The US Treasury has proposed introducing debt service standstills for low-income countries undergoing the Common Framework process once they reach a staff-level agreement with the IMF, according to Assistant Secretary of Treasury for International Finance Brent Neiman.
Neiman stated that such a reform would encourage debtors that require relief to engage in the process and likewise motivate creditors to expedite reaching a restructuring agreement.
"One critical issue in operationalizing such a proposal is to find a way to avoid the standstill causing rating agencies to declare the country in “technical default,” which can have adverse consequences on borrowing costs and cross-default clauses and could potentially cause private financial institutions to stop providing services to the country," he said.
Improving global debt architecture and providing aid and sustainable solutions to countries facing debt burdens is a top priority for the Treasury, as explained by the secretary.
"We have discussed these and other technical issues through our participation in the Global Sovereign Debt Roundtable (GSDR), through engagements with the private sector and international financial institutions, and through meetings of the Paris Club," Neiman said.
For Ethiopia, the proposed debt service standstills could provide meaningful relief. Ethiopia requested debt relief under the G20 Common Framework in early 2021 and has sought an IMF loan, but progress has faced hurdles including delays amid creditors insisting on an IMF debt analysis and a civil war that broke out in 2020. If implemented, the Treasury's plan may help Ethiopia and other low-income nations navigate their debt challenges.
A visit by IMF staff to Ethiopia from Sept. 25 to Oct. 3 ended without a loan agreement. Ethiopia's external debt totalled $28.2 billion at the end of March, according to government data. It includes a $1 billion international bond maturing in December 2024 . Between 2006 and 2022, Chinese lenders committed to more than $14 billion of loans to the landlocked country, according to Boston University.