Sovereign Debt Management Practices Must Continued to Be Enhanced

Sovereign Debt Management Practices Must Continued to Be Enhanced Fourth Annual Sovereign Debt Restructuring Conference: Sovereign Debt, Restructuring, and Risk Management Post -COVID 26 February 2020

GIC / LeBow ’s Sovereign Debt Series

Strictly Private and Confidential

For Discussion Purposes Only

Newstate Partners LLP 22a St James’s Square London SW1Y 4JH United Kingdom +44 (0) 20 3077 4914

OUTLINE

Sovereign Debt Management Practices Must Continued to Be Enhanced in the Advent of Covid-19 » Background » Evolution of Sovereign Debt Management » Themes Emerging from the Pandemic » Sovereign Debt Restructuring Lessons » Q & As

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Background COVID-19 has become a global health calamity with devastating economic repercussions.

Although still too early to assess the full economic impact, the fallout will likely be of a

different order of magnitude to any other crisis of modern times. Emerging economies will need to confront complex socio-economic dislocations in the face of deteriorating fiscal capacity, intensifying unemployment and shrinking national outputs The need to mobilise financial resources to address rising social needs is pushing public sector debts to unprecedented levels across the globe, creating significant financial stress

and threatening a wave of potential sovereign debt defaults. The ramifications for low income countries may be even more significant as many economies depend on commodities, external capital and remittances, all of which are under significant pressure Already two countries, Argentina and Ecuador, experiencing raised social needs in 2020 on top of high debt accumulation pre-Covid-19, have restructured their public sector debts and a number of others are already queuing to engage with creditors to address unsustainable debt burdens.

1. How has Sovereign Debt Management (SDM) evolved or the past two decades?

2. What have we learned from Sovereign debt restructurings over this time?

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Evolution of Sovereign Debt Management Over the past two decades, SDM has taken an increasingly important role in a country’s macro-economic framework along-side fiscal and monetary policy management The Asian financial crisis helped fuel a rethinking of SDM as an integral and complimentary aspect of sound macro policies »

That trend continued in 2008 and now in the advent of this pandemic, SDM must continue to take an even more pivotal role going forward

The IMF and the World Bank have been at the forefront of developing and improving a global understanding of SDM -- the process for managing a financial requirements and raising funds at the lowest possible cost over the long-term, consistent with a prudent degree of risk. SDM has evolved into a complex field. It extends to: »

Diversification of funding sources

»

Assessment of debt sustainability

»

Development of liquid local capital markets

»

Investor relations

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Themes Emerging from the Pandemic Pertinent themes emerging from the Pandemic will have significant implications on the evolution of SDM and debt sustainability across sovereigns: »

Sovereign debt is at unprecedented high levels and the global stock of public debt will increase placing huge risk management pressures on sovereign debt managers •

Massive accommodation in monetary policy among DC have led to record low interest rates, however sovereign spreads across DC and LICs have risen

»

Payment capacity is deteriorating at a rapid place in a number of DC and LICs, the prospects for financial stress and a potential SDRs is increasing

»

Sovereign creditor base continues to evolve, with the share of debt owed to China and commercial creditors, growing at a rapid pace,

»

This have significant impact on relations between debtors and creditors particularly if a SDR becomes necessary

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Some Important Sovereign Debt Restructuring Lessons Argentina and Ecuador found themselves restructuring their sovereign commercial bonds at the same time, with common bondholders, yet their approaches differed and the outcomes indicate a different path towards debt

sustainability Argentina aimed to secure a restructuring agreement with bondholders without anchoring debt relief on an economic reform programme designed to address economic imbalances and achieve debt sustainability.

Negotiations were

acrimonious and not based on a transparent exchange of data and good faith

dialogue Ecuador, in contrast, sought to restructure its sovereign commercial bonds anchoring debt relief on an IMF financed economic reform programme designed to address imbalances, strengthen social safety nets and place the public sector debt on a sustainable path. Negotiations were transparent and consensual

How will other countries (Belize, Lebanon, Suriname, Zambia, and others) queuing up already to engage with its creditors, fare in their efforts to address debt sustainability concerns?

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Some Important Lessons » Addressing Economic Imbalances Understanding economic challenges and developing a broad based reform plan to

address economic imbalances, strengthen social safety nets as well as promote inclusive and sustainable growth, is vital -- the importance of credible reforms cannot be stressed enough

» Debt Restructuring Must Complement Credible Reforms

A sovereign debt restructuring in isolation is not a panacea for resolving economic imbalances. A debt restructuring must complement a credible reform programme

» Multilateral Support Multilateral institutions are critical stakeholders that should support a strong reform agenda, via financing, technical assistance and capacity building efforts

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Some Important Lessons »

Formulation of a MTDS

Developing a comprehensive Medium Term Debt Management Strategy (MTDS) is

vital to assess debt sustainability requirements and assess inherent risks in the sovereign debt portfolio » Strong Communication Strategy is Vital to Approach all Stakeholders If a debt restructuring is necessary, engage early in a transparent and orderly manner with all stake holders

» Engage financial and legal advice early SDR are complex and unique. Engagement of competent financial and legal advisors should be sought early and in transparent manner to assist with the formulation of adequate solutions and strategies to engage with creditors.

Creditors are

stakeholders and interests can be aligned to ensure a country in crisis emerges

stronger »

Process Matters

Consensual negotiations based on an open exchange of views and ensuring interstakeholder equity (burden sharing) is necessary to build consensus and foster support for critical reforms For Discussion Purposes Only

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Contact Information For further information, please contact: Rafael M. Molina Newstate Partners LLP 2 Duke Street London SW1Y 6BN United Kingdom Phone: E-mail: Website:

+44 20 3077 4914 rmolina@newstatepartners.com www.newstatepartners.com

Authorised and Regulated by the Financial Conduct Authority Copyright Newstate Partners LLP. All rights reserved Newstate Partners LLP ("Newstate") exercises reasonable care and takes appropriate precautions to ensure that the information contained in this presentation is accurate, up-to-date and reflects our understanding of your requirements. Any proposal or recommendation contained in this presentation is given in good faith and based on information currently available to Newstate. Newstate reserves the right to change its recommendation based on further information received by it (whether from you or from third parties). Nothing in this presentation is an offer by Newstate to enter into contractual relations with you

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