Previous Year Question
With reference to the ‘G20 Common Framework’, consider the following statements:
It is an initiative endorsed by the G20 together with the Paris Club.
It is an initiative to support low-income countries with unsustainable debt.
Which of the statements given above is/are correct?
1 only
2 only
Both 1 and 2
Neither 1 nor 2
Correct Answer: C
Detailed Solution
Statement 1 is correct.
The ‘Common Framework for Debt Treatments beyond the DSSI’ was endorsed by G20 countries in November 2020 in coordination with the Paris Club.
The Paris Club is an informal group of official bilateral creditor countries.
The framework can provide debt rescheduling, extension of repayment periods or debt reduction when required.
It seeks to involve both Paris Club members and non-Paris Club G20 creditors, such as China.
It is therefore a framework jointly supported by the G20 and the Paris Club, rather than an initiative confined to the Paris Club.
Statement 2 is correct.
The framework seeks to assist DSSI-eligible low-income countries on a case-by-case basis when their public debt is unsustainable or they face serious debt vulnerabilities.
The process generally involves:
The debtor country requesting an IMF-supported programme.
Formation of a creditor committee consisting of the relevant official creditors.
Assessment of the required debt treatment through an IMF-World Bank Debt Sustainability Analysis.
Extension of maturities, modification of interest or repayment conditions and, when necessary, debt reduction.
Private creditors being expected to provide relief under the principle of comparability of treatment.
The Common Framework is not itself a lending fund. It is a mechanism for coordinating debt restructuring among different creditors.
Current position: The DSSI expired in December 2021, but the Common Framework was designed for debt treatment beyond the DSSI and continues as a case-by-case arrangement for eligible countries.