I recognise that debt vulnerabilities are worsening, especially in low-income countries, and welcomed the timely publication of the International Development Select Committee’s report on debt relief in low-income countries..
I understand that the Government rejected Recommendation 5 of the Committee’s report, which was that the UK Government should consult on the introduction of legislation to compel or incentivise participation of private creditors in the Common Framework, such as those proposed by the World Bank. I hope you will not mind if I now take some time to outline the reasons for this.
The UK has already been working with the private sector on several areas of their participation in debt treatments, and is already committed to ensuring that private sector creditors participate in debt restructurings on comparable terms.
Further, through HM Treasury, the UK already has ongoing engagement with private sector stakeholders to discuss debt issues, including comparable treatment. Moreover, the G20 and the Paris Club, both of which the UK is a part, have both set out as a fundamental principle under the Common Framework that private creditors are expected to participate on at least as favourable terms as bilateral creditors. The UK has repeatedly emphasised the importance of this principle, and is committed to making it work.
The International Monetary Fund (IMF) also identified some areas for improvement. To make progress on these, the UK established a Private Sector Working Group under its G7 presidency in 2021 to explore improvements. I understand that the group looked at a particular reform designed to enhance creditor participation and inter-creditor equity in debt restructurings, and the UK Government is now working closely with the IMF and others to promote and ensure the uptake of this.
Currently, the Government is concentrating on the above, rather than a legislative approach, which would be complex and could have unintended consequences in terms of access to finance for developing countries.