Sovereign Debt Restructuring and Growth

By Lorenzo Forni, Geremia Palomba, Joana Pereira, Christine J. Richmond

July 22, 2016

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Lorenzo Forni, Geremia Palomba, Joana Pereira, and Christine J. Richmond Sovereign Debt Restructuring and Growth, (USA: International Monetary Fund, 2016) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the effect of sovereign debt restructurings with external private creditors on growth during the period 1970-2010. We find that there are bad and good (or not so bad) debt restructurings for growth. While growth generally declines in the aftermath of a sovereign debt restructuring, agreements that allow countries to exit a default spell (final restructurings) are associated with improving growth. The impact can be significant. In general, three years after restructuring, growth is about 5 percent lower compared to countries that did not face restructuring over the same period. The exception is for final restructurings, which result in positive growth in the years immediately after the restructuring. Final restructurings tend to be better for growth because they reduce countries’ debt, with the strongest effect for countries that exit restructurings with relatively low debt levels.

Subject: Asset and liability management, Debt reduction, Debt relief, Debt restructuring, External debt, Sovereign debt restructuring

Keywords: Brady debt relief initiative, Brady debt relief operation, Crisis resolution, Debt, Debt ratio, Debt reduction, Debt relief, Debt restructuring, Debt restructuring announcement, Debt sustainability issue, Debt-restructuring episode, Default episode, Global, Growth, Haircut, Orchestrated debt relief event, Payment default, Post restructuring debt level, Restructuring agreement, Restructuring episode, Sovereign debt restructuring, Sovereign default, Sustainability issue, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/147
Stock No:

WPIEA2016147
ISBN:

9781498382236
ISSN:

1018-5941

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