New crisis clauses and a borrower club could reshape emerging market sovereign risk
Emerging market debt managers are testing “pause” buttons and new bargaining clubs at the same time, as bond investors weigh how far to go in cushioning crises without surrendering control.
According to Reuters, major bond investors including Amundi and T. Rowe Price want new clauses in sovereign bonds so emerging countries can pause payments for up to a year during a crisis without triggering default.
The plan from the Bondholder Working Group, a subgroup of commercial creditors in the British‑backed London Coalition on Sustainable Sovereign Debt, targets countries facing short‑term cash crunches while trying to maintain market access.
According to Reuters, Samy Muaddi, head of Emerging Markets Fixed Income at T. Rowe Price, said the plan is “a bondholder‑led initiative” built through consultation with issuers and other stakeholders, making it “commercially viable and more likely to work for both investors and developing countries.”
He acknowledged that “Some critics think the proposal does too little... Other critics argue it goes too far.”
Under the proposal, which excludes nations already in default or facing unsustainable debt levels, countries could suspend payments by declaring a national emergency or by seeking emergency International Monetary Fund financing.
This route would require 30 days’ notice to bondholders and participation from at least 60 percent of other external creditors in similar relief measures.
A second, expedited option would activate if a disaster causes damage exceeding 15 percent of GDP, as certified by the World Bank, according to Reuters.
The Bondholder Working Group said “Implementing these features could establish more coherent and predictable crisis response... and ultimately support more stable and efficient markets that benefit both issuers and investors.”
The proposal would embed the clauses only in future bond contracts and includes safeguards that allow bondholders with at least 50 percent of eligible holdings to block a pause if conditions such as transparency or equitable creditor participation are not met.
Abebe Selassie, director of the IMF’s African Department, said the Fund is ready to use such tools to complement its current approach and offer guidance on individual country cases “where particular payments could be onerous” after major shocks.
Earlier efforts to embed crisis‑responsive clauses faced resistance from private creditors over enforceability and moral hazard concerns, and while Grenada and Barbados introduced such clauses, Reuters noted they have not become standard in international markets.
At the same time, emerging markets are stepping up collective efforts on the borrower side.
A group of officials from developing economies has launched the Borrowers’ Platform, a United Nations‑backed effort to give debt‑hit nations a stronger joint voice with creditors.
At the launch, United Nations Secretary‑General Antonio Guterres called the initiative “a breakthrough in global financing,” saying it gives borrowing countries a platform to learn from each other and speak with a collective voice.
He added that 3.4 billion people live in countries that spend more on debt service than on health or education.
The initiative is seen partly as a counter to the Paris Club, where official creditors coordinate when a common debtor encounters repayment problems.
Penelope Hawkins, acting head at the Debt and Development Finance branch at UNCTAD, said “The Paris Club has got 70 years on the Borrowers’ Club… This needs to be a permanent structure.”
Frustration has grown over the G‑20 Common Framework, launched during the COVID-19 pandemic as a broader version of the Paris Club that included China.
It has produced only three full restructurings, according to Reuters.
The IMF and World Bank later set up the Global Sovereign Debt Roundtable (GSDR), which includes some borrowers and major private‑sector players, to help streamline the process.
The GSDR said its work since the autumn meetings has helped “advance solutions” to speed up restructuring of private, non-bonded debt.
It added that plans to publish the “parameters against which comparability of treatment will be assessed” have “received broad support,” addressing a key sore spot for bondholders.
The GSDR also backed initiatives launched by the London Coalition, the same British‑backed group linked to the Bondholder Working Group’s proposal.
According to Reuters, the Borrowers’ Platform will use UNCTAD as its operational backbone and act as an experience repository so members can share knowledge and avoid arriving at negotiations unprepared.
Egypt’s finance minister, Ahmed Kouchouk, said “What was once a long‑standing aspiration of developing countries has now become a concrete and a collective step forward,” and described it as a statement that “the voice of borrowing nations and countries belongs at the very center of the global financial dialogue.”
Reuters reported that the launch event, presided over by Egypt, opens an interim phase running through October 2026.
The working group included Egypt, Colombia, Honduras, Maldives, Nepal, Pakistan and Zambia, with Pakistan as vice chair.
Under the draft framework, full membership would be voluntary and limited to developing UN member states that are net borrowers and not full members of creditor groupings, with a Governing Council of finance ministers, central bank governors or equivalent officials, and a Steering Committee of senior technical officials.
Civil society groups welcomed the move.
Iolanda Fresnillo, policy and advocacy manager at Eurodad, said “The launch of the Borrowers’ Platform is a major milestone in rebalancing power inequalities in global economic governance” and called it “a first step towards breaking creditor domination over decision‑making on sovereign debt issues.”
