Why the G-20 ‘Common Framework’ for Debt Relief Isn’t Helping Poor Nations

More than half of the world’s low-income countries are at high risk of debt distress or are already in it, and several have defaulted. But despite the world’s 20 largest economies having agreed in 2020 to a plan called the Common Framework to smooth the process of restructuring loans that governments could no longer afford to service or repay, progress toward actually providing relief has been slow. Delays have partly stemmed from disagreements between the rich countries that have traditionally guided sovereign debt restructurings and China, which is now a major international creditor. A deal struck in late March by Zambia on $3 billion in eurobonds after three years of talks showed signs of progress — and how difficult the process has been.

Indebted governments spent money they didn’t have to shore up rickety health systems during the Covid-19 pandemic and provide a safety net for citizens. Then central banks, led by the US Federal Reserve, began increasing interest rates to quell inflationary pressures that were compounded by a surge in grain and fuel prices stemming from Russia’s invasion of Ukraine. That raised the value of the dollar, which added to the pain of those who had borrowed internationally. The 75 poorest nations owed their creditors about $1.1 trillion at the end of 2022, more than double the 2012 level, World Bank data show. By early 2023, Zambia, Sri Lanka and Ghana had defaulted, while countries in debt distress included Lebanon and Argentina.