Cover IMF Working Papers
Sovereign Debt
Author:
Mr. Leonardo Martinez
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Mr. Francisco Roch 0000000404811396 https://isni.org/isni/0000000404811396 International Monetary Fund

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Francisco Roldán 0000000404811396 https://isni.org/isni/0000000404811396 International Monetary Fund

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Mr. Jeromin Zettelmeyer
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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 122
Language:
English
Publication Date:
17 Jun 2022
DOI:
https://doi.org/10.5089/9798400213250.001
ISBN:
9798400213250
ISSN:
1018-5941
Pages:
46
Keywords:
Sovereign Debt; Safe Debt; Debt Default; Debt Restructuring; Costs of Sovereign Default; Political Defaults; Fiscal Frameworks; State Contingent Debt; Original Sin; debt contract; short-term debt; market value; sovereign default; capital market exclusion; default decision; default event; payment terms; liquid asset; Securities markets; Fiscal rules; Global
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This paper surveys the literature on sovereign debt from the perspective of understanding how sovereign debt differs from privately issue debt, and why sovereign debt is deemed safe in some countries but risky in others. The answers relate to the unique power of the sovereign. One the one hand, a sovereign has the power to tax, making debt relatively safe; on the other, it also has control over its territory and most of its assets, making debt enforcement difficult. The paper discusses debt contracts and the sovereign debt market, sovereign debt restructurings, and the empirical and theoretical literatures on the costs and causes of defaults. It describes the adverse impact of sovereign default risk on the issuing countries and what explains this impact. The survey concludes with a discussion of policy options to reduce sovereign risk, including fiscal frameworks that act as commitment devices, state-contingent debt, and independent and credible monetary policy.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2022: Issue 122