This document summarizes Dr. Usman W. Chohan's presentation on debt issues in the context of the COVID-19 pandemic. It notes that the pandemic has created both health and economic crises. Lockdowns have pushed many households and businesses over the edge financially. Global debt levels reached a record high in 2019 and many debts are coming due for emerging markets. It proposes creating a central credit facility at a multilateral institution to help countries access funds to deal with the pandemic by diverting interest payments to the facility and allowing countries to borrow from it. However, private creditors may not be willing to cooperate with debt relief efforts. The presentation argues more systematic mechanisms are needed for sovereign debt restructuring.

1. THE DEBT PARADIGM
IN A COVID-19 CONTEXT
DR. USMAN W. CHOHAN
PRESENTATION @ ISSI THINK TANK JUNE 1, 2020

2. CRISES: HEALTH + ECONOMY
 Covid-19 is a health + economic double
whammy
 Lockdown has pushed many financial entities
and households over the edge
 factories are ceasing production, brick-and-mortar retail
stores and restaurants are closing, commodity prices have
plunged. Remittances choked. Unemployment rampant etc.
 In 2008-09 GFC, IMF predicted positive GDP growth
for 77 countries. Now, it only predicts this for 9
countries

3. INFECTION RATES VS. RECESSION INTENSITY

4. WORLD DEBT
Debt by Sector
Corporations (nonfinance)
Governments
Finance Corporations
Households
Debt by Regions
Developed Emerging

5. SWELLING BURDEN AND DUE DATE
 One estimate is that $900 billion
debt is coming due for emerging
markets as a category

6. GROWTH
IN DEBT LEVELS
(FRONTIER)
For the world;
In Q3 2019 (pre-
outbreak) global
debt levels
reached an all-
time high of
nearly $253
trillion, 320% of
world GDP.

7. RUNNING FOR THE DOOR

8. HALF-HEARTED RELIEF?
 The G20 has agreed to temporarily freeze about
$20bn worth of bilateral loan repayments for 76
poorer countries.
 It has urged private sector creditors to do the same,
will they? Private power is the problem.
 Perhaps ad hoc debt standstills and restructurings
for
 Pakistan must continue to advocate for larger relief

9. APPROVALS BY INSTITUTION
 But how much stimulus is
required in EMs? IMF estimates
$2.5 trillion

10. THE VULTURES  Franklin Templeton, Ukraine 2015
 snapped up enough bonds in restructuring to
become the country’s largest private creditor.
 Ashmore, Lebanon 2019
 veto over how the country will restructure some of
its bonds.
 Fidelity, Blackrock, T Rowe Price
Argentina 2020
 pushed back on Argentina’s plans to restructure its
$65bn foreign debt burden. The group includes
some of the world’s largest institutional investors,
including BlackRock and T Rowe Price, and
together with the two other main bondholder
groups, wields enough power to make or break
any deal.

12. PROPOSAL: CENTRAL CREDIT FACILITY
LEE BUCKHEIT / MITU GULATI
 Central Credit Facility at a Multinational
 Divert interest payments to the CCF
 MDB would credit the country sending the interest payment
 Countries could then borrow for Covid-19 relief from the CCF
 Credit terms should not squeeze the countries further
 The vultures seem uninterested. They get a free-ride on public moratoria!
 The bigger problem: there is no international system for
systematic sovereign restructuring.

13. SELECT CASS PAPERS ON CORONAVIRUS

14. THANK YOU
DISCUSSION
WEBINAR @ ISSI THINK TANK JUNE 1, 2020