renegotiation.46 The country’s president also threatened to give Glencore’s monopoly trading rights to ExxonMobil. Glencore’s upstream interests may have also made the company more amenable to renegotiate.47 In 2018, as part of its IMF program, Chad completed its debt restructuring with Glencore, which lengthened the maturities on the debt, lowered interest rates and made the debt more counter-cyclical by including contingencies which adjust repayment depending on oil price.

The pandemic has accentuated the already sharp debt sustainability challenges in a number of developing countries. In response, the G-20 has agreed to an initiative which enables the temporary suspension of debt servicing (DSSI) for the world’s poorest countries. However, most RBLs were outside its scope, mostly because only official lenders participated and not commercial lenders or commodity traders.48 Further consideration should be given to how international financial institutions may be able to assist RBL borrowers to help restructure their debt effectively (in a way that also ensures inter-lender equity) in the eventuality of debt burdens becoming unsustainable.

# 6. Conclusions

In this paper we analyze the main features and the impact of resource-backed loans on borrowing countries. While our review was restricted to publicly disclosed information about borrowings by central governments or SOEs in Sub-Saharan Africa during the 2004-2018 period, our conclusions are relevant to developing countries in general and may also be applicable to other forms of collateralized borrowing.

We found that while RBLs have limited use in a handful of countries, they represent a sizable proportion of debt in many of them. The countries that rely most on this form of borrowing are generally less transparent in their debt reporting, especially with regards to SOE debt, and collateralization is not disclosed in public debt records. Within our analysis sample, we found wide variations in how favorable RBL borrowing rates were. While a few RBLs extended by bilateral lenders (Korea, China) have outstandingly low rates, most come with rates well above the median. This is markedly the case for the few RBLs extended by commercial commodity traders. Some RBLs have resource price contingent repayment features, which allow for faster repayment in commodity booms and less in bust times, which could be attractive for resource-dependent borrowers. Most RBLs are earmarked for infrastructure investment, which in theory can yield returns that offset borrowing costs; however, non-earmarked loans (more prevalent among pre-payment deals) may be hard to justify economically, especially given their often-higher rates. We highlighted the nature of negative pledge undertakings and permitted lien clauses, and their relevance to borrower decisions related to the giving of collateral in the context of individual RBLs, and finance transactions more broadly. Finally, we showed how collateralization can threaten inter-lender equity and undermine the process of orderly debt dispute resolutions. RBLs have been so far renegotiated on an ad-hoc basis, which is likely driven by the strong interdependence between borrower and lender and by the practical limitations to enforcing any collateral granted through these loans.

When transparently conducted, borrowing operations that leverage natural resources as credit enhancement may represent an opportunity. However, their net benefit depends on a country’s debt sustainability, the use of proceeds and the improvement in

> 46 Madjiasra Nako and Julia Payne, “Exclusive: Chad wants to cut off Glencore’s oil supplies in debt row,” Reuters, 30 October 2017, <u>www.reuters.com/article/us-glencore-chad-oil-exclusive/exclusive-chad-wants-to-cut-off-glencores-oil-supplies-in-debt-rowidUSKBN1CZ1TK</u>

> 47 Ian Lewis, “Oil price recovery eases Chad’s gloom,” Petroleum Economist, 25 June 2019, www.petroleumeconomist.com/articles/politics-economics/africa/2019/oil-price-recovery-eases-chads-gloom 48 Chad did request suspension from Glencore in September 2020.

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