Expert Views: Enhancing the Sovereign Debt Restructuring Architecture for Senegal and Beyond

Editor’s Note: This latest installment in Octus’ Expert Views series comes from Thomas Laryea, an international law and policy expert with Orrick, Herrington & Sutcliffe, specializing in sovereign debt restructuring. At the time of publication, Orrick had no mandate in Senegal’s sovereign debt treatment process.

Senegal’s proposed sovereign debt restructuring, which was announced on Sept. 1, will test the current sovereign debt restructuring architecture. An advantage of this architecture is that it is generally built on contractual mechanisms and negotiated solutions, rather than statutory legal tools. This allows scope for innovation to meet evolving demands, such as developments in financing techniques and demands, such as those arising from climate change. However, a challenge of this architecture is that participants are sometimes forced to fly the airplane while working on the engine. Now that Senegal’s debt restructuring has taken off, how will it land?

Senegal’s creditor landscape alone — involving total return swaps, local currency bonds in the regional WAEMU market, eurobonds, claims of other governments and multilateral institutional lenders — will raise some complex inter-creditor equity issues. In order to move forward, Senegal has committed to use the Common Framework, which is a framework established by the G-20 to facilitate coordination among government creditors in debt restructurings by low-income countries.

However, the Common Framework has had negative spillover effects on the treatment of private creditor claims and has led to undue delays in the resolution of some debt restructurings. No doubt aware of these concerns, Senegal has announced that it will adopt an “Enhanced Common Framework” that envisions a parallel negotiation process among government and private creditors, which would require timely and adequate information sharing across all relevant creditor groups, with a view to facilitate a more efficient debt restructuring process. Constructive coordination among stakeholders, including creditor groups, will be needed for this process to work.

A key obstacle that participants in Senegal’s debt restructuring process will need to navigate is the principle of comparability of treatment, which has caused significant controversies, including threats of litigation, in the Zambia and Ethiopia restructurings. In this piece, I present an idea for the reconsideration of the application of comparability of treatment in order to curtail wasteful delays and bickering in the Senegal and future sovereign debt restructurings. First, let’s briefly consider the evolution of the comparability of treatment principle, and then address why review of its application is warranted.

Comparability of treatment is one of the principles of the Paris Club group of government creditors, predominantly comprising OECD countries. Celebrating its 70th anniversary in 2026, the Paris Club was established in an era that has been superseded by multipolar geopolitics and by a significant increase of private capital as a source of financing to frontier and emerging economies. Some other vestiges of a bygone era appear in surprising places, such as in the International Monetary Fund’s internal delineation of Africa. The Paris Club’s embrace of the Common Framework involving a broader grouping of creditors, including China and Gulf countries, can be seen as a step in the Paris Club’s evolution.

However, the anachronistic concept of comparability of treatment has survived. At its core, comparability of treatment entails a collective bargain among governmental creditors so that when they participate in a sovereign debt restructuring, they will impose a contractual obligation on the debtor country to seek a debt treatment from other relevant government and private creditors, which would provide at least the same level of relief. This principle sounds fair enough, but here is the kicker: the Paris Club creditors have determined the criteria by which they measure whether the relief provided by other creditors is comparable, cementing that analysis in terms of present value reduction, duration of the repayment period and nominal debt service reduction. These criteria made relative sense in a bygone era where sovereign debt restructurings were typified by the rescheduling of claims predominantly held by a few (OECD) governments.

Other measures of debt relief, such as the reduction in the principal amount of claims, have been generally ignored by the Paris Club’s metrics, and we have witnessed cases where the burden of reduction of the principal amount has been borne exclusively by private creditors without any accounting for such exceptional contribution by those private creditors. Arguably, the (unintended) consequences of these inequities in the sovereign debt restructuring architecture have been to raise the cost of private capital for developing countries and to forestall their efforts to access the credit needed to achieve their development financing objectives.

Unfortunately, the Paris Club concept of comparability of treatment has not only been mechanically carried over into the Common Framework, but its application has become even more inflexible in that context.

One argument raised for the survival of the comparability of treatment principle is that in the established order of sovereign debt restructuring, a privileged group of government creditors are the first movers in the process through their commitment of new concessional financing or other forms of debt relief at the inception of an IMF program and following through on the collective agreement on such relief ahead of other creditors. In this sequenced approach, the argument is that the principle of comparability of treatment protects the first mover government creditors from free riding by other governments and private creditors from whom relief is sought thereafter. But this sequenced approach is neither necessary nor efficient. Indeed, the call for the Senegal debt restructuring to be carried out through a parallel negotiation process challenges the sequenced premise on which the comparability of treatment principle has been hitherto applied.

In circumstances where there is a parallel negotiation process, the recovery of relevant creditors would be determined at the same time; i.e., the “payment capacity” will be divided in a simultaneous negotiation process. Each relevant creditor class will require adequate information in order to assess the equitable division of the debtor country’s payment capacity. Such a process should lead to fairer and more durable debt restructurings as the relative preferences of creditor classes can be better factored into the negotiated solution. Note that this is not an argument for creditors in the aggregate receiving more but rather that the division among creditors will be more efficient. In the context of a parallel negotiation process, there should be no place for the application of the comparability of treatment principle, at least not in its current form.

One qualification to this insight is that comparability of treatment could have residual utility if its application is limited to within the class of government creditors. The Paris Club, and its equivalent in the Common Framework, the Official Creditor Committee, or OCC, effectively acts as a creditor committee negotiating on behalf of the class of government creditors. In this regard, the Paris Club/OCC has a legitimate interest in safeguarding inter-creditor equity within the class of government creditors that the Paris Club/OCC represents through the application of comparability of treatment within that class. However, there should be no forced application of the Paris Club/OCC’s principle of comparability of treatment on the debtor country to extend it to private creditors, particularly where they are negotiating in a parallel process for division of the same payment capacity.

Relatedly, enhanced information sharing is another condition needed to make the envisioned reengineering of the sovereign debt restructuring architecture fly. In particular, an information asymmetry that has been used (and abused) as a basis for government creditors to obtain a head start on the debt restructuring process results from the fact that those government creditors are also shareholders in the IMF.

In that latter capacity, they receive advance information through the circulation of the IMF staff report on the parameters of the economic adjustment program for which the IMF and its shareholders are asked to support. There are some important legal considerations that inform this asymmetry, including that the IMF staff report is work product for use by the IMF Executive Board and therefore cannot be published without the consent of the Board, which is conveyed after the Board has considered the report. And because the IMF staff report contains information provided on a confidential basis by the IMF member country that is seeking the IMF’s financial support, the IMF cannot legally publish the report without the relevant member country’s consent.

One way of mitigating this asymmetry is for the country seeking IMF financing—for example, Senegal in our pending case—to itself publish the key parts of the IMF program documents, the Letter of Intent, or LOI, and Memorandum of Economic and Financial Policies, or MEFP, at the same time that those documents are provided to the IMF Executive Board. This solution is legally permissible because the LOI and MEFP are documents of the member country (notwithstanding that they are mysteriously written in the same style of English and same font as the IMF-owned parts of the IMF program documents). The general adoption of this practice of publication by the country would be one way in which information sharing can be enhanced from the early stages to support an efficient parallel negotiation process in the sovereign debt restructurings that involve IMF financing.

If the participants in the Senegal debt restructuring are serious about overcoming the challenges that have frustrated the progress of the restructuring process to the detriment of debtor countries and creditors alike, then all parties need to think and act outside the box. We need to qualify some of the approaches that have evolved in bygone eras but which today operate as constricting dogma. We can start with a qualification of the principle of comparability of treatment through its limitation within the class of government creditors. We can also enhance information sharing from the very inception of the restructuring process, where IMF financing is involved. These are not the only two reforms that are needed. But with such innovations, we can improve the chances to securely land the sovereign debt restructuring that Senegal has launched and to provide a safe flight path for other inevitable restructurings to come.