Legislation to aid debt cancellation and restructuring
The UK Government must pass legislation that compels private creditors to provide debt relief when a country seeks it.
The passage of UK legislation is key in the fight against unjust and unsustainable debt, which locks developing countries into servicing debt rather than allowing them to fund public services and adaptation to climate change. We do not suggest prescribing where developing countries should allocate their funds; however, it is vital that the UK provides justice and removes the increased pressure on developing countries’ ability to provide public services and adapt to, and perhaps even to help mitigate, the effects of climate change.
The UK has a vital role to play, as 90% of bond contracts of countries eligible for the G20’s debt relief scheme are governed by English law.70 The other key governing jurisdiction is New York. The New York State Assembly is considering options for legislation to put pressure on private creditors to take part in debt relief.71
The IMF and World Bank have both called for the UK and New York to pass legislation to help enable private lender participation in debt relief. Recently, the UK Parliament’s International Development Select Committee called for the exploration of this type of legislation. Specifically, this committee stated that “legislation may be required to compel all creditors, including the private sector, to participate in debt relief” and have called on the UK government to “consult on the introduction of legislation to compel or incentivise participation of private creditors in the Common Framework.” 72, 73
The G20’s Common Framework, an ‘international debt-relief vehicle for low-income countries with unsustainable debt’74 does not provide any additional mechanisms for ensuring that private creditors cancel debt on the same terms as bilateral lenders. This shortcoming can lead to a situation where willing creditors end up bailing out creditors who are unwilling to take part in debt restructuring, or a situation where the debtor becomes unable to finalise a restructuring deal with anyone. The G20 has stated that private creditors should provide debt relief on at least the same terms as bilateral creditors; however the implementation of this suggestion is difficult.75
UK and New York legislation would aid the debt cancellation and restructuring process significantly. Specifically, this legislation would work to unblock multiple debt restructuring talks that have either stalled or not even begun due to a lack of engagement by private creditors in the G20 Common Framework and equivalent mechanisms.
For further information:
- What does debt have to do with climate?, Jubilee Scotland, 2022, https://www.jubileescotland.org.uk/what-does-debt-have-to-do-with-climate/
- UK MPs call for law to make private lenders deliver debt relief, Debt Relief, 2023, https://debtjustice. org.uk/press-release/uk-mps-call-for-law-to-make-private-lenders-deliver-debt-relief
G20 debt suspension request: 90% of bonds governed by English law, Debt Justice, 2020, https://debtjustice.org.uk/press-release/g20-debt-suspension-request-90-of-bonds-governed-by-english-law
The New York Taxpayer and International Debt Crises Protection Act, Jubilee USA, undated, https://www.jubileeusa.org/nylegislation
UK MPs call for law to make private lenders deliver debt relief, Debt Justice, 2023, https://debtjustice.org.uk/press-release/uk-mps-callfor-law-to-make-private-lenders-deliver-debt-relief
Debt Justice gave written and oral evidence to the inquiry and has seen an embargoed copy of the report.
It’s time to end the slow-motion tragedy in debt restructurings, World Bank Blogs, 2022, https://blogs.worldbank.org/voices/its-time-endslow-motion-tragedy-debt-restructurings
What does debt have to do with climate?, Jubilee Scotland, 2022, https://www.jubileescotland.org.uk/what-does-debt-have-to-do-withclimate/