme, which is necessary for the CF process to move forward.


48. Given the CF was the first time that all G20 members and Paris Club creditors worked together to coordinate debt treatments, there were a number of issues to work through at its inception, such as agreeing processes and common principles. These, as well as country-specific issues such as the conflict in Ethiopia, elections in Zambia and the death of Chad’s President have impacted the speed of progress. However, with debt treatments for the three countries that have requested the CF still not agreed, the UK is still highly disappointed by the speed of implementation, which has been much slower than hoped. The UK is working hard with partners, including CF members and the IMF and World Bank, to spur progress. The UK worked closely with Italy and Indonesia as G20 Presidents in 2021 and 2022 to find ways to step up efforts. For example, G20 members have been discussing potential improvements to the CF in the G20 International Financial Architecture Working Group, where the UK has been advocating in favour of a guidelines document to better explain the CF process to debtor countries.



The Private Sector, eligibility criteria, and types of debt restructuring


The role of the private sector in lower-income debt relief, the role of the City of London and UK financial system, and how private lenders can be incentivised to participate in debt relief programmes


The role of the private sector in lower-income debt relief


49. In the past decade, lending from private creditors to developing countries has increased significantly. There have also been developments in the creditor base and type of lending. Debt instruments have become more diverse, including a rise in private sector debt outside of bonds. The creditor base has in parallel become more fragmented, with a greater proliferation of non-traditional lenders such as commodity companies, leading to challenges with creditor coordination.


50. As a result, there has been growing scrutiny of what happens with private debt in the event a country cannot repay its debts, particularly as - unlike for corporate debt - there is no sovereign bankruptcy mechanism. This has caused challenges in past restructurings, as some private sector creditors ‘held out’ for better terms by not agreeing to a debt restructuring, with negative consequences both for other creditors and for the debtor. Even where holdout creditors ultimately do restructure their debt, it can be a much slower process and on more generous terms to the creditor – impacting a debtors debt burden.


51. A small number of countries have previously adopted domestic legislation designed to discourage holdout creditors. Following significant debt relief from official creditors to low-income countries under the HIPC Initiative, the UK introduced legislation in 2011 to ensure private creditors provided their share of debt relief. The UK law applies solely to countries that benefited from debt relief under HIPC; it is intended to address the problem of a small minority of creditors - so-called ‘vulture funds’ – taking HIPC countries to court to try to recover the full value of their debts. Specifically, it prevents creditors from suing in UK courts to enforce payment on the pre-2004 sovereign debt of HIPC debtors on terms more favourable than agreed under the HIPC Initiative.


52. Improvements to the restructuring process tend to focus on enhancing coordination between creditors and improving the speed and efficiency of a restructuring. In this regard significant progress has been made on bonds. For example, in 2014, the UK supported IMF endorsement of enhanced collective-action clauses (CACs) for international sovereign bonds. Enhanced CACs aim to facilitate the restructuring of sovereign bonds through mandating a majority decision of bondholders to restructure (or not) across multiple series of bonds. This minimises holdout risk. In general, CACs have supported good debt workouts on the private sector side in recent years – for example, in the cases of Ecuador and Belize, and the IMF notes enhanced CACs have been widely adopted in recently issued international bonds[32].


53. In October 2020, the IMF took stock of developments on the international architecture governing sovereign debt owed to private sector creditors[33]. The paper concluded the architecture has generally functioned well in recent years but also highlighted a few key areas where improvements can be made – most significantly, on private sector debt outside of bonds.


54. Most recently, under the CF the G20 has been explicit that private sector creditors will also be expected to implement debt treatments on comparable terms to those agreed by official creditors like the UK. The Government is engaging private creditors on this and will be carefully watching the outcome of negotiations between CF countries and their private creditors.


The role of the City of London and UK financial system and how private debt holders can be incentivised to participate in debt relief programmes


55. The City of London is important to private debt contracts as many of these are drawn up under English law and facilitated by London-based firms. As a result, the UK has an important role in driving private sector participation in future debt restructurings. It should be noted there are also other important jurisdictions – for example, the IMF estimate that about 52% of the total stock outstanding of international sovereign bonds are governed by New York law, as opposed to 45% by English law.     


56. The Government regularly considers ways to improve how the private sector participates in restructurings. For example, HMT established and chairs the PSWG to explore improvements in how the private sector lends to sovereigns and restructures their debt. The group brings together the private sector, including banks, law firms and advisory firms, as well as IFIs, including the IMF and World Bank, and other countries.


57. The PSWG is currently focused on two deliverables. The first is CRDIs - as mentioned earlier. The second is introducing Majority Voting Provisions (MVPs) for changes to payment terms in syndicated loans. Many terms of syndicated loans can already be altered by a majority, but amending payment terms currently requires unanimous consent. MVPs would essentially act for syndicated loans as CACs do for bonds – allowing a significant majority of creditors to vote to amend payment terms, therefore minimising holdouts. The difficulties of achieving unanimous consent in practice can also lead to delays in restructurings even where a creditor is not acting with deliberate intent to holdout. Introducing MVPs would therefore facilitate a more timely, orderly, and efficient debt resolution process in case of restructurings.



The criteria used to determine eligibility for debt relief schemes, and whether this should be expanded to, for example, middle income countries


58. The criteria used to determine eligibility for debt relief schemes varies between each initiative. That said, broadly all schemes consider a debtor country's need for debt relief such as debt vulnerability, income, and ability to repay their debts – informed by the advice of the IMF and World Bank. The exact scope and nature of initiatives are typically due to the specific problem faced at the time they were devised and agreed. Eligibility criteria for each is given below.


59. The Paris Club provides debt relief and restructuring to countries on a case-by-case basis. The main conditions a debtor nation has to meet are that it should have a demonstrated need for debt relief and that it should be committed to implementing required economic reform to assist a return to debt sustainability.


60. The HIPC: eligible to 39 developing countries with high levels of poverty and an unsustainable debt burden. To receive one-off debt relief under the initiative, countries must meet the following criteria:

    1. Face an unsustainable debt situation after the full application of a traditional debt relief mechanism.
    2. Be only eligible for highly concessional assistance from IDA and from the IMF’s Poverty Reduction and Growth Trust (PRGT).
    3. Have established a track record of reform and sound policies through IMF and World Bank supported programmes.
    4. Establish a track record of reform and develops a PRSP that involves civil society participation.


61. The MDRI follows the same eligibility criteria as the HIPC.


62. CCRT: currently available to countries eligible for concessional borrowing through the PRGT and whose per capita income is below the IDA operational cut-off or, for small states with a population of less than 1.5 million, per capita income below twice the IDA cut-off. The IMF expanded the qualification criteria in 2020 to better cover the circumstances created by the global pandemic. As a result, developing countries qualify for support from the CCRT if they are extremely vulnerable to the rapid spread of Covid-19 and experience either a) a loss of 10% of their GDP or b) a loss of 10% due to government revenues falling or expenditure increasing.


63. DSSI: enabled any country that is IDA-eligible or on the UN’s list of Least Developed Countries (73 in total) to suspend debt service payments to its bilateral creditors. A country also either needed to be in an IMF financing arrangement or have requested financing (including emergency financing) from the IMF[34].


64. The Common Framework for Debt Treatments Beyond the DSSI is available to up to 73 lower-income countries that were eligible for the DSSI. The country must also have or have made a request for an Upper Credit Tranche programme with the IMF and have a need for a debt treatment. The need for a debt treatment (and the restructuring envelope that is required) is based on the IMF-World Bank DSA and the participating official creditors collective assessment.



Expanding the eligibility of debt relief schemes


65. The Covid-19 pandemic and the economic fallout of Russia’s invasion of Ukraine has pushed many developing economies into further risk of debt distress.


66. Given the deteriorating global debt picture, the UK is open to expanding the eligibility of the CF so more countries can benefit from coordinated debt treatments where needed. However, any decision to expand the eligibility of the CF would have to be negotiated and agreed with all G20 members.


67. While the eligibility criteria for the DSSI and the CF is restricted to IDA eligible/UN least developed countries, this criterion includes a number of lower-middle income countries (MICs) like Angola and Senegal, as well as vulnerable upper-MICs like Fiji and Tonga. MICs accounted for 47 (64%) of the full list of DSSI-eligible countries. Additionally, countries that are ineligible for the CF may still apply for a debt treatment from the Paris Club, of which the UK is a permanent member.



The relative merits of debt cancellations compared with debt relief


68. Debt relief can take various forms and terminology is often used interchangeably. Debt relief includes:

    1. Debt cancellation - partial or 100% reduction of amounts outstanding (principal and/or interest).
    2. Debt rescheduling - where payments (interest and/or principal) are delayed or rearranged.
    3. Flow treatment - partial or 100% relief of debt service payments falling over a set period are rescheduled to a future payment date. Typically, it would be done to look to close the financing gap in an IMF programme (the gap that exists when external resources such as exports, reserves, grants or loans, do not cover external needs, such as imports and debt service payments).

69. The Government’s approach to sovereign debt treatment is that it should be tailored to the needs of the requesting country. The need for debt treatment is usually determined by the IMF’s DSA, prepared when a country approaches the IMF for financial support. Where the IMF identifies a financing gap and this can only be covered by a debt treatment, then a so-called “flow” treatment may be provided.


70. In some cases, debt treatments may apply not only to the payments due over a set period but to the entire stock of debt (i.e., through debt stock cancellation). This is the case with the HIPC initiative, for example, where the entire stock of debt is treated at HIPC Completion Point. A stock treatment can also be provided on a case-by-case basis on other occasions, particularly where achieving debt sustainability for a country may be more challenging. Typically, a “stock” treatment would only be provided based on a track record with the Paris Club and the IMF, and where there is confidence the country will be able to meet its obligations under a debt agreement.


71. The Paris Club has a set of standard terms of treatment that have been used over its history, which are tailored to the per-capita income, level of indebtedness, and debt service of the country. These include “Classic terms”, the standard terms of treatment; “Houston terms” for highly indebted lower-middle income countries; “Naples terms” for highly indebted poor countries; and “Cologne” terms for HIPC countries[35]. These have differing lengths over which payments are rescheduled with differing grace periods (i.e., the initial period over which no principle payments are due), with some of these terms including debt cancellation. The 2004 Evian approach provides a more tailored response to the needs of the debtor country[36].



UK Role


What role the UK Government could and should play in lower-income debt relief – both through bilateral and multilateral initiatives


72. The Government has a strong record of working bilaterally and with international partners to assist countries on their road to longer-term debt sustainability, and will continue to do so.


73. The Government championed major debt relief initiatives of recent decades, including the HIPC Initiative and MDRI. Under the HIPC Initiative, the Government has cancelled 100% of loans owed by HIPC-countries when they have reached HIPC Completion Point, totalling £650 million bilaterally. The Government has also provided £1.4 billion of relief through contributions to MDRI. The Government is committed to similarly do so for debt owed by the remaining eligible countries as they qualify. HIPC has delivered an estimated $74.8 billion of relief so far.


74. Despite the success of the HIPC Initiative, debt owed by the poorest countries to multilateral institutions such as the World Bank, AfDB and IMF remained a burden to them. The UK used its Presidencies of the G8 and EU in 2005 to promote and secure agreement to an extension to HIPC that would write off all the remaining debt owed to these IFIs, called the MDRI. MDRI has delivered an estimated $41.6 billion of relief so far. The UK committed in 2006 to compensate the concessional arms of the World Bank and AfDB for debt repayments foregone under MDRI for their full repayment periods, which run to 2044 for IDA, and 2054 for the AfDBs fund the Africa Development Fund; we currently contribute around £190 million each year in total for these two commitments. As of May 2022, £1.26 billion has been paid to the World Bank, and £179 million to the AfDB for MDRI.


75. In addition to participating in the internationally agreed MDRI, the Government also developed its own initiative, the ‘UK MDRI’ to provide debt relief to non-HIPC poor countries[37]. Under the UK MDRI, the UK reimbursed its share (10%) of qualifying countries’ debt service payments to the World Bank IDA and AfDB until 2015.


76. Support is required to get the final remaining HIPC-eligible countries access to debt relief. The UK recently played a leading role in helping Somalia and Sudan secure debt relief under HIPC. In 2020 the UK championed Somalia’s progress towards HIPC relief and helped clear Somalia’s arrears to the IFIs by providing an intra-day bridging loan jointly with the European Union to Somalia for it to clear arrears at the AfDB, and by providing £40 million grant finance to help to clear arrears at the IMF. The UK then used its G7 Presidency in 2021 to progress Sudan’s HIPC treatment and to agree an ambitious financing package for Sudan’s arrears to the IMF from its internal reserves, including a portion belonging to the UK amounting to £36 million. The UK also again provided an intra-day bridging loan to clear Sudan’s arrears at the AfDB. By clearing its arrears each country renewed access to finance from the IFIs.


77. Although HIPC and MDRI were successful in relieving the debt burdens of eligible low-income countries, the current international debt landscape makes any revival of such an initiative challenging. Today’s heterogeneous global creditor base features increased non-traditional and commercial creditors, which would make finding consensus on such a comprehensive debt relief initiative challenging. Nor would a blanket initiative such as this enable relief to be tailored sufficiently to individual country circumstances, as is possible under the CF. HIPC and MDRI were also conceived at a time when debt levels were especially challenging, with high levels of debt and accumulations of arrears; debt levels and arrears have not returned to these levels as can be seen in graphs provided by the IMF[38]. Debt reduction alone is not a sufficient instrument to address the multiple drivers of debt sustainability. As such, the UK and its partners are working in partnership with the IFIs such as the World Bank and IMF to ensure improvements in fiscal management and public debt management.


78. The Government played a leading role in establishing the DSSI, which was agreed by G20 Finance Ministers and the Paris Club in April 2020 and took effect from 1 May 2020. Given the depth of liquidity needs in these countries, the Government helped secure an extension of the DSSI to December 2021. Over this period, the total estimated debt service deferred under the DSSI was $12.9 billion. The UK participated fully as a creditor, resulting in $16.14 million of debt deferrals[39]. This highlights the small exposure of the Government to those eligible countries that applied to the DSSI[40], in part thanks to significant relief given by the Government under the earlier HIPC and MDRI initiatives.


79. Similarly, the UK played a key role in negotiating the CF. The UK government is fully committed to implementing the CF in a timely, swift, and coordinated manner and plays an active role in discussions about the CF in the G20.


80. The IMF created the CCRT to support countries hit by the Ebola epidemic in 2015 by using donor grant finance to make debt service payments to the IMF on their behalf. The UK contributed grant finance to this. When the Covid-19 pandemic hit, the IMF enhanced the CCRT, and the UK led the way contributing £150 million in grants to help developing countries to dedicate their available resources to tackling the pandemic, while calling on others to do likewise. Between April 2020 and April 2022 CCRT disbursed $964 million in grants to cover debt service repayments of PRGT borrowers, through the support of 18 contributors and the European Union.


81. Any bilateral restructuring of UK loans to other sovereigns is conducted through the Paris Club. Here, the UK works with the Paris Club of official creditors, IMF, and World Bank on a case-by-case basis to support debt treatments, with fair burden sharing amongst creditors, to promote long-term sustainable growth. At Paris Club negotiations, representatives and Paris Club members meet the debtor country and negotiate a debt treatment. The agreements themselves are not legally binding but are used as the basis for legally binding bilateral arrangements between the debtor country and its Paris Club creditor countries. Up to the end of 2021, the Paris Club has reached 477 agreements with 101 different debtor countries. Since 1956, the debt treated in the framework of Paris Club agreements amounts to $612 billion. Under OECD rules on ODA, the cancellation of non-concessional sovereign debt (such as export credits) can be scored as ODA and the UK thus reports ODA on bilateral debt relief agreed at the Paris Club.


82. The Government is also leading work with private sector creditors to strengthen the contractual approach to private sector debt restructuring, as set out previously.


83. The Government also provides wider support to improve lower-income country capability in debt, economic, and financial management, as well as legal advice for financial transactions, such as negotiations and managing complex debt contracts. This is done globally through the World Bank, IMF, and African Legal Support Fund (ALSF), and the Debt Management Facility, and bilaterally through ODA programmes in-country. The Government has shaped the World Bank’s SDFP, which incentivises attention to debt management by requiring specific actions to improve debt management and transparency, and links these to the funding that IDA provides. The Government also promotes local currency financing to reduce exchange rate fluctuation exposure of external debts. For example: announcing a new local currency facility with the IFC in 2020; contributing bilateral ODA to the Currency Exchange Fund (TCX) in 2019; and long-standing supporting the World Bank IDA Local Currency Facility.


84. The Government is also proud to be a responsible lender and is committed to the OECD sustainable lending rules that apply to export finance.


85. The Government is a global leader in transparency of bilateral lending. In 2021, as G7 President, the UK became the first country to publish our creditor portfolio on a loan-by-loan basis and secured a commitment from other G7 countries to do likewise. The Government is currently funding the OECD Debt Transparency Initiative which has developed a debt portal which collects, analyses and reports on private sector lending to vulnerable low-income countries. It intends to become a central data centre where creditors and debtors disclose data. The UK continues to advocate in the G20 for all members to follow the lead of the G7 in publishing debt data in line with the G20’s own guidelines on sustainable finance.


June 2022



[1] HIPC and MDRI—Statistical Update (imf.org). In US dollars 2017 figures converted into UK pounds.

[2] The name for the grouping of Multilateral Development Banks and the International Monetary Fund

[3] UKEF and FCDO sovereign exposure as of 31 August 2021. This figure is based on the total amount of debt owed to the UK by DSSI-eligible countries.

[4] Paris Club claims as of 31 December 2021 www.clubdeparis.org/sites/default/files/table_2021.pdf . This figure is based on the total amount owed to all Paris Club creditors by DSSI-eligible countries.

[5] https://clubdeparis.org/en/communications/page/permanent-members

[6] Debt Service Suspension Initiative (worldbank.org)

[7] World Development Indicators, World Bank, 2021

[8] 9781464817304_Ch05.pdf (worldbank.org), 2020

[9] IMF World Economic Outlook, April 2020.

[10] World Development Indicators, World Bank 2020

[11] World Bank analysis shows variable interest rate debt now accounts for 30% of low-income debt: https://blogs.worldbank.org/voices/are-we-ready-coming-spate-debt-crises

[12] IMF, Restructuring Debt of Poorer Nations Requires More Efficient Coordination, April 2022

[13] https://odi.org/en/insights/low-income-country-debt-three-key-trends/

[14] African Development Bank, 2021

[15] When the country is already experiencing difficulties in servicing its debt, as evidenced, for example, by the existence of arrears, ongoing or impending debt restructuring, or indications of a high probability of a future debt distress event

[16] Where no rating is provided by IMF of debt risk, this reflects credit rating agency assessments

[17] Restructuring Debt of Poorer Nations Requires More Efficient Coordination – IMF Blog

[18] World Bank International Debt Statistics

[19] IDS Report, 2022

[20] World Bank International Debt Statistics, 2021

[21] https:/www.worldbank.org/en/news/press-release/2021/10/11/low-income-country-debt-rises-to-record-860-billion-in-2020

[22] IMF as of April 2021, https://www.imf.org/en/About/FAQ/imf-response-to-covid-19

[23] https://blogs.imf.org/2021/12/02/the-g20-common-framework-for-debt-treatments-must-be-stepped-up/

[24] ‘Has the DSSI Helped Lower Sovereign Spreads of Participating SSA Countries?’, IMF Africa Department, August 2021

[25] https://www.cato.org/cato-journal/fall-2021/impact-public-debt-economic-growth

[26] COP is the Conference of the Parties to the UN Framework Convention for Combating Climate Change

[27] https://www.development-finance.org/en/component/docman/doc_download/77-publication-11-debt-reduction.html

[28] Factsheet - Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative (imf.org)

[29] World Bank Document

[30] Debt Service Suspension Initiative: Q&As (worldbank.org)

[31] Chad and in January 2021, and Ethiopia and Zambia in February 2021

[32] Third Progress Report on Inclusion of Enhanced Contractual Provisions in International Sovereign Bond Contracts (imf.org)

[33] The International Architecture for Resolving Sovereign Debt Involving Private-Sector Creditors—Recent Developments, Challenges, And Reform Options (imf.org)

[34] Eligibility for IDA support depends first and foremost on a country’s relative poverty, defined as GNI per capita below an established threshold and updated annually ($1,205 in the fiscal year 2022).

IDA also supports some countries, including several small island economies, which are above the operational cut-ff but lack the creditworthiness needed to borrow from the International Bank for Reconstruction and Development (IBRD).

[35] Club de Paris

[36] Club de Paris

[37] Eligible countries included: Bhutan, Cabo Verde, Lesotho, Moldova, Mongolia, Nepal, Samoa, Vanuatu, and Vietnam

[38] https://www.imf.org/en/About/FAQ/questions-and-answers-on-debt-restructuring-in-lics

[39] As outlined in paragraph 4, the total amount of debt owed to the UK by DSSI-eligible countries was £1.3 billion as of 31 August 2021. However, not all countries eligible to the DSSI requested support or completed their requests under the initiative. Total debt stock to the UK by countries that submitted valid requests under the DSSI amounted to £492 million as of 31 August 2021.

[40] Those countries are: Angola, Dominica, Grenada, Kenya, Lesotho, Myanmar, Nepal, Pakistan, Samoa, St. Vincent and the Grenadines, Yemen, and Zambia.