G20 Releases Template for Sovereign Debt Restructuring

The Group of Twenty released an illustrative template memorandum of understanding on May 27 for sovereign debt restructuring with official bilateral creditors. The document sets out a sequence of steps under the Common Framework launched in 2020. A debtor country can request treatment under the framework.

An Official Creditor Committee would then form to coordinate with the country. The country would next reach a Staff Level Agreement with the International Monetary Fund based on a Debt Sustainability Analysis.

The committee then proposes restructuring terms that include adjustments to debt service, net present value relief, and maturity extensions. The debtor country signs a memorandum of understanding with the committee once those terms are set. The memorandum takes effect only after the debtor country submits a comparable restructuring proposal to private creditors and announces it will remain in arrears until an agreement is reached.

Bilateral agreements with each official creditor follow.

The template requires debtor countries to place private creditor claims in arrears before the memorandum becomes effective. This approach removes the option for pre-default negotiations that could preserve market access. The template also includes a claw-back clause that allows the committee to impose a 5-percentage-point compensatory interest rate if the program is later declared ineffective.

The release does not incorporate proposals from the Global Sovereign Debt Roundtable for parallel creditor discussions or for expanding the Common Framework beyond low-income countries.