China will cooperate to resolve the stalemate over developing countries’ sovereign debt restructuring, a senior official said, as Beijing appears to be softening its stance in fraught negotiations over a series of defaults.
China’s central bank governor Yi Gang on Thursday told G20 finance ministers in Washington that the country is ready to work through the group’s so-called joint framework for sovereign debt restructuring.
“China is ready to work with all parties to implement the joint framework for debt settlement,” Yi said in a statement issued by the People’s Bank of China. The G20 Common Framework seeks to bring together the major bilateral creditors of heavily indebted countries for negotiations. So far, Chad, Ethiopia and Zambia have all signed up to participate.
A sovereign debt crisis among developing countries has been a focus of this year’s International Monetary Fund and World Bank meetings in Washington, as the pandemic and inflation have hurt governments’ ability to service external borrowing.
China has insisted that multilateral lenders, including Western-led institutions such as the World Bank and the International Monetary Fund, should break with norms and directly participate in sovereign debt restructuring to share some of the pain.
But developed countries and others oppose the move, arguing that multilateral institutions should retain their “preferred” status as “senior” creditors exempt from restructuring.
They argue that this privileged position is the basis for MLIs’ high ratings and is central to their ability to provide low-cost financing.
Western countries have blamed China’s stance for holding up crucial debt restructurings for countries like Zambia, which await the next tranche of the $1.3 billion International Monetary Fund package.
Yi of the People’s Bank of China (PBoC) did not provide further details on China’s position in his statement at Thursday’s meeting.
But in recent days, US officials have sounded more positive about breaking through the impasse with China, though they said it remains unclear whether Beijing is really willing to join the CFA.
Japan is leading efforts with India and France on a new initiative to discuss Sri Lanka’s debt restructuring, amid disagreements with China’s approach to solving the problem.
At a press conference following the G20 meeting, Shunichi Suzuki, Japan’s finance minister, invited China, Sri Lanka’s largest bilateral lender, to participate in the new platform, but it remained unclear whether Beijing would play along with other creditors.
“With the cooperation of all parties involved, we hope that we can reach an early agreement on debt restructuring,” said Suzuki.
The Chinese central bank said on its website that Yi met with several central bank governors this week, including the governors of Zambia and Sri Lanka.
IMF data from the end of February indicates that nine countries, apart from Zambia and Sri Lanka which includes Mozambique and Grenada, are in “debt distress”, while another 27 are “at high risk” and another 26 are on a watchlist.
Additional reporting by William Langley in Hong Kong and James Poletti in Washington
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