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U.S. Markets

Chad becomes first country to ask for debt overhaul under G20 common framework

WASHINGTON (Reuters) - Chad has officially requested a debt restructuring, the first country to do so under a new common framework agreed by Group of 20 major economies last year, the International Monetary Fund said on Wednesday.

Chad's President Idriss Deby attends a working session of the G5 Sahel summit in Nouakchott, Mauritania June 30, 2020. Ludovic Marin /Pool via REUTERS

The IMF said its staff had completed talks with Chad on a new medium-term financing program worth about $560 million under its Extended Credit Facility and the Extended Fund Facility. The deal must still be approved by the IMF’s executive board.

Like several other African countries, Chad is struggling with a high debt burden against a backdrop of the coronavirus crisis and low prices for oil, its major export.

The fund said Chad’s government had renewed its commitment to wide-ranging reforms, and expected that IMF financial support would help “catalyze substantial financial support from development partners and debt relief from creditors.”

The framework agreed by the G20 aims to streamline the process for poor countries that need to tackle their stock of debt rather than temporary payment relief like that granted by the G20 Debt Service Suspension Initiative (DSSI).

Investors have been trying to gauge how using the framework, which foresees participation by private creditors, could affect access to international capital markets for countries which have issued publicly traded Eurobonds.

However, Chad has no outstanding Eurobonds. Analysts say its largest external commercial debt is an oil-backed loan to mining company Glencore, which had already been restructured in 2018 to secure an IMF bailout.

Glencore did not immediately respond to a request for comment.

“Chad is actually a country that is quite suitable for a common framework - it doesn’t have any publicly traded external debt,” said one investor in the country.

“I think the negative side effects of the common framework are much larger if it were a Kenya, Nigeria, Ghana or Angola.”

According to IMF data, Chad’s public or publicly guaranteed debt stood at $2.8 billion or 25.6% of GDP by end-2019. Debt owed to the Paris Club of official bilateral creditors made up less than 4% of the total debt stock, while commercial debt, chiefly the Glencore loan, made up more than 40%.

World Bank President David Malpass told reporters this month that Chad may need a deep reduction in the net present value of its debt, and creditors would need to work with the country to find a viable solution to its debt overhang.

The novel coronavirus, which has infected over 100 million people worldwide and killed more than 2.1 million, has hit emerging market and developing countries hard, exacerbating heavy debt burdens many already faced before the crisis.

China, the world’s biggest official bilateral creditor, and other G20 economies, adopted the common framework in November for the poorest countries, though the United States has said it supports expanding the framework to include other countries.

The framework brought China, India and Turkey - which are not members of the Paris Club - into a coordinated debt restructuring process for the first time.

“This is the first test of the G20 debt reduction process and the process must deliver serious relief for Chad,” said Eric LeCompte of Jubilee USA Network, a charity that focuses on reducing poverty.

Reporting by Andrea Shalal and David Lawder in Washington, Karin Strohecker in London; Additional reporting by Dmitry Zhdannikov in London, Editing by Richard Chang and Catherine Evans

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