Private sector involvement in sovereign debt governance in the post-pandemic world : the role of the 'comparability of treatment' principle

Abstract

The article investigates recent developments in sovereign debt governance, focusing on the 'Common Framework for Debt Treatments beyond the DSSI', a G20 and Paris Club initiative to address debt sustainability issues in low-income countries in the post-pandemic world. The analysis revolves around the 'comparability of treatment' requirement, a longstanding principle of Paris Club debt management practice reintroduced in the Common Framework to foster private and public sector burden sharing and cooperation in financial crisis resolution processes. This requirement obliges debtor countries to seek debt renegotiation from external creditors on terms comparable to those negotiated within the Paris Club framework. By examining the operation of the 'comparability of treatment' principle in past Paris Club debt restructurings, this article traces the evolution of its meaning and economic function in parallel with the transformation of sovereign debt markets and identifies key challenges surrounding its implementation, focusing on the lack of transparency and on fundamental differences in the approach to debt treatments between official and commercial creditors. The concluding section puts forward options for future developments to foster private sector involvement. First, it investigates the possibility of embedding Common Framework debt treatments within a broader institutional arrangement capable of tying together official and private debt restructurings and explores the role of IMF policies on lending into arrears. It then highlights the potential complementary role of domestic statutory solutions in influencing commercial creditors' incentives and preventing hold-out behaviors.