The Acting Chair’s Summing Up— Update on the Joint IMF-WB Multipronged Approach to Address Debt Vulnerabilities, Executive Board Meeting 20/116, December 7, 2020

Directors welcomed the update on the implementation of the multipronged approach (MPA) to address debt vulnerabilities in low-income and developing countries (LIDCs) and emerging markets (EMs). They continued to support its four mutually-reinforcing pillars, which seek to address debt vulnerabilities through debt transparency, capacity building, analytical tools, and debt policies. Directors agreed that the COVID-19 pandemic had heightened the importance of the MPA while recognizing that its implementation alone may not be sufficient to significantly reduce vulnerabilities.

Directors appreciated the close collaboration between the Fund and the World Bank on MPA implementation and asked for continued strong collaboration to exploit complementarities. They were encouraged by progress achieved so far, including on broader debt coverage in LIC Debt Sustainability Analyses (DSAs); scaled-up capacity development activities in debt recording and reporting; and expanded creditor outreach, in particular through the G20. Directors welcomed implementation of the revised LIC debt sustainability framework, the redesign of IMF and World Bank policies on responsible borrowing and lending in the Bank’s newly approved Sustainable Development Finance Policy, and review of the IMF’s Debt Limits Policy (DLP) together with recent work on options to reform the architecture for resolving privately-held sovereign debt.

Notwithstanding valuable progress under the MPA, directors stressed the need to further strengthen debt transparency, a prerequisite to accurately monitor and manage debt risks. They endorsed continued Fund and World Bank support to countries for increasing their capacity to record, monitor, and consistently report on public debt, developing an effective legal framework, and disseminating such data to international databases. Many Directors sought to encourage disclosure of debt subject to confidentiality clauses to the Board. A few Directors emphasized the need to appropriately balance transparency and commercial confidentiality, emphasizing that disclosure by creditors and debtors should be on a voluntary basis. Directors also highlighted the opportunity presented by the upcoming review of Data Provision for Fund Surveillance to expand the minimum data provision obligation to include key public debt data needed to underpin the Fund’s capacity to assess fiscal space and analyze debt risks. Noting that creditors also play an important role in debt disclosure, Directors supported continued creditor outreach by the Fund and the World Bank to promote transparency and sustainable financing practices.

Directors appreciated the scaling up and reallocation of capacity development activities in response to the pandemic, to focus on areas key for reducing the incidence and mitigating the effects of debt payments problems, including by adopting innovative methods to deliver technical advice. Further efforts could also be made to strengthen debt management capabilities. Directors emphasized that heightened debt vulnerabilities amid the pandemic underscored the need to leverage Fund surveillance and lending activities to increase traction of staff advice to further strengthen LIDCs’ debt management practices.

Directors noted that debt-related analytical tools are critical to help borrowing countries make informed decisions, such as on the scope to raise spending without endangering market access and debt sustainability. The DSA tools also play a central role to inform the implementation of IMF and World Bank policies and help guide the use of resources. At the same time, these tools need to be embedded in the broader framework for debt management and fiscal risk assessment. Directors encouraged further use of the LIC DSA’s debt transparency requirements to continue to broaden debt data coverage and refine contingent liability stress tests for all countries. They also stressed that completing as planned the review of the DSA for market access countries, the guidance note, and rolling out of the new template, would be important to strengthen analysis of risks.

Directors commended the recently approved review of the Debt Limits policy aimed at further adapting debt conditionality to the changes in the creditor landscape facing LICs including by supporting debt transparency. Directors highlighted that the upcoming reviews of the IMF’s lending into arrears policies will be important in the context of rising debt sustainability challenges. In this respect, Directors noted that the “Common Framework for Debt Treatments beyond the DSSI” recently adopted by the G20 and the Paris Club is an important step to enable timely and comprehensive sovereign debt resolution. They encouraged staff to coordinate closely with the G20, the Paris Club, and the World Bank to operationalize this Common Framework consistent with Fund policies in the context of requests for IMF-supported programs.

Directors stressed the importance of monitoring MPA implementation progress and supported the proposed indicators. Many Directors called for an interim initial update on MPA progress, while a few Directors agreed with the proposed update in about 12 months.

SU/20/174

December 11, 2020