GLOBAL DEBT RESTRUCTURING (Syllabus: GS Paper 3 – Economy)

Context: India has taken the lead in facilitating debt discussions with global sovereign debt roundtable (GSDR), for the climate change programme at the New Delhi-based think tank Centre for Science and Environment (CSE). 

Key Points of Declaration

• Since the Common Framework’s establishment in 2021, Chad is the only country that has undergone debt restructuring, which involved concessions from creditors to alleviate the financial burden on insolvent nations, while others are still waiting.

o The Common Framework, initiated by the G20 in November 2020, aims to strengthen the international debt structure for the world's poorest nations by facilitating coordinated efforts among official creditors for timely and sustainable debt treatment.

• India, during its G20 presidency, has made substantial progress in addressing the debt issues of Zambia, Ghana, and Ethiopia, and has also established a coordinated mechanism for addressing the debt situation in Sri Lanka.

Debt Restructuring: It is a strategy businesses, individuals, and nations employ to mitigate the potential of defaulting on their current financial obligations. 

• This may involve negotiations for reduced interest rates among other measures.
• The debt restructuring process typically involves getting lenders to agree to reduce the interest rates on loans, extend the dates when the company’s liabilities are due to be paid, or both.

Global sovereign debt roundtable (GSDR):

• Creation: In February 2023. It does not replace debt restructuring mechanisms such as the G20 Common Framework, rather, its focus is to build a greater common understanding of key concepts within the existing framework
• The GSDR is co-chaired by the International Monetary Fund, the World Bank and India in its capacity as the 2023 G20 Presidency.