Why is restructuring important?

The G20 Common Framework was launched in 2020 to help countries facing high levels of external debt and interest.

Its purpose was simple: bring creditors together, restructure debts fairly, and help countries get back on a sustainable path.

Over five years later, the system is failing to deliver timely and adequate debt relief. Countries have spent years negotiating debt deals while continuing to face mounting pressures at home. Some governments have been discouraged from applying altogether because the process is seen as slow, unpredictable and unlikely to provide enough relief.

An opportunity for change?

The failure of the Common Framework is a pressing challenge for international cooperation which could be tackled by collective G20 action. The opportunity to fix this will be catalysed even further when the UK takes over the G20 presidency in 2027.

Seizing on this moment, Save the Children UK and Debt Justice UK have come together to outline the six critical reforms needed to fix the G20 Common Framework. The report has been backed by 11 INGOs and coalitions^*, including Bond, with H.E. Francisca Tatchouop Belobe, the Commissioner for Economic Development, Trade, Tourism, Industry and Minerals at the African Union, setting the scene with a brilliant foreword. You can read the report here.

The human cost of unsustainable and unaffordable debt

The Common Framework’s failure means unsustainable and unaffordable debt is fast becoming one of the greatest blockers to prosperity and development of this generation.

External debt payments are squeezing fiscal space at precisely the moment when countries need to invest in things like climate adaptation and food security. Some countries are stuck in contexts where they cannot access affordable loans, and the consequences of repaying debts are taking a significant financial toll.

For example, between 2014 and 2020 as Zambia struggled to make its debt repayments, real public spending on healthcare fell by 13%. Spending per person on education fell by a staggering 40% over the same period. Zambia then applied for the Common Framework but has spent six years negotiating debt restructuring. Delays by some commercial creditors have prolonged the process and slowed the country’s recovery. The human cost has been significant.

Why is restructuring important?

The IMF says that restructuring is among the most effective ways to reduce excessive debt burdens. And the impacts could be transformative.

The Universities of St Andrews and Leicester have found that debt relief that reduces external debt payments to 10% of government revenue could avert 378,918 under-5 child deaths and 34,767 maternal deaths, put over 1 million children through primary school and give 15 million people access to water.

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The time for action is now

Reforming the mechanism to restructure unsustainable and unaffordable sovereign debt repayments and interest is a cross-cutting development challenge. And it should be a core focus for the G20, which was established in the late 1990s to promote international financial stability. Meaningful action on debt, particularly in the context of globally declining Official Development Assistance, rampant tax avoidance and illicit financial flows, is more necessary and achievable than ever.

Fixing the G20 Common Framework is a collective action problem. The recommendation of this report is that G20 Finance Ministers endorse it, and that unilateral and collective action is taken by G20 members, the IMF and the World Bank to implement the proposals.

With growing consensus amongst members, international institutions and civil society, the time for action is now and the G20 is the right place to start. When the UK takes the reins of the G20 presidency in 2027, we have the chance to fix the G20 Common Framework.

Our joint report calls for six key reforms to the Common Framework:

1. Countries should exit the process with much deeper debt relief.
2. Debt payments should be suspended during restructuring negotiations.
3. Legal changes are needed, especially in the UK, to ensure no creditor can resist a restructuring. Legislation should be passed so that creditors cannot sue or threaten to sue during debt restructuring negotiations and no creditor can hold out from a restructuring.
4. A clear definition of “Comparability of Treatment” between creditors is needed, which will bring about clearer rules for burden sharing when granting debt relief.
5. The process must become faster.
6. There must be improved debt data transparency: beyond the Common Framework process, but highly relevant to it, is the need for much greater debt transparency.

The effectiveness of these reforms should ultimately be measured by whether countries emerge with sustainable debts, renewed access to affordable finance and the resources needed to invest in children and long-term development.

Success could contribute to the broad conditions needed for greater global stability – with positive effects that ripple down to local postcodes, across both G20 and non-member countries.

Fixing the Common Framework is one of the most practical and achievable steps world leaders can take. Read more about how here.

Questions? Email the authors, Lydia Darby [email protected] and Tim Jones [email protected].

*The following 11 NGOs and coalitions have endorsed the joint report by Save the Children UK and Debt Justice UK: ActionAid, Bond, CAFOD, Christian Aid, Development Finance International, Emergency Nutrition Network, End Water Poverty Coalition, Nutrition International, SCIAF, Send My Friend to School, World Vision.