PBOC chief urges clarity on burden sharing for debt relief
THE head of China’s central bank wants creditors engaged in debt restructurings for emerging market countries to agree on how to fairly share the burden of relief, according to sources familiar with the situation.
Pan Gongsheng, governor of the People’s Bank of China (PBOC), shared his views during a closed-door meeting on Friday (Apr 19) in Washington on the sidelines of the International Monetary Fund (IMF) spring meetings, according to the sources, who attended the event but asked not to be identified because the session was not for attribution.
China’s role as a major creditor to developing nations has come under renewed scrutiny as billions of US dollars in loans over the past decade have soured. Direct insight into Beijing’s thinking on the issue by a top economic official such as Pan is rare.
The PBOC did not respond to a request for comment on Pan’s comments on Monday morning.
China, the biggest official creditor to emerging markets, has been criticised for its slow pace of engagement on debt restructurings in recent years. IMF officials have blamed the delays on the complexity of China’s lending and political landscapes and its financial system’s lack of alignment with more established creditors, such as the Paris Club.
The protracted debt treatments for countries that borrowed heavily from China have also raised questions about the influence of the IMF. Higher capital flows over the past decade from China and private bondholders has challenged its role as the guardian of international economics and finance.
A series of sovereign defaults set off by the pandemic – including Zambia, Ghana and Sri Lanka – have taken longer than expected to resolve amid disagreements among creditors on how to restructure debts.
A key sticking point for talks between bilateral creditors such as China and bondholders has been how to measure the “comparability of treatment” of the relief that they provide debtors, with Beijing leading a push among official creditors for bondholders to take deeper losses on their distressed debt.
Pan said China thinks the issue is important and wants creditors to agree on an approach to meeting the comparability principle in debt negotiations. Officials at the IMF who are supporting various debt restructuring talks have expressed a similar sentiment.
In a statement to one of the IMF’s top advisory committees on Friday, Pan said that China “has played an active role in addressing the global debt distress” and called on private creditors to participate “on a comparable basis in a timely manner”.
Disagreements over the issue have sunk previous deals. An agreement in November between Zambia and its bondholders was rejected by the country’s official creditors because it did not satisfy their expectations of comparable treatment. A revised deal was reached in late March.
From China’s perspective, a top factor when measuring comparability of debt treatment is the so-called “concessionality” of the lending, Pan said. That refers to loans made at below-market or even zero interest rates, which are typically offered by multilateral development banks or bilateral lenders rather than private creditors.
The IMF has taken steps to reach a broad consensus on how to handle restructurings between emerging creditors – such as China and Saudi Arabia, as well as bondholders and commercial creditors – and traditional sovereign creditors such as the Paris Club. That includes events such as the Global Sovereign Debt Roundtable, co-hosted with the Group of 20 and the World Bank, to share information about individual countries.
Officials from the PBOC, the Ministry of Finance and the Export-Import Bank of China have participated over the past year in those discussions, Pan said.
The IMF also recently revised certain policies that it expects will speed up future restructurings by making it easier to approve requests for aid from countries without waiting for Chinese creditors. BLOOMBERG
