This report has been informed by discussions of the IIF Committee on Sovereign Risk Management (CSRM), which now numbers over 200 members from more than 100 financial services firms worldwide, representing some $45 trillion in assets under management. To help assess private sector engagement, we conducted a survey of our CSRM members in early July.
Highlights of the report include:
Terms of Reference: The IIF has, with the support of its CSRM members, developed a private sector Terms of Reference with respect to the DSSI. Further execution tools are under development including a framework agreement for banks and technical guidance on consent solicitations for bondholders.
Waiver: At the request of UNECA, we have recently published a Template Waiver Letter Agreement which will enable sovereign borrowers to request forbearance from official creditors without triggering an event of default with respect to their private creditors.
Importance of market access: For private creditors to help maintain liquidity and avoid future solvency problems, market access at an acceptable cost must be preserved. Our discussions with borrowing countries suggest many concur with this view, believing that their development financing needs cannot be fully met via long-term reliance on official creditors and donors.
Signs of market re-opening: After a period of significant COVID-related market turbulence and capital outflows, markets are beginning to re-open, with some evidence of improvement in borrowing conditions and lower borrowing costs.
Toolkit now in place: Nearly all survey respondents have indicated they would use or consider using the Terms of Reference if a DSSI-eligible country asked for and was granted debt service suspension.
No formal requests to date for debt service suspension: Both survey responses and group/bilateral discussions suggest that private creditors have not received any formal requests for forbearance to date from countries eligible for the DSSI.
Private sector seeking other ways to assist firms with debt service: Many lenders are continuing to engage with sovereigns on their financing needs by continuing
to disburse under existing loans for ongoing projects or by participating in new bond issues.
Continued support for infrastructure projects: Some lenders have continued to provide funding for key infrastructure projects (e.g. in healthcare) that have been endorsed by multilateral agencies.
Bondholders looking for additional ways to support sovereign borrowers, including via restructuring where needed: Ecuador—while not eligible for the DSSI—is a good example of market-negotiated solutions achieved through good faith negotiations. Among DSSI-eligible countries, some bondholders have referenced Zambia, where a creditor group has been formed ahead of what is expected to be a complex debt restructuring.