Key facts
- The Paris Club stated that the Common Framework for sovereign debt restructuring needs reforms for speed and efficiency.
- The report noted a decrease in the proportion of low-income countries at high risk of debt distress.
- Ethiopia's debt restructuring is facing challenges due to disagreements between bondholders and official creditors.
- China advocated for strict enforcement of comparability of treatment and curbing malicious litigation by bond investors.
- There are calls for clearer rules regarding Preferred Creditor Status to ensure equitable burden sharing among creditors.
The Paris Club, a group of major creditor nations, has called for significant reforms to the Common Framework, an international initiative designed to expedite debt restructurings for low-income countries. In its 2025 annual report, the organization highlighted that while the overall number of countries facing severe debt distress has slightly decreased since the pandemic's peak, the existing framework is not efficient enough.
Officials participating in the annual meeting in Paris emphasized the need for a more streamlined process. Proposals discussed included China's insistence on strictly enforcing the principle of comparability of treatment, ensuring that private creditors accept similar losses to official lenders. Other suggestions, supported by the International Monetary Fund and World Bank, involved allowing all creditors to negotiate terms simultaneously during a restructuring, rather than in a sequential manner.
The report noted that for the first time since 2017, a majority of low-income countries (52%) are at low or moderate risk of debt distress, compared to 48% at high risk. While countries like Ghana, Zambia, and Chad have largely completed restructurings under the Common Framework, Ethiopia's situation remains contentious. Investors holding a $1 billion defaulted bond are in a dispute with official creditors, who agreed to a debt deal in principle in March 2025. Bondholders argue that the proposed losses are unjustified given Ethiopia's improved economic outlook and have threatened legal action.
Ethiopia's Ministry of Finance expressed that the Common Framework's implicit sequencing, which delays engagement with bondholders, exacerbates analytical divergence between the IMF and private creditors. They suggested earlier involvement of the IMF and official creditors with private lenders, calling the current approach a "design flaw."
China, Ethiopia's largest bilateral lender, criticized the bondholders' threat of legal action. Xuan Changneng, Deputy Governor of the People's Bank of China, urged strict enforcement of comparability of treatment and coordinated efforts to "curb malicious litigation by bond investors" to protect the Common Framework's foundation and credibility. Changneng, along with Sonja Gibbs of the International Institute of Finance, also called for clearer rules on which institutions qualify for Preferred Creditor Status. This status typically protects entities like the IMF and World Bank from losses, but its unclear definition has pressured other development financial institutions to accept losses, slowing down restructurings and raising concerns about fair burden sharing.