Wednesday, June 19, 2024
InterviewDEBT RESTRUCTURING: HOPES AND GLOOMS

DEBT RESTRUCTURING: HOPES AND GLOOMS

William Roos is the French Treasury’s Assistant Secretary for Multilateral, Development, and Trade Affairs. He is also co-chair of the Paris Club, a group of 22 permanent official creditors that includes European nations, the United States, Australia, Russia, and Brazil. The club is a platform for creditors to decide on debt relief, postponement, concessional rescheduling of debt reduction, and other supports for debtors. Ethiopia is also one of the nation’s awaiting a debt restructuring.

Roos arrived in Ethiopia for the third French-Ethiopian General Committee between the Ethiopian Ministry of Finance and the French Embassy in Addis Ababa. Ashenafi Endale of The Reporter conversed with Roos about issues ranging from debt treatment to shifting geopolitics. Excerpts:

The Reporter: There are emerging creditors, like China and the BRICS members, that are overtaking the role of traditional creditors like the Paris Club. How do you see the position of the Paris Club in this emerging competition from the new breed of creditors? Will the Club change its standards and terms?

William Roos: It is true that the debt landscape has changed. And as you said, new creditors like China are emerging. We also have more private creditors. Domestic credits have also been growing. Emerging creditors like China, Brazil, etc. are coming.

The best way to address the problem when debtor countries cannot pay their debt is to work in a coordinated manner with all creditors. So, coordination is the spirit of the Paris Club. A large group of creditors organized to work in a coordinated manner to address the debt payment abilities.

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In the Paris Club today, you have, for example, Brazil, which is a member—an emerging country but a member of the Paris Club. You also have South Africa, which is a prospecting member with a clear willingness to become one very soon.

At the Paris Club, we have meetings every month to look at the situation in many countries. We invite China and India to the meetings, but they are not members. They are not committed to the principles of the Paris Club. But they come and participate.

For me, we have the Paris Club, which is something very important. What we have built together with the G20 is constructive. There is a G20 presidency, and the common framework is agreed upon at the G20 level and supported by the Paris Club.

So we have the commitment. If a low-income country faces an inability to repay its debts, it needs to apply for an IMF program. Then they can request debt treatment. And then we have committed China, India, Saudi Arabia, Turkey, etc. to the Paris Club to work together to form the Creditors Committee.

For me, it is something very new. We did that for Chad, and it was a success. We are working on Zambia and Ethiopia, and we need to start very quickly. We have already started to work on Ghana. This is the result of the coordination.

Several developing countries are facing debt distress. Some, including Ethiopia, have requested debt restructuring, but the response is already long overdue. What is the stance of the Paris Club on debt restructuring, given that several developing countries are suffocated by a lack of fiscal space?

Is the delay related to the opaque debt terms dictated by China, and do you think it is on the same page with western creditors when it comes to debt restructuring? How are the transparency issues related to Chinese loans affecting the debt restructuring process? Is the Paris Club considering new standards and norms regarding improving debt terms?

I agree with your assessment. The common framework process has been too slow. It is a fact. It has delivered for Chad. It is making good progress for Zambia. We have already started the discussion for Ghana.

For Ethiopia, we are ready to work on the basis of a new agreement between Ethiopia and the IMF. But it is true that the timeline is too long.

Just to give you an example, we should be able to form a creditors committee meeting within less than two months. But in the case of Ethiopia, it took more than six months or so in 2021. When the creditors committee is formed, we know how to deliver financing assurances very quickly. But then we can see Zambia’s case that to move to debt treatment it can be very long.

I agree that we need to look at where the bottlenecks are. For me, it is clear that we need to respect the internal processes of every creditor, including China. But it is true that the Chinese process should be accelerated. While we respect that they have their own internal process, we do not need to do that in a hurry. I agree with China about that. But we have a very in-depth working relationship between the debt experts in China and the debt experts in Paris.

I was in Beijing two weeks ago. We are building something completely new. Both countries want to know about the clarity and how it will be done.

Partly, the debt restructuring delay for Ethiopia is, I think, due to the political instability in Ethiopia. How much has the domestic issue affected the process? Do you think that is normalizing since the Pretoria agreement?

In 2021, when we started the work for Ethiopia, the time it took to form the creditors committee was too long. And in parallel, there was a deterioration of the internal situation. We had two reasons. One would have been enough. Our work has stopped due to internal issues in Ethiopia. We had to wait.

But since the peace process, things have completely changed. All the official creditors want to work with Ethiopia currently. Today, the issue is not the creditor committee or the common framework. The main point now is for Ethiopia and the IMF to reach an agreement and have the parameters of the IMF program.

We do not want to interfere in the negotiation between the IMF and Ethiopia. But when we were in Washington, DC, last week, we all sent messages of support for Ethiopia.

There are data that indicate the Ethiopian government will face a deficit of around USD eight billion to finance the second Homegrown Economic Reform (HGER 2.0) in the coming three years. How do you intend to support the upcoming reform program in Ethiopia? How much can the Paris Club support?

At this point, we do not have the financing figures. We did not hear about the financing gap during the IMF meeting. It is something to be debated between the IMF and Ethiopia. There are debates on many parameters. Then the financing gap will be determined, and a way to fill the gap will be decided. First, there will be IMF financing. The World Bank and the other development banks also have to come and provide new money and new support to Ethiopia.

As official creditors, we also need to be complementary with the comparability of treatment with private creditors. All in all, between the IMF, the World Bank, the other development banks, the official creditors, and other creditors, we should be able to fill the gap. In general, sometimes you also need to have some complementary donors in order to fill the gap. It depends.

Given the internal and external shocks Ethiopia’s economy has been facing, how do you evaluate Ethiopia’s debt service capacity even after the debt is restructured? What kind of preconditions or reform programs could enable the economy to recover sooner?

Regarding the priority of the reform agenda, I think it is in the hands of Ethiopia first. It has to be a reform agenda coming from Ethiopia, supported by the IMF. But in general, it is very important to restore confidence, rebuild the forex reserve, and ensure the debt’s sustainability.

So you need to adjust the fiscal deficit, increase revenue, and reprioritize expenditure. You need to ensure good public debt management. And of course the public sector loan is not enough, and you need an enabling environment in order to support private initiatives and private companies. This is the package to be defined by Ethiopia, with the support of the international financial institutions.

As far as the Paris Club and the official creditors are concerned, we do not interfere. And we do not request specific preconditions. When we negotiate with the debtor countries, we negotiate the parameters of the debt restructuring. Which loans to postpone, the interest rate, the grace period, and the maturity of the new loans are what we negotiate. We also want the country to remain engaged with the IMF.

But we do not negotiate with the debtor country specifically. It is not our job.

What about preconditions such as the exchange rate regime in Ethiopia?

Regarding the exchange regime, what we provide as debt treatment is to alleviate the difficulty in the balance of payments. That is what we do with the support of the IMF. We look at the balance of payments. We look at the gap and address it. Our contribution comes in the form of reducing the debt service of the debtor countries.

As a result, we lower the debt service that Ethiopia pays to us during the IMF program and occasionally even after it is over. So, this is the way for us to help Ethiopia address the balance of payment issue.

But of course the issue of balance of payments has to be addressed through specific reform programs like monetary policy, exchange rate policy, etc. But that is something to be discussed between Ethiopia and the IMF.

How do you relate the debt restructuring delays with geopolitical changes, especially since the Ukraine war and the rush to garner support from African countries?

At my level, you saw the visit of the president to Beijing very recently. For us, it is true that we have to recognize that there are geopolitical tensions. We have to recognize that sometimes we disagree with China and other countries.

But the message shared by shareholders of the World Bank and the IMF is that we value having all stakeholders on the platform. We are ready to work together independently on the geopolitical issues. You have the creditors committee around the table. You have Japan, the US, China, India, and others. It is a very constructive discussion. We look at the case from an expert point of view, not from a geopolitical point of view.

How do you evaluate the relationship between France and, especially, the African continent? Will the west’s relationship shift from supports attached to preconditions to ‘just business’ like China?

It has a very strong relationship with all the African countries. In February, France’s President and Ethiopia’s Prime Minister met in Paris. I participated in the event, and I saw the commitment to sustain this strategic partnership between our two countries. I was also part of the state visit our president made to central Africa: Angola, the DRC, Congo, and Gabon.

We want to work with African countries as partners. It is not just about providing aid, development money, etc. What we want is a partnership on an equal footing between France and African countries. We face some common changes. We want to maintain and improve the relationships we already have.

According to sources, the French Development Agency has been downsizing its staff, cutting projects, and considering leaving Ethiopia. Can you reflect on this?

I want to be clear. There is no plan to downsize the Agency here. There is no plan to reduce its work or close down at all. I am here to demonstrate that it is totally the opposite. There is quite a lot on the agenda between France and Ethiopia, and the Agency has an important role to play.

The reality is that when we are in the middle of debt negotiations, it is very difficult for the French development bank to provide a new loan. But once that is over, the activities will be very focused on specific projects.

After the debt treatment, there will be an IMF program, and the World Bank will also provide money. But when the World Bank starts providing budgetary support for Ethiopia, it will be easy for the Agency to resume sovereign projects. This is currently not possible for us due to the uncertainty surrounding debt treatment. But I want to be very clear: There is no plan to downsize its activities. They are here. They remain here and want to contribute to the relationship between Ethiopia and France.

[speaker]
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