New creditors, differing interests and coordination issues are hobbling sovereign debt restructuring

economictimes.indiatimes.com:

debt of developing countries surged to 29% of GDP in 2021 from 19% in 2010. As the debt level rose, the profile of external public debt also changed.

Paris falling
The share of multilateral institutions and the Paris Club, which was 83% of the total external debt of 73 countries — the debt servicing of which was suspended in 2020 under the G20 Debt Service Suspension Initiative (DSSI) in 2006 — fell precipitously to 58% in 2020.

China rising
The share of other official and private creditors — the non-Paris Club members, including China, India and Saudi Arabia — rose sharply to 42% in 2020 from 17% in 2006.

The share of China, the most prominent member of non-Paris Club, in external debt of DSSI countries climbed to 18% in 2020 from 2% in 2006.

An IMF analysis suggests that several low-income countries (LICs) have been at high risk of debt distress or are in debt distress. Between 2010 and 2022, interest payments on both domestic and external debt of developing countries increased by 64%, and of African countries by 132%.

The external debt-servicing burden of LICs constituted 19.2% of government revenue in 2022, sharply up from 5.8% in 2010. Many LICs are in urgent need of debt restructuring, which involves rescheduling and/or reduction in the nominal value of outstanding debt.

Orderly debt restructuring requires creditor coordination to ensure inter-creditor equity or fair burden sharing.

Until recently, public debt restructuring involved only IMF, World Bank and Paris Club members. However, the emergence of a new set of creditors has made debt restructuring difficult.