3

Th is appendix provides guidance on selected issues that
may arise in the recording of fl ows and stock positions
related to public sector debt.

Introduction.

A3.1 In the recording of debt^1 of the general gov-
ernment or public sectors, complex methodological
issues can arise with regard to fl ows (i.e., transactions
and other economic fl ows) and stock positions associ-
ated with the debt liabilities. Some of the most com-
mon issues are discussed in detail, with examples of
their treatment, in Chapter 4 of the PSDS Guide. Th is
appendix provides a summary of the same issues and
their treatment.

Debt Reorganization.

A3.2 Debt reorganization (also referred to as debt
restructuring) is defi ned as an arrangement involving
both the creditor and the debtor (and sometimes third
parties) that alters the terms established for servicing
an existing debt. Governments are oft en involved in
debt reorganization, as debtor, creditor, or guarantor.

A3.3 Debt reorganization usually involves relief for
the debtor from the original terms and conditions of
debt obligations. Th is may be in response to liquidity
constraints, where the debtor does not have the cash
to meet debt service payments due, or sustainability
issues, where the debtor is unlikely to be able to meet
its debt obligations in the medium term.

A3.4 A failure by a debtor to honor its debt obliga-
tions (e.g., default) does not constitute debt reorga-
nization because it does not involve an arrangement
between the creditor and the debtor. Similarly, a
creditor can reduce the value of its debt claims on
the debtor in its own accounts through debt write-
off s—unilateral actions that arise, for example,
when the creditor regards a claim as unrecover-

(^1) Gross debt and net debt are defi ned in paragraphs 7.236–7.245.
able, perhaps because of bankruptcy of the debtor,
and, as a result, no longer carries the claim on its
balance sheet. Again, this is not considered debt
reorganization.
A3.5 Th e four main types of debt reorganization
are:

• Debt forgiveness, which is a reduction in the
  amount of, or the extinguishing of, a debt obli-
  gation by the creditor via a contractual arrange-
  ment with the debtor.


• Debt rescheduling or refi nancing (or debt ex-
  change), which is a change in the terms and con-
  ditions of the amount owed, which may result in a
  reduction in debt burden in present value terms.


• Debt conversion and debt prepayment (or debt
  buybacks for cash), where the creditor exchanges
  the debt claim for something of economic value,
  other than another debt claim, on the same
  debtor; examples of debt conversion are debt-for-
  equity swaps, debt-for-real-estate swaps, debt-
  for-development swaps, and debt-for-nature
  swaps.^2


• Debt assumption when a third party is also
  involved.
  A3.6 A debt reorganization package may involve
  more than one of the types just mentioned; for exam-
  ple, most debt reorganization packages involving debt
  forgiveness also result in a rescheduling of the part of
  the debt that is not forgiven or cancelled.

Debt Forgiveness

A3.7 Debt forgiveness (or debt cancellation) is de-

fi ned as the voluntary cancellation of all or part of a

(^2) Some agreements described as debt swaps are equivalent to
debt forgiveness from the creditor together with a commitment
from the debtor country to undertake a number of development,
environmental, etc., expenses. Th ese transactions should be
considered under debt forgiveness, as counterpart funds are not
provided to the creditor.

Debt and Related Operations

APPENDIX