Debt restructuring framework for poorer nations needs fixing, Paris Club says

By Libby George

LONDON, June 24 (Reuters) - Reforms are needed to a core sovereign debt restructuring initiative for low-income countries known as the Common Framework to make it faster and more efficient, the Paris Club of creditor nations said in its 2025 annual report on Wednesday.

The group released the report, a compendium of views from officials, at the start of an annual meeting in Paris that brings together creditors, borrowing countries and investors to discuss sovereign debt issues.

The proportion of countries facing debt distress had ebbed since an upsurge in defaults following the COVID-19 pandemic prompted the G20 to launch the Common Framework platform to speed up restructurings, the report said.    

But the officials focused on the need for reforms to make the process more efficient.

"The Common Framework must deliver faster and swiftly embark all creditors in delivering comparable efforts," Paris Club Co-Chair Thomas Revial wrote in the report. 

The proposals ranged from China's calls to strictly enforce comparability of treatment – a principle that demands other creditors take similar losses to official lenders – to those from the International Monetary Fund, World Bank and Ethiopia to allow all creditors to work out the terms of agreements simultaneously during a restructuring. 

TROUBLE FOR ETHIOPIA

For the first time since 2017, more low-income countries – 52% – are at low or moderate risk of debt distress than the 48% at high risk, or already in debt distress, the report said. 

Ghana, Zambia and Chad have largely completed debt restructurings under the Common Framework.

But Ethiopia is caught in a dispute between investors holding its $1 billion defaulted bond and official creditors, who agreed a debt deal in principle in March 2025.  

Official creditors, including China and France, rejected the bondholders' initial agreement as inadequate under "comparability of treatment". Bondholders pushed back, saying the country’s improved outlook does not justify their proposed losses. They have threatened legal action. 

"The CF’s implicit sequencing means that by the time a debtor engages bondholders, the analytical divergence between the IMF and private creditors has not been addressed," Astewaye Woldemichael, senior adviser at Ethiopia's Ministry of Finance, wrote in the report. 

"The IMF and OCC need to engage private creditors earlier. Leaving the debtor to bridge this gap is a design flaw."

CHINA CRITICAL OF THREATENED ACTION

In the report, China – Ethiopia’s largest bilateral lender – criticised the bondholders threatening legal action.

Xuan Changneng, Deputy Governor of the People’s Bank of China, wrote that leaders "should spare no efforts to strictly enforce the principle of Comparability of Treatment".

He also called for coordinated legal and technical efforts to "curb malicious litigation by bond investors, thereby safeguarding the foundation and credibility of the Common Framework."

Changneng did not name Ethiopia directly. Many in the debt community, including legal advisers and even bondholders, view the Ethiopia bondholders' threat of legal action as an attack on the Common Framework that could make it tougher to reach comprehensive debt deals.

He and International Institute of Finance Managing Director Sonja Gibbs also called for clearer rules on which organisations qualify for Preferred Creditor Status.

The status, not formally defined, usually protects creditors like the IMF and World Bank from losses. But others claiming it, including Afreximbank, were pressured to take losses in Ghana and Zambia.

"The lack of clear rules on which institutions qualify for the PCS not only slowed down the pace of restructuring, but also raised concerns over fair burden sharing," Changneng wrote, noting that around 100 development financial institutions worldwide are claiming PCS.

(Reporting by Libby George, editing by Karin Strohecker, Tomasz Janowski, Sharon Singleton and Barbara Lewis)