Common framework, uncommon challenges: lessons from the post-COVID debt restructuring architecture
Posted on February 25th, 2025
Insight Written by Yunnan Chen, Tom Hart Courtesy ODI Global
This year’s G20 presidency has shifted to South Africa, under which sovereign debt will be a key priority. South Africa is pushing for a review of the G20’s Common Framework (CF) for debt treatments, five years since its creation during the Covid-19 crisis in 2020. It was part of broader G20 debt relief efforts to alleviate the economic impacts of the pandemic, but also to bring to the table both official creditors and commercial creditors and bondholders for the first time to work in tandem.
The CF has delivered substantive debt relief – as we show below – but these restructurings illustrate the significant challenges in how contemporary restructurings for low and middle-income countries work: that they are too little, too late and too complex.
Too little, reflecting tensions over the scope and size of debt relief, defined by the IMF debt sustainability analyses (DSA), and the treatment of domestic debt. Too late, due to the (weak) effectiveness of the Common Framework in enabling coordination and supporting inter-creditor equity to enable swift, efficient restructurings. And too complex because of the deployment of state-contingent debt instruments (SCDIs) in enabling restructurings, which may help incentivize bondholder participation – but at the cost of debt relief to borrowers.
Nearly three decades on since the HIPC initiative, the landscape of sovereign debt restructuring has shifted dramatically. Non-traditional creditors such as Chinese state-owned banks, as well as the growth of international bond markets, have transformed how and from whom countries borrow, and have complicated restructuring processes once dominated by the Paris Club.
Three landmark bondholder restructurings were concluded by the end of 2024: two, in Ghana and Zambia, were finalised under the Common Framework, and one, Sri Lanka, outside of the CF. A further Common Framework participant, Ethiopia, is yet to finalise negotiations. These cases illustrate the innovations and trends in bondholder restructurings, such as the CF and the use of SCDIs, but also the weaknesses of these tools, and of the broader debt restructuring architecture.
As these countries try to reset, what do their restructurings show about where the debt restructuring architecture is going? And how does the Common Framework need to evolve?
A tale of three restructurings: Ghana, Zambia and Sri Lanka
A debt restructuring aims to bring down a country’s debt burden to sustainable levels, providing sufficient breathing room in terms of debt relief so that these crises are resolved, and ensure that countries can once again gain access to international capital, and return to a sustainable economic growth path. The diverse cases over the last few years also illustrate the challenges and trade-offs involved in balancing the need for swift, efficient restructurings to restore capital market access, and the depth of debt relief needed to support longer-term sustainability.
The G20 Common Framework, used for Ghana and Zambia’s restructuring process, brings together all official creditors (Paris Club countries plus China and others) to negotiate in a single official creditor committee (OCC), which is then sequentially followed by negotiating with bondholder groups and commercial creditors. Ghana and Zambia respectively sought to restructure $13bn and $3bn of sovereign bonds. Sri Lanka, as an middle-income country, was not eligible for the CF, and pursued restructuring of their $12.5bn of bondholder debt through separate creditor committees with official creditors, Chinese creditors and bondholders.
Full Report