The recent agreement that Chad has negotiated with other governments to restructure its debts, the first such agreement under the Common Framework, puts pressure on the country’s private creditors to step up. What happens next will have a huge influence over the success or failure of the G20’s response to the debt crisis.
On 18 April, the attention of the global media momentarily fell on Chad, a former French colony in northeast Africa that has faced many years of conflict and civil war across its porous colonial-era borders. During a visit to the front, President Idriss Déby had been killed by rebels, becoming arguably the first head of state to die in battle for 300 years.
This instability in Chad could have posed a serious threat to the country’s renegotiation of its unsustainable debt. However, speculation surrounding the sudden end of Déby’s 31-year dictatorship was resolved with the rapid installation of his son Mahamat Idriss Déby as president, enthusiastically supported by an international community none too concerned with promoting democracy in this particular case.
Chad is one of only three countries to have applied to restructure its debt under the Common Framework, the G20 initiative to address the gathering pandemic- era debt crisis in the global South.
The stakes are high, for the credibility of the G20 pandemic response for Chad. The G20 has been criticised for developing the Common Framework itself, outside UN spaces where global South countries have a voice. The lack of applicants to the Common Framework says nothing about the sustainability of debt levels, which continue to grow. Rather, it reflects scepticism amongst global South governments as to whether the Common Framework can actually help them to restructure their debts.
As Jubilee Debt Campaign highlighted at the time, there are plenty of grounds for such scepticism. The text of the Common Framework is vague on whether it will include debt cancellation or be limited to restructuring the dates of repayment. Further, while it requires debtor countries to seek comparable debt relief from private creditors to that granted by state creditors, it does nothing to help them to negotiate it.
This leaves debtor countries facing potentially the worst of both worlds. If they apply to the Common Framework, they are seen as seeking to renegotiate their debts, and the markets and credit rating agencies promptly respond by increasing the cost of their future borrowing. Yet there is no guarantee that they will get anything more than a delay on repayments. For governments anxious to retain access to commercial financial markets, the risks are much clearer than the benefits.
What happens in Chad matters for all countries seeking debt relief
There is little prospect of imminent progress for the other two countries that have applied under the Common Framework. The Zambian government, facing elections in September, is in no position to agree to the conditions of an IMF loan, which would inevitably mean more austerity for a country reeling the latest Covid wave. Meanwhile Ethiopia is subject to US sanctions as a result of atrocities in the assault on the rebel Tigray province.
So what happens to Chad matters to more than the hard-pressed Chadian people. If the Common Framework is to succeed in addressing the debt crisis, it needs more countries staggering under unsustainable debt to apply – and potential applicants will be carefully watching the fate of Chad.
In mid-June, after months of negotiations, Chad’s creditor committee, formed by the governments of France, Saudi Arabia, China and India, endorsed Chad’s request for debt restructuring and an IMF loan. No details have been released, so we cannot know what austerity provisions will be imposed on Chad’s already minimal public services.
Attention now turns to Chad’s private creditors. There was an immediate media push by the IMF and World Bank to convey the political imperative on private creditors to cooperate, IMF Managing Director Kristalina Georgieva “strongly endors[ing] the call by the Creditor Committee for private creditors to commit to negotiate such debt treatments without delay”. The G7 Finance Ministers also applied pressure, name-checking the Chad creditor committee and emphasising that “[t]he private sector is expected to provide at least as favourable debt treatment in line with the Common Framework”.
The Chad case will be a key test of the comparability of treatment clauses in the Common Framework. The clauses require debtor countries to restructure the debts of all their creditors equally, without letting any off the hook. This is crucial, since otherwise restructured debts would just free up money for paying private creditors, rather than spending on healthcare or recovery from the pandemic.
However, there is nothing to make private creditors comply, beyond the fine words of world leaders and international financial institutions.
Will Glencore, Chad’s main private lender, step up?
There is one more reason why, if the Common Framework is ever to work, it needs to work for Chad. Unlike many countries with myriad bond-holders, Chad has relatively few private creditors. Its private debts of $1 billion are owed to a syndicate led by Glencore, an Anglo-Swiss commodities trading company, which itself is directly owed $347 million. Chad, which should be oil-rich, was due to pay back its debt through crude oil shipments under an opaque resource-backed loan deal. Negotiating directly with one creditor, Glencore, should be relatively achievable, since only a single hold-out can undermine an agreement.
However, Glencore are unlikely to compromise easily. They have already restructured their loan twice, and will want that taken into account in considering cancelling more of the debt. They can also afford to be patient – they have security on the loan, so as long as Chad continues exporting oil, they can expect to be paid eventually.
In resisting taking more radical steps to address the global South debt crisis, G20 leaders and international financial institutions have relied on asking multinational companies nicely to play ball. We are about to discover whether this confidence is well-founded.