THE POOR ARE GETTING POORER IN THIS COVID ERA AS CHAD STRUGGLES WITH DEBTS

Chad has requested that a “common framework” be set up between the Paris Club and the G20 for the treatment of debt. These donors will probably extend the moratorium enjoyed by some fifty countries, mostly African, until the end of 2021.

This is the first initiative of its kind under the “common framework” set up in 2020 between the G20 – under Saudi chairmanship – and the Paris Club to address the insolvency risks of the countries that have been most affected by the economic slowdown caused by the Covid-19 crisis.

Slightly indebted, (42% of GDP according to the latest IMF data, including 25.6 points of state-guaranteed debt), Chad is nevertheless approaching a liquidity crisis due to a high debt burden and low oil revenues.

Chad has also amassed a very large debt with the Swiss-based trader Glencore backed by oil sales, which accounts for more than a third of its external outstanding debt.

A support programme from IMF

Chad will also benefit from an IMF-support programme. Following several virtual meetings in December and the last one on 25 January, finance minister Tahir Hamid Nguilin said on 27 January that “Chad and the IMF [agreed] on a new four-year economic reform programme supported by an Extended Credit Facility and an Extended Fund Facility, amounting to $560m. This programme is also supported by all of Chad’s partners.”

Formally agreed upon on 13 November 2020 at a G20 meeting between finance ministers and Central Bank governors, the “common framework” on debt now serves as the backbone for dealing with the debt of the least developed countries in the Covid era.

All official creditors are thus leading the process together and with the same approach. This includes China who is used to dealing with its creditors on a bilateral basis.

Paris Club, China and private lenders in the same boat

“The latest work conducted within the G20 has ensured that China, Africa’s major creditor, is willing to join this common approach,” said a source close to the French authorities.

On another sensitive issue – that of the participation of private creditors in debt restructuring–  the same source indicates that the Paris Club and the G20 have agreed that henceforth, no restructuring action would be taken without the equal participation of both private and public creditors.

As summarised by the Paris Club, “the debtor states concerned will have to make an express commitment to this effect.” A decision that will please Chad.

Will it be Zambia and Ethiopia’s turns soon?

Within the framework of the DSSI, about 50 countries – the vast majority of which are African states – have obtained a moratorium on their public debt.

After Chad, other countries may apply for debt rescheduling in the coming months, including Zambia and Ethiopia, according to our sources. Sudan, which is still in the midst of a crisis, would be treated differently.

The DSSI, which was due to conclude by the end of 2020, was extended for six months by the G20 and the Paris Club at the summit on 13 November. According to a source close to Bercy, “it is very likely that this DSSI suspension will again be extended to the whole of 2021 in view of the global economic and health situation.” A decision will be made in April by the G20, now chaired by Italy.

SOURCE: African Report