Sovereign Debt and Financing for Recovery after the COVID-19 Shock: Next Steps to Build a Better Architecture
Author(s): G30 Working Group on Sovereign Debt and COVID-19
This report acknowledges the world – and lower-income countries – have so far avoided large pandemic-driven debt defaults in part due to positive spillovers from extraordinary monetary and fiscal support in mature markets. However, the authors caution against complacency, warning that as the overall economic outlook brightens, the likelihood of tightening policy may result in outflows as well as further debt distress and ill effects in emerging and frontier market economies. Moreover, continued worries over the course of the pandemic, predominately vaccination rates and global access, must discourage early complacency or congratulatory posturing.
The report makes clear that collective aversion to crisis planning - ostensibly for fear of triggering a self-fulfilling prophesy of debt defaults - is irresponsible when much of the world is one unforeseen shock away from a lost decade. The report underscores that now is the time to rebuild and reform the architecture to improve its long-term resilience and effectiveness. The G30 report makes a series of important recommendations designed to buttress the sovereign debt restructuring process and mechanisms in the following areas: There should be a recycling of SDRs, creditors should reaffirm and elaborate the comparability of treatment principle, the G-20 should establish a standing consultative mechanism in conjunction with the Common Framework, national law in major financial markets should shield payment systems and intermediaries from disruptive debt collection, the G-20 should publicly disavow the use of contract terms that impair debtors or creditors participation in international debt negotiations, and commercial, official, and multilateral lenders should encourage sovereign borrowers to adopt robust domestic debt disclosure requirements as part of their debt authorization.
To read the full press release on the report, click here.
To watch the G30 Special Report Launch, please click here.