Sovereign Debt Concerns in Developing Countries
link to page 2 
Updated March 6, 2023
Sovereign Debt Concerns in Developing Countries
The Coronavirus Disease 2019 (COVID-19) pandemic and
pandemic. According to World Bank figures, total external
Russia’s war on Ukraine has had significant economic and
government debt of low- and middle-income countries
financial consequence for low-income countries. The World
increased from $1.7 trillion in 2011 to $3.5 trillion in 2021.
Bank estimates that the pandemic pushed 97 million more
While the earlier waves of sovereign debt accumulation in
people into poverty in 2020. Several countries, including
the 1970s and 1980s consisted primarily of bank loans and
Argentina, Russia, and Zambia, have defaulted on their
bilateral borrowing from advanced economies and the
sovereign debt, and many others are at high levels of debt
multilateral development banks, increases since around
distress. Congress may consider the effects of high debt
2015 in aggregate sovereign debt are largely attributable to
levels across developing countries for the economic
China’s emergence as a key developing country creditor,
development outlook in these countries, debt recovery
and to the rising use of private sector bonds to finance
efforts, and stability in the international financial system.
developing country public debt. These trends have raised
new challenges in resolving sovereign defaults.
The United States is participating in two G20 creditor
country-led debt relief initiatives. The Biden
China’s Lending to Developing Countries
Administration requested $52 million in FY2022 from
China, since 2015, has been the largest creditor to low-
Congress to support the G20 efforts. Congress appropriated
income countries (Figure 1), surpassing the Paris Club (a
these funds in P.L. 117-328, Consolidated Appropriations
core group of traditional donor governments including the
Act, 2023.
United States and 21 other countries), the IMF, and the
World Bank. Unlike the IMF, the World Bank, or the Paris
Members of Congress have also introduced legislation
Club, China rarely discloses the amounts or terms of its
aimed at improving the transparency of the scale and scope
bilateral debt agreements. According to one 2019 National
of creditor countries’ sovereign lending (e.g., S. 1169, the
Bureau of Economic Research study, half of China’s
Strategic Competition Act of 2021, in the 117th Congress).
official lending to developing countries is not reported in
China is now the largest creditor to developing countries,
World Bank/IMF debt statistics. China is not a member of
and some Members have raised concerns about the opacity
the Paris Club.
of China’s lending practices and participation in
multilateral debt relief initiatives.
Figure 1. China is the Largest Creditor for Developing
Countries
Debt Vulnerabilities
Figure is interactive in the web version of the report.
The debt stock of low- and middle-income countries rose
on average 5.6% in 2021 to a total of $9 trillion. According
to the International Monetary Fund (IMF) and the World
Bank, a majority (60%) of low-income countries are in
“debt distress,” meaning that that there is a risk that a
country may be unable to meet its financial obligations
without debt restructuring or possibly debt forgiveness.
According to the IMF, as of January 31, 2023, nine
countries are in debt distress, 28 countries are at high risk
and 25 countries are at moderate risk. The IMF also noted
that from 2019 to 2020, overall borrowing jumped by 28
percentage points to 256% of GDP, with government
borrowing accounting for about half of this increase.
Source: Created by CRS based on World Bank International Debt
Alongside increased borrowing, since the end of 2019, nine
Statistics 2022 data.
countries (Argentina, Belize, Ghana, Ecuador, Lebanon, Sri
Lanka, Russia, Suriname, and Zambia) have defaulted on
Proliferation of Debt Instruments
sovereign debt obligations.
In the early 1990s, private financing to developing
countries shifted from private bank loans to government
The landscape of sovereign borrowing has changed over the
bonds. As a result, the bond market has become a key
past few decades. Following a sharp decline after the 2005
source of public financing globally. Between 2011 and
G8-led Multilateral Debt Relief Initiative, sovereign debt
2019, sovereign bond financing to low- and middle-income
began accumulating during the 2007-2009 global financial
countries tripled (Figure 2).
crisis, and has continued to rise through the COVID-19
https://crsreports.congress.gov
Sovereign Debt Concerns in Developing Countries
Figure 2. External Public/Publically Guaranteed Debt
Treasury Secretary Janet Yellen called China a “barrier” to
debt reform during her January 2023 trip to Zambia.
Governments of many eligible countries may be concerned
that seeking debt restructuring, especially with commercial
creditors, will lead to ratings downgrades and reduce their
future access to financing. They have seen cases of that
happening. Moody’s downgraded Ethiopia’s sovereign
bonds, in part due to the possibility that a Common
Framework agreement might cause private creditor losses.
The risk of private sector debt downgrades has been less of
an issue with the DSSI, which has been limited to official
Source: World Bank International Debt Statistics (IDS). Chart, CRS.
sector debt. Despite calls from the IMF and others for the
private sector to participate in the DSSI, the private sector
Debt Service Suspension Initiative
did not participate. The Institute of International Finance
On April 15, 2020, the G-20 finance ministers, in
(IIF), an industry group, has argued that a comprehensive
conjunction with private creditors, announced a temporary
agreement on private sector debt forgiveness could risk
debt payment suspension through the end of 2020.
reducing countries’ access to the private capital markets.
Formalized as the Debt Service Suspension Initiative
(DSSI), the effort temporarily suspended interest and
U.S. Debt Relief and the Role of Congress
principal repayments on G-20 official bilateral loans. The
Congressional authorization is necessary for the United
DSSI was later extended through December 2021.
States to participate in multilateral debt relief efforts. Under
According to the World Bank, the DSSI delivered more
authority first granted by Congress in 1993 (P.L. 103-87),
than $8.9 billion in official debt relief to more than 48 of
an appropriation by Congress of the estimated amount of
the 73 eligible countries.
debt relief is required in advance. The FY2022 budget
requested $52 million for the DSSI and Common
From Debt Suspension to Debt Forgiveness
Framework. According to Treasury, this funding was
While DSSI is providing temporary debt restructuring, the
necessary to restructure and lower U.S. interest rates
G-20 and the 22 members of the Paris Club, comprising 39
charged to the 48 countries that had requested payment
countries (including China), endorsed a new “Common
suspensions under the DSSI.
Framework for Debt Treatments beyond the DSSI” in
November 2020 for providing permanent debt forgiveness.
Some in Congress have raised concerns about sovereign
Debt treatment options under this framework include
debt risks, notably with respect to the lack of transparency
extending the duration of sovereign debt and in extreme
of China’s lending. For example, in the 117th Congress, S.
cases, debt write-offs or cancellation.
4112, Economic Statecraft for the Twenty-First Century
Act, would have required any applicant for U.S. assistance
Unlike the DSSI, Common Framework debt restructuring
to disclose any debt owed to any entity owned or controlled
requires a formal process similar to earlier Paris Club debt
by China. In the 116th Congress, Congress passed P.L. 116-
treatments, including backing by an IMF lending program
283, which directs U.S. representatives at the IFIs to “seek
and assurances that the debtor will seek treatment from all
to secure greater transparency with respect to the terms and
its creditors, public and private, on comparable terms.
conditions of financing provided by the government of the
Three of the eligible countries have requested Common
People’s Republic of China.”
Framework debt relief: Chad, Ethiopia, and Zambia. One of
those countries—Chad— has secured an agreement and,
Legislation was also introduced in the 116th Congress, H.R.
that agreement reschedules rather than cancels payments.
6086, the IMF Reform and Integrity Act of 2020, that
would have prohibited the United States from voting in
While China is participating in multilateral debt
favor of a quota increase for China, or any other country,
discussions, including a new sovereign debt roundtable
that is not “committed to the rules and principles of the
chaired by the IMF and India (as chair of the G20 in 2023),
Paris Club.”
some U.S. and international officials are concerned that
China’s unwillingness to provide comparable debt relief
In the 118th Congress, Members may also consider the
treatment is slowing these efforts. China is also pressing for
increased complexity of sovereign debt markets and various
the IMF and the World Bank to participate in multilateral
public and private efforts to improve coordination among
debt relief efforts.
creditors. As debt instruments become more diverse and the
creditor base becomes more fragmented, debt risks and the
At the February 2023 G20 meeting, an Indian financial
costs of restructurings are increasing.
official, Amitabh Kant, pushed back on China, saying “It
can’t be that the International Monetary Fund takes a
Martin A. Weiss, Specialist in International Trade and
haircut, and it goes to settle Chinese debt.” Furthermore,
Finance
according to Kant, “China needs to come out openly and
say what their debt is and how to settle it.” This came after
IF11880
https://crsreports.congress.gov
Sovereign Debt Concerns in Developing Countries
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11880 · VERSION 4 · UPDATED
Updated March 6, 2023
Sovereign Debt Concerns in Developing Countries
The Coronavirus Disease 2019 (COVID-19) pandemic and
pandemic. According to World Bank figures, total external
Russia’s war on Ukraine has had significant economic and
government debt of low- and middle-income countries
financial consequence for low-income countries. The World
increased from $1.7 trillion in 2011 to $3.5 trillion in 2021.
Bank estimates that the pandemic pushed 97 million more
While the earlier waves of sovereign debt accumulation in
people into poverty in 2020. Several countries, including
the 1970s and 1980s consisted primarily of bank loans and
Argentina, Russia, and Zambia, have defaulted on their
bilateral borrowing from advanced economies and the
sovereign debt, and many others are at high levels of debt
multilateral development banks, increases since around
distress. Congress may consider the effects of high debt
2015 in aggregate sovereign debt are largely attributable to
levels across developing countries for the economic
China’s emergence as a key developing country creditor,
development outlook in these countries, debt recovery
and to the rising use of private sector bonds to finance
efforts, and stability in the international financial system.
developing country public debt. These trends have raised
new challenges in resolving sovereign defaults.
The United States is participating in two G20 creditor
country-led debt relief initiatives. The Biden
China’s Lending to Developing Countries
Administration requested $52 million in FY2022 from
China, since 2015, has been the largest creditor to low-
Congress to support the G20 efforts. Congress appropriated
income countries (Figure 1), surpassing the Paris Club (a
these funds in P.L. 117-328, Consolidated Appropriations
core group of traditional donor governments including the
Act, 2023.
United States and 21 other countries), the IMF, and the
World Bank. Unlike the IMF, the World Bank, or the Paris
Members of Congress have also introduced legislation
Club, China rarely discloses the amounts or terms of its
aimed at improving the transparency of the scale and scope
bilateral debt agreements. According to one 2019 National
of creditor countries’ sovereign lending (e.g., S. 1169, the
Bureau of Economic Research study, half of China’s
Strategic Competition Act of 2021, in the 117th Congress).
official lending to developing countries is not reported in
China is now the largest creditor to developing countries,
World Bank/IMF debt statistics. China is not a member of
and some Members have raised concerns about the opacity
the Paris Club.
of China’s lending practices and participation in
multilateral debt relief initiatives.
Figure 1. China is the Largest Creditor for Developing
Countries
Debt Vulnerabilities
Figure is interactive in the web version of the report.
The debt stock of low- and middle-income countries rose
on average 5.6% in 2021 to a total of $9 trillion. According
to the International Monetary Fund (IMF) and the World
Bank, a majority (60%) of low-income countries are in
“debt distress,” meaning that that there is a risk that a
country may be unable to meet its financial obligations
without debt restructuring or possibly debt forgiveness.
According to the IMF, as of January 31, 2023, nine
countries are in debt distress, 28 countries are at high risk
and 25 countries are at moderate risk. The IMF also noted
that from 2019 to 2020, overall borrowing jumped by 28
percentage points to 256% of GDP, with government
borrowing accounting for about half of this increase.
Source: Created by CRS based on World Bank International Debt
Alongside increased borrowing, since the end of 2019, nine
Statistics 2022 data.
countries (Argentina, Belize, Ghana, Ecuador, Lebanon, Sri
Lanka, Russia, Suriname, and Zambia) have defaulted on
Proliferation of Debt Instruments
sovereign debt obligations.
In the early 1990s, private financing to developing
countries shifted from private bank loans to government
The landscape of sovereign borrowing has changed over the
bonds. As a result, the bond market has become a key
past few decades. Following a sharp decline after the 2005
source of public financing globally. Between 2011 and
G8-led Multilateral Debt Relief Initiative, sovereign debt
2019, sovereign bond financing to low- and middle-income
began accumulating during the 2007-2009 global financial
countries tripled (Figure 2).
crisis, and has continued to rise through the COVID-19
https://crsreports.congress.gov
Sovereign Debt Concerns in Developing Countries
Figure 2. External Public/Publically Guaranteed Debt
Treasury Secretary Janet Yellen called China a “barrier” to
debt reform during her January 2023 trip to Zambia.
Governments of many eligible countries may be concerned
that seeking debt restructuring, especially with commercial
creditors, will lead to ratings downgrades and reduce their
future access to financing. They have seen cases of that
happening. Moody’s downgraded Ethiopia’s sovereign
bonds, in part due to the possibility that a Common
Framework agreement might cause private creditor losses.
The risk of private sector debt downgrades has been less of
an issue with the DSSI, which has been limited to official
Source: World Bank International Debt Statistics (IDS). Chart, CRS.
sector debt. Despite calls from the IMF and others for the
private sector to participate in the DSSI, the private sector
Debt Service Suspension Initiative
did not participate. The Institute of International Finance
On April 15, 2020, the G-20 finance ministers, in
(IIF), an industry group, has argued that a comprehensive
conjunction with private creditors, announced a temporary
agreement on private sector debt forgiveness could risk
debt payment suspension through the end of 2020.
reducing countries’ access to the private capital markets.
Formalized as the Debt Service Suspension Initiative
(DSSI), the effort temporarily suspended interest and
U.S. Debt Relief and the Role of Congress
principal repayments on G-20 official bilateral loans. The
Congressional authorization is necessary for the United
DSSI was later extended through December 2021.
States to participate in multilateral debt relief efforts. Under
According to the World Bank, the DSSI delivered more
authority first granted by Congress in 1993 (P.L. 103-87),
than $8.9 billion in official debt relief to more than 48 of
an appropriation by Congress of the estimated amount of
the 73 eligible countries.
debt relief is required in advance. The FY2022 budget
requested $52 million for the DSSI and Common
From Debt Suspension to Debt Forgiveness
Framework. According to Treasury, this funding was
While DSSI is providing temporary debt restructuring, the
necessary to restructure and lower U.S. interest rates
G-20 and the 22 members of the Paris Club, comprising 39
charged to the 48 countries that had requested payment
countries (including China), endorsed a new “Common
suspensions under the DSSI.
Framework for Debt Treatments beyond the DSSI” in
November 2020 for providing permanent debt forgiveness.
Some in Congress have raised concerns about sovereign
Debt treatment options under this framework include
debt risks, notably with respect to the lack of transparency
extending the duration of sovereign debt and in extreme
of China’s lending. For example, in the 117th Congress, S.
cases, debt write-offs or cancellation.
4112, Economic Statecraft for the Twenty-First Century
Act, would have required any applicant for U.S. assistance
Unlike the DSSI, Common Framework debt restructuring
to disclose any debt owed to any entity owned or controlled
requires a formal process similar to earlier Paris Club debt
by China. In the 116th Congress, Congress passed P.L. 116-
treatments, including backing by an IMF lending program
283, which directs U.S. representatives at the IFIs to “seek
and assurances that the debtor will seek treatment from all
to secure greater transparency with respect to the terms and
its creditors, public and private, on comparable terms.
conditions of financing provided by the government of the
Three of the eligible countries have requested Common
People’s Republic of China.”
Framework debt relief: Chad, Ethiopia, and Zambia. One of
those countries—Chad— has secured an agreement and,
Legislation was also introduced in the 116th Congress, H.R.
that agreement reschedules rather than cancels payments.
6086, the IMF Reform and Integrity Act of 2020, that
would have prohibited the United States from voting in
While China is participating in multilateral debt
favor of a quota increase for China, or any other country,
discussions, including a new sovereign debt roundtable
that is not “committed to the rules and principles of the
chaired by the IMF and India (as chair of the G20 in 2023),
Paris Club.”
some U.S. and international officials are concerned that
China’s unwillingness to provide comparable debt relief
In the 118th Congress, Members may also consider the
treatment is slowing these efforts. China is also pressing for
increased complexity of sovereign debt markets and various
the IMF and the World Bank to participate in multilateral
public and private efforts to improve coordination among
debt relief efforts.
creditors. As debt instruments become more diverse and the
creditor base becomes more fragmented, debt risks and the
At the February 2023 G20 meeting, an Indian financial
costs of restructurings are increasing.
official, Amitabh Kant, pushed back on China, saying “It
can’t be that the International Monetary Fund takes a
Martin A. Weiss, Specialist in International Trade and
haircut, and it goes to settle Chinese debt.” Furthermore,
Finance
according to Kant, “China needs to come out openly and
say what their debt is and how to settle it.” This came after
IF11880
https://crsreports.congress.gov
Sovereign Debt Concerns in Developing Countries
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF11880 · VERSION 4 · UPDATED