• Guidelines allow for deeper debt relief without breaching “good faith”
• Emphasises importance of fair and equitable treatment for all creditors

A defaulted country can require more debt relief from its creditors than implied in the International Monetary Fund’s (IMF) programme without breaching “good faith”, IMF’s new guidelines on sovereign debt restructuring said.

According to the guidelines, the IMF clarifies that a country can require more debt relief than implied by IMF programme parameters without breaching the “good faith” requirement.

However, commenting on this, Global Sovereign debt expert Theo Maret said on X that in such cases IMF staff might then judge that a restructuring is less likely to happen, which echoes recent debates in Sri Lanka for example.

“Offering too deep a restructuring to creditors would be in line with programme parameters and thus would not necessarily indicate bad faith. However, it could undermine the assessment that a restructuring will be achieved in line with programme parameters,” IMF said in its guidelines.

Moreover, the guidelines also said that similar to official creditors, the IMF can seek further assurances from commercial creditors with collateral, since debtor countries are unable to gain leverage in negotiations by running arrears to them.

Further, the IMF said that sovereign state-contingent debt instruments (SCDIs) such as macro linked bonds are normally requested by the private sector, meaning official creditors need to be consulted.

“A key question is whether they perceive comparability of treatment (CoT) to be met based on estimates or whether they will assess it based on the actual payoffs (in which case there needs to be buffers in the sustainability assessment to accommodate clawbacks),” it said.

Therefore, the IMF said that in the absence of clear information from official creditors on CoT, staff should assume actual assessment clawbacks in line with standard CoT clauses in official sector debt agreements.