Sovereign Debt Management During Debt Distress Periods

Abstract

Sound public debt-management policies during sovereign debt distress periods are key to efficiently resolving a debt crisis and regaining market access. In addition to understanding the causes, processes, and outcomes of sovereign debt restructurings, this article analyzes the role of the debt manager along with determinants and strategies to maintain/regain market access. The sovereign’s debt sustainability analysis and determination of loss of market access are two crucial elements in the IMF’s lending decisions to countries in debt distress. Various indicators used in assessing whether the sovereign can tap international capital on a sustained basis are discussed. When a sovereign debt restructuring needs to be undertaken, it is necessary to determine the financial terms of the debt operation. Some key principles in designing sovereign debt restructuring scenarios and ways in securing full-financing of the economic program and regaining market access are presented. We conclude by offering a few best practices on preventing and managing sovereign debt restructurings.