Conclusions and future outlook

This Wilton Park conference, with its special format and thoughtful selection of participants, has provided a unique opportunity for informal and positive engagement among various stakeholders, leading to constructive discussions and valuable insights. Indeed, several private sector participants have expressed the potential goal of drawing inspiration from this experience to envisage a permanent forum for discussion and information exchange on sovereign debt issues, a ‘Wilton Park for sovereign debt’.

In sum, the key take aways emerging from the event are:

• Despite the increasing diversity of bilateral creditors and the challenges posed by geopolitical tensions, there is scope to continue working on multilateral and cooperative solutions to debt sustainability issues and the financing gap faced by EMs and LICs, continuing along the lines of the progress made in the Common Framework.
• There is a need to enhance the voice and agency of borrowing countries throughout debt crisis resolution processes, by assisting capacity building as regards debt management and favouring access to financial and legal assistance.
• Pre-emptive crisis response should be encouraged, including through the establishment of regular communication channels and engagement processes with creditors.
• Delays in the progress of debt restructurings could be addressed by inviting the IMF to take on a more active role, in particular with regards to the obtaining of financing assurances from bilateral creditors, in other words its shareholders (an alternate view felt that in practice the IMF is very active in seeking financing assurances).
• It should be emphasised that there is no rigid sequencing in the treatment of different sets of financial obligations. Commercial creditors should be encouraged to act promptly and there should be a margin of flexibility in the comparability assessment to incentivise timely action.
• Intercreditor-equity concerns could be tackled by enhancing transparency and information sharing regarding both the composition of the debt profile and the parameters underlying the formulation of the DSA.
• The creation of an entity to represent private creditors on an ongoing basis in debt restructuring negotiations and other debt related matters would help ensure higher levels of transparency and trust amongst creditors, while also contributing to speedier outcomes. Moreover, it might lead to the identification of new solutions to deal with legacy debt and unlock additional sources of finance.
• The employment of innovative or repurposed financial instruments in debt restructurings represents an opportunity to ameliorate uncertainties surrounding DSAs and to mobilise new capital flows to meet the financing needs of EMs and LICs.

It should be noted that the above recommendations constitute improvements to the existing multi-layered and fragmented framework for the governance of sovereign debt crises. However, there remains scope for further reflections and discussions aimed at rethinking more radically the current system, in particular as concerns the possible establishment and design of a unitary legal and institutional framework for the management of sovereign bankruptcies, building on the idea of the IMF’s Statutory Sovereign Debt Restructuring Mechanism idea in the early 2000s.

Livia Hinz

Wilton Park | 10 October 2023

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