Debt pile up

Chad : 1st country in Covid era to ask for restructuring of its debt

By Pierre-Olivier Rouaud

Posted on February 3, 2021 09:30

Firefox_Screenshot_2021-02-02T07-08-56.184Z Idriss Déby Itno during the G5 Sahel summit on June 30, 2020 in Nouakchott. © LUDOVIC MARIN / AFP
Idriss Déby Itno during the G5 Sahel summit on June 30, 2020 in Nouakchott. © LUDOVIC MARIN / AFP

Already one of the beneficiaries of the Debt Service Suspension Initiative (DSSI), Chad has just officially requested debt restructuring from its major public creditors as well as a support agreement with the IMF.

Chad has requested that a “common framework” be set up between the Paris Club and the G20 for the treatment of debt. These donors will probably extend the moratorium enjoyed by some fifty countries, mostly African, until the end of 2021.

This is the first initiative of its kind under the “common framework” set up in 2020 between the G20 – under Saudi chairmanship – and the Paris Club to address the insolvency risks of the countries that have been most affected by the economic slowdown caused by the Covid-19 crisis.

READ MORE Chad: Déby seeks stability at any price

Slightly indebted, (42% of GDP according to the latest IMF data, including 25.6 points of state-guaranteed debt), Chad is nevertheless approaching a liquidity crisis due to a high debt burden and low oil revenues.

READ MORE African corruption and environmental scandals mark a turning point for companies

Chad has also amassed a very large debt with the Swiss-based trader Glencore backed by oil sales, which accounts for more than a third of its external outstanding debt.

A support programme from IMF

Chad will also benefit from an IMF-support programme. Following several virtual meetings in December and the last one on 25 January, finance minister Tahir Hamid Nguilin said on 27 January that “Chad and the IMF [agreed] on a new four-year economic reform programme supported by an Extended Credit Facility and an Extended Fund Facility, amounting to $560m. This programme is also supported by all of Chad’s partners.”

Formally agreed upon on 13 November 2020 at a G20 meeting between finance ministers and Central Bank governors, the “common framework” on debt now serves as the backbone for dealing with the debt of the least developed countries in the Covid era.

All official creditors are thus leading the process together and with the same approach. This includes China who is used to dealing with its creditors on a bilateral basis.

Paris Club, China and private lenders in the same boat

“The latest work conducted within the G20 has ensured that China, Africa’s major creditor, is willing to join this common approach,” said a source close to the French authorities.

On another sensitive issue – that of the participation of private creditors in debt restructuring–  the same source indicates that the Paris Club and the G20 have agreed that henceforth, no restructuring action would be taken without the equal participation of both private and public creditors.

READ MORE ‘This is not your grandfather’s IMF’, says Africa department director Abebe Selassie

As summarised by the Paris Club, “the debtor states concerned will have to make an express commitment to this effect.” A decision that will please Chad.

Will it be Zambia and Ethiopia’s turns soon?

Within the framework of the DSSI, about 50 countries – the vast majority of which are African states – have obtained a moratorium on their public debt.

READ MORE Coronavirus: Africa must act on World Bank/IMF debt-relief proposal

After Chad, other countries may apply for debt rescheduling in the coming months, including Zambia and Ethiopia, according to our sources. Sudan, which is still in the midst of a crisis, would be treated differently.

READ MORE Zambia’s default shows new approach needed for Chinese debt

The DSSI, which was due to conclude by the end of 2020, was extended for six months by the G20 and the Paris Club at the summit on 13 November. According to a source close to Bercy, “it is very likely that this DSSI suspension will again be extended to the whole of 2021 in view of the global economic and health situation.” A decision will be made in April by the G20, now chaired by Italy.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.