Issues in Restructuring of Sovereign Domestic Debt

December 1, 2021

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Issues in Restructuring of Sovereign Domestic Debt, (USA: International Monetary Fund, 2021) accessed December 21, 2024

Summary

As emerging and developing economies accumulate more domestic sovereign debt, it is likely to play a larger role in the resolution of future sovereign debt crises. This paper analyzes when and how to restructure sovereign domestic debt in unsustainable debt cases while minimizing economic and financial disruptions. Key to determining whether or not domestic debt should be part of a sovereign restructuring is weighing the benefits of the lower debt burden against the fiscal and broader economic costs of achieving that debt relief. The fiscal costs may have to be incurred in the context of restructuring because of the need to maintain financial stability, to ensure the functioning of the central bank, or to replenish pension savings. A sovereign domestic debt restructuring should be designed to anticipate, minimize, and manage its impact on the domestic economy and financial system. Casting the net wide across claims can help boost participation in the restructuring by lowering the relief sought from each creditor group. A strategy that engages creditors constructively, and as transparently as possible, that relies on market-based incentives, and that presents the exchange as part of a consistent macroeconomic plan typically works best.

Subject: Asset and liability management, Debt restructuring, Domestic debt, External debt, Monetary policy, Political economy, Public debt, Sovereign debt restructuring

Keywords: Debt exchange, Debt reduction strategy, Debt restructuring, Developing economies, Domestic debt, Domestic debt, Emerging market economies, Global, Reduction episode, Restructuring event, Restructuring events, Sovereign debt restructuring, Sovereign debt restructuring, Sovereign default, Transparency policy

Publication Details

Pages:

99
Volume:

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DOI:

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Issue:

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Series:

Policy Paper No. 2021/071
Stock No:

PPEA2021071
ISBN:

9781616358112
ISSN:

2663-3493

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