Sovereign debt crises stall because no one agrees on who gets paid first. Unlike domestic insolvency regimes with clear rules, the sovereign debt world lacks a guidebook. Informal conventions among institutions determine creditor ranking, creating ambiguity.

Certain multilateral institutions, like the IMF, are presumed to have preferred creditor status and are repaid in full, while bondholders at the bottom take large haircuts. However, for many countries, their largest creditors are multilateral development banks and official bilateral lenders, where conventions around seniority are ambiguous. This ambiguity makes restructuring negotiations longer and more contentious, delaying debt relief for indebted countries.

Take Zambia, for example. Its debt restructuring — still not resolved more than five years after its 2020 default — became mired in disputes over whether Afreximbank should be treated as a preferred or commercial creditor. Similar questions will likely emerge in Venezuela’s restructuring.

Institutions like the IMF and forums such as the Global Sovereign Debt Roundtable need to codify a transparent framework. This should encapsulate three key principles. First, lenders of last resort like the IMF must remain outside debt restructurings to ensure future aid.

Second, preferential treatment for other official creditors should depend on lending terms, specifically the degree of concessions given on pricing. Third, a transparent yardstick based on concessional lending terms would subject all creditors to the same rules, ensuring fairness and efficiency in future restructurings.