A careful review has revealed significant scope to modernize and better align the MAC DSA with its objectives and the IMF’s lending framework. This note proposes replacing the current framework with a new methodology based on risk assessments at three different horizons. Extensive testing has shown that the proposed framework has much better predictive accuracy than the current one. In addition to predicting sovereign stress, the framework can be used to derive statements about debt stabilization under current policies and about debt sustainability.
The framework for fiscal policy and public debt sustainability analysis (DSA) in market-access countries (MACs) was reviewed by the Executive Board in August 2011.1 The review responded to shortcomings in identifying fiscal vulnerabilities and assessing risks to debt sustainability against the backdrop of increased concerns over fiscal policy and public debt sustainability in many advanced economies.
The last time global sovereign debt reached the level seen today was at the end of the Second World War, and this shaped a generation of economic policymaking. International institutions were transformed, country policies were often draconian and distortive, and many crises ensued. By the early 1970s, when debt fell back to pre-war levels, the world was radically different. It is likely that changes of a similar magnitude -for better and for worse - will play out over coming decades. Sovereign Debt: A Guide for Economists and Practitioners is an attempt to build some structure around the issues of sovereign debt to help guide economists, practitioners and policymakers through this complicated, but not intractable, subject. Sovereign Debt brings together some of the world's leading researchers and specialists in sovereign debt to cover a range of sub-disciplines within this vast topic. It explores debt management with debt sustainability; debt reduction policies with crisis prevention policies; and the history with the conjuncture. It is a foundation text for all those interested in sovereign debt, with a particular focus real world examples and issues.
The book sheds light on the perhaps most important legal conundrum in the context of sovereign debt restructuring: the holdout creditor problem. Absent an international bankruptcy regime for sovereigns, holdout creditors may delay or even thwart the efficient resolution of sovereign debt crises by leveraging contractual provisions and, in an increasing number of cases, by seeking to enforce a debt claim against the sovereign in courts or international tribunals. Following an introduction to sovereign debt and its restructuring, the book provides the first comprehensive analysis of the holdout creditor problem in the context of the two largest sovereign debt restructuring operations in history: the Argentine restructurings of 2005 and 2010 and the 2012 Greek private sector involvement. By reviewing numerous lawsuits and arbitral proceedings initiated against Argentina and Greece across a dozen different jurisdictions, it distils the organizing principles for ongoing and future cases of sovereign debt restructuring and litigation. It highlights the different approaches judges and arbitrators have adopted when dealing with holdout creditors, ranging from the denial of their contractual right to repayment on human rights grounds to leveraging the international financial infrastructure to coerce governments into meeting holdouts’ demands. To this end, it zooms in on the role the governing law plays in sovereign debt restructurings, revisits the contemporary view on sovereign immunity from suit and enforcement in the international debt context, and examines how creditor rights are balanced with the sovereign’s interest in achieving debt sustainability. Finally, it advances a new genealogy of holdouts, distinguishing between official and private sector holdouts and discussing how the proliferation of new types of uncooperative creditors may affect the sovereign debt architecture going forward. While the book is aimed at practitioners and scholars dealing with sovereign debt and its restructuring, it should also provide the general reader with the understanding of the key legal issues facing countries in debt distress. Moreover, by weaving economic, financial, and political considerations into its analysis of holdout creditor litigation and arbitration, the book also speaks to policymakers without a legal background engaged in the field of international finance and economics.
This note provides operational guidance for the use of the Sovereign Risk and Debt Sustainability Framework (SRDSF), which replaces the Debt Sustainability Framework for Market Access Countries. The SRDSF introduces improvements in organization, methodology, transparency, and communication when analyzing public debt issues in countries that mainly finance themselves with market-based debt. After its phased adoption beginning [June 2022], it will become the Fund’s principal tool for assessing public debt sustainability.
This Handbook provides guidance to staff on the IMF’s concessional financial facilities and non-financial instruments for low-income countries (LICs), defined here as all countries eligible to obtain concessional financing from the Fund. It updates the previous version of the Handbook that was published in December 2017 (IMF, 2017e) by incorporating modifications resulting from the 2018–19 Review of Facilities for Low-Income Countries and Review of the Financing of the Fund’s Concessional Assistance and Debt Relief to Low-Income Member Countries (IMF, 2019a, b), approved by the Board in May 2019; the reforms introduced in 2021 on the basis of the Board paper Fund Concessional Financial Support for Low-Income Countries—Responding to the Pandemic (IMF, 2021a), approved in July 2021; and a number of other recent Board papers. Designed as a comprehensive reference tool for program work on LICs, the Handbook also refers, in summary form, to a range of relevant policies that apply more generally to IMF members. As with all guidance notes, the relevant IMF Executive Board decisions including the terms of the various LIC Trust Instruments that have been adopted by the Board, remain the primary legal authority on the matters covered in the Handbook.
The new Debt Sustainability Framework for Market Access Countries (MAC SRDSF) contemplates certain output that would be shared with the Board but that would need to be deleted from Country Documents before publication. A targeted modification to the Transparency Policy—proposed in this paper—is required for such deletions to be applied across market access Country Documents rather than on a case-by-case basis. The MAC SRDSF output to be deleted before publication consists on: (i) the near-term risk assessment; (ii) when debt is assessed to be sustainable, the qualification ”with high probability” or “but not with high probability”, unless such qualification is required for use of Fund resources; and (iii) the mechanical signal on debt sustainability.
This paper undertakes a comprehensive review of the Fund’s sovereign arrears policies. Staff assesses that the Fund’s Lending into Arrears to Private Creditors (LIA) policy (established in 1989 and last reviewed in 2002) remains broadly appropriate, while recommending some improvements given the experience gained over the last 20 years. Staff also sees merit in codifying the existing practice guiding the Fund in preemptive debt restructurings into a Fund policy, together with an amendment focusing on debt transparency. Given limited experience with the application of the LIOA policy (established in 2015), staff does not propose any amendments but only one restatement confirming current practice. Given recent developments in the international creditor community, staff proposes refining the Fund’s arrears policies with respect to multilateral creditors. Finally, recent developments raise questions about the perimeter between official bilateral and private claims, with significant implications for the Fund’s arrears policies.
Against the background of a decade of declining per-capita income and high inflation, the Article IV consultation focused on policies to begin to tackle Argentina’s underlying impediments to sustained growth and low and stable inflation. Avoiding boom-bust dynamics suggests the need for greater emphasis on policies to promote net exports and mobilize domestic saving to finance much-needed investment. Reversing the high degree of financial dollarization, however, will take time and will require a durable commitment to tackle fiscal dominance and strengthen debt sustainability. Meanwhile, addressing budget rigidities is essential to improve Argentina’s resilience to shocks, while reorienting public spending towards investment and innovation is critical to support productivity and reduce intergenerational inequities. Sustained political and social consensus is necessary for policy predictability and to balance demands from financing Argentina’s large social welfare system while also encouraging private investment and formal employment.
