Framework

The IMF's debt sustainability assessments for Zambia and Sri Lanka differ so greatly that it's hard to understand how both emerged from the same institution ...

A final approach would be to have a separate target for the debt service on foreign held local law local currency bonds and for the debt service on foreign currency claims held by external creditors. ***/ China's bilateral claims have been defined to be the claims of the Export-Import Bank of China (China Exim) and claims of other Chinse state creditors that are guaranteed by its Sinosure. 109](https://www.imf.org/en/Publications/CR/Issues/2022/09/06/Zambia-Request-for-an-Arrangement-Under-the-Extended-Credit-Facility-Press-Release-Staff-523196); Zambia also had 13% of GDP in external local currency debt) 54](https://www.imf.org/en/Publications/CR/Issues/2023/03/20/Sri-Lanka-Request-for-an-Extended-Arrangement-Under-the-Extended-Fund-Facility-Press-531191)) isn't too far from Zambia's stock of external foreign currency debt at the end of 2021 (66%, [see p. The IMF program is if course built around increasing Sri Lanka’s capacity to collect revenue over time, but programs built around big positive shocks to deliver debt sustainability don’t have a great record (IMF programs for Argentina and Pakistan come to mind). The debt service burden from foreign held local law claims would be calculated a bit differently than the debt service on foreign currency claims, but in an analytically justified way. But then in a sense the claims should disappear from the debt service tables from then on, as the country will already have set aside reserves to pay down the stock (as well as in theory maintaining a revenue buffer sufficient to allow the Treasury to pay down a portion of maturing claims out of tax revenue)/ The NPV available for existing external foreign currency claims (excluding the MDBs) in 2027 would rise from $7 billion to around $9-10 billion (relative to about $14 billion face value in claims). Debt service on the foreign holdings of local currency debt is currently absorbing almost all this payment capacity. [Zambia's debt disclosure](https://www.mofnp.gov.zm/wp-content/uploads/2022/11/Certain-Assumptions-Relating-to-Zambias-DSA.pdf)) on Zambia are excluded from a formal restructuring, as are around $3.2 billion in foreign hold local currency bonds and about $1.5 billion in payment appears. Securing a return to debt sustainability in the current set of key cases thus requires finding the basis for an agreement with China's policy banks, its state commercial banks and commercial bond holders that provides a clear path back to resumption of payments and leaves the country with a sustainable debt structure. I am all in favor of allowing private creditors to restructure ahead of bilateral creditors—but that requires that everyone agree upfront to strict debt targets that are actually met to assure that the restructuring terms offered to different groups of creditors are fair.