## wpiea2025202-source-pdf - References ## Source details **Canonical URL:** [wpiea2025202-source-pdf - References](https://www.imf.org/-/media/files/publications/wp/2025/english/wpiea2025202-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2025/english/wpiea2025202-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2025/english/wpiea2025202-source-pdf.pdf.json) --- ### Key findings and contributions - Evaluates intertemporal costs and benefits of DDRs from macroeconomic and financial stability perspectives. - Documents how countries carried out DDRs, balancing immediate debt relief benefits against associated risks. - Assesses contribution of DDRs to economic stabilization and restoration of domestic and external balance over time. - Frames DDRs as a sovereign choice among difficult adjustment options and focuses on mitigating costs and macro-financial risks in DDR design. ### Background: recent trends and risks - Domestic government debt has been rising in emerging market and developing economies (EMDEs). - Drivers and context: - Deepening of domestic government debt markets in most EMs after late-1990s and early-2000s currency-mismatch episodes. - In LICs, domestic financing historically served cash management functions and increased when external financing dried up in the mid-2000s. - Rapid domestic debt accumulation during COVID-19. - Post-pandemic Eurobond maturities and elevated global interest rates and spreads contributed to further increases in domestic debt. - Benefits and risks: - Benefits: local-currency financing reduces exchange rate risk; government bonds can serve as collateral and benchmark yields in well-functioning markets. - Risks: safe-asset status depends on creditworthiness; shallow markets and narrow investor bases increase refinancing risk and sovereign-bank linkages. ### Restructuring incidence and recent cases - Countries concluding or undergoing restructurings include Argentina, Chad, Ecuador, Ethiopia, Ghana, Malawi, Sri Lanka, Suriname, and Zambia. - Argentina (2019-20), Ghana (2022-23), Sri Lanka (2022-23): both DDR and EDR. - Chad, Ecuador, Ethiopia, Malawi, Zambia: only EDR. - Suriname: cleared arrears on domestic debt following a disorderly default (no DDR). - Historical Caribbean examples: Barbados (2018), Grenada (2013-15), St. Kitts and Nevis (2011-12) restructured both domestic and external debt; Jamaica (2010 and 2013) restructured only domestic debt. - Since 1999, roughly half of all sovereign debt restructurings have involved DDRs. ### Methodology and case selection - Systematic comparison of DDR cases in developing countries to examine design, execution, and impact. - Cases analyzed (years preserved): - Argentina (2019-20) - Barbados (2018) - Ghana (2022-23) - Grenada (2013-15) - Jamaica (2010 and 2013) - Sri Lanka (2022-23) - St. Kitts and Nevis (2011-12) - Scope exclusions: - Recent distressed-exchange cases not studied: Argentina (2022-24), El Salvador (2024), Republic of Congo (2024). - Eurozone restructurings following the global financial crisis excluded. ### II. Pre-DDR: Early signs and risks - Macroeconomic deterioration and financing stress common across cases: - Interest payments as a share of revenues: - Sri Lanka (2021): nearly 70 percent of revenues. - Jamaica (2009): 63 percent of revenues. - Ghana (2021-22): 47 percent of revenues. - Real output growth: all cases except Ghana experienced negative real output growth pre-DDR. - Central bank reserve depletion examples: - Barbados’s reserves fell to one month of imports. - Sri Lanka’s reserves fell to less than one month of imports. - Domestic debt increases in three years prior to DDR: - Ghana and Sri Lanka: over 15 percent of GDP. - Barbados and Jamaica: over 25 percent of GDP. - Domestic debt vulnerabilities manifested as: - Failed auctions and undersubscriptions: half of Ghana’s auctions undersubscribed since 2019. - T-bill reliance and shortened maturities: - Ghana’s share of short-term debt rose by 6 percentage points (2021-22); GFN close to 35 percent of GDP on the eve of DDR. - Barbados: commercial bank holdings of T-bills increased from 6 percent to 18 percent of GDP between FY2006/07 and FY2017/18; GFN reached 51 percent of GDP. - Ghana and Sri Lanka: T-bill issuance accounted for majority of annual gross borrowing and 20-30 percent of total domestic debt in 2022-2023. - Argentina: GFN projected to reach 22 percent of GDP in 2020. - Central bank lending and monetary financing: - Central Bank of Argentina held over 40 percent of domestic government debt (23 percent of GDP) and provided 7.4 percent of GDP in monetary financing to the government in 2020. - Central Bank of Barbados’s claims on the central government exceeded 20 percent of GDP pre-restructuring. - Bank of Ghana extended 7.2 percent of GDP in overdraft facilities to the government. - Grenada drew 6 percent of GDP in overdraft facilities from the Eastern Caribbean Central Bank. - Nonresident holdings decline examples: - Ghana: nonresident holdings fell from 19 percent ($4.7 billion) at end-2021 to 8.6 percent ($1.6 billion) at end-2022. - Sri Lanka: nonresident holdings dropped from 4 percent ($2 billion) to practically zero. ### C. Main risk considerations for deciding on a DDR - IMF DSA methodologies consider initial conditions and forward-looking macro framework (growth, financing availability, fiscal adjustment, external balance). - DDR sometimes implemented before IMF/World Bank formal unsustainability assessments due to immediate financing constraints and market access considerations. - Alternatives to DDR involve liability management, monetary financing, deeper EDR haircuts, or intensified financial repression—each with material costs. ### Designing DDRs and mitigating measures - Objectives of DDR: - Reduce short- and medium-term borrowing needs. - Restore debt sustainability and contribute to macroeconomic stabilization. - Target stock adjustments (lower debt ratio) and flow adjustments (reduce rollover risks and GFN). - Key design steps: - Identify investors, instruments, and holders. - Choose DDR perimeter; examples of perimeters: - Comprehensive restructurings: Argentina, Barbados, Jamaica. - Partial/iterative approaches: Ghana, Sri Lanka. - Coverage observations: average higher coverage for domestic debt (70 percent) than external debt (50 percent). - Mitigating measures: - Bank-by-bank stress testing and sensitivity analyses (Barbados, Ghana, Jamaica, Sri Lanka, St. Kitts and Nevis). - Liquidity support and ELA frameworks (Bank of Ghana, Eastern Caribbean Central Bank, Central Bank of Sri Lanka, Central Bank of Barbados). - Recapitalization plans: public resources for systemically important banks; Ghana required recap plans and banned dividends. - Resolution framework updates: Grenada (Banking Resolution Act 2015), Sri Lanka (Banking (Special Provisions) Act, No. 17 of 2023). - Crisis-management committees: Ghana (2017–2019), Sri Lanka (Financial Sector Crisis Management Committee in 2023). ### DDR perimeter and creditor treatment - T-bills inclusion often unavoidable when they trigger rollover crises (Argentina 2019; Barbados 2018). - Exclusions to preserve financing: Ghana and Jamaica (2013) excluded T-bills from DDR perimeter. - Loss-absorption considerations by creditor type: - Banks: concentrated holders, high financial-stability risk. - Pension funds: longer horizons, often absorb maturity extensions. - Central banks: can advance future dividends but risk negative equity and credibility loss. - Nonresidents: volatile and tend to liquidate pre-DDR; repatriation increases FX demand. - Measurement of losses: Total NPV loss expressed as percent of original face value, calculated with discount rates set by local accounting standards. ### Central bank impacts and reforms - Central bank losses and post-DDR equity: - Table 8 central bank capital (percent of GDP): - Argentina: Pre-DDR 2018 0; Post-DDR 2021 -5 ~ -7 - Barbados: Pre-DDR 2017 0.8; Post-DDR 2019 -13.8 - Ghana: Pre-DDR 2021 1.8; Post-DDR 2024 -8.8 - Sri Lanka: Pre-DDR 2021 1.2; Post-DDR 2024 1.0 - Jamaica: Pre-DDR 2010 1.9; Post-DDR 2014 0.9 - Central Bank of Barbados faced a 76 percent NPV loss; recapitalization plan used profit retention and gradual predetermined payment plan after approximately seven years. - Bank of Ghana’s negative equity dipped to -6 percent of GDP; aggressive monetary tightening by 1,550 bps followed. - Credibility-enhancing reforms: prohibition of monetary financing, strengthened governance, new Central Bank Acts (Barbados, Sri Lanka), and legislative amendments (Ghana submitted amendments in June 2025 pending enactment). ### Modalities, incentives, and execution - Modalities range from voluntary exchanges (NPV neutral) to voluntary exchanges (NPV negative), retrofit CACs, and decree/legislative approaches. - Argentina: emergency law authorized restructuring; voluntary exchange implemented; participation over 99 percent. - Barbados: retrofitted CACs activated. - Incentives to encourage participation: - Sticks: withholding and income tax on source bond (Sri Lanka); risk weights and delisting (Ghana). - Carrots: central bank credit at favorable rates, regulatory forbearance, capital buffer releases, extended recovery timelines. - Ghana allowed banks to spread recognition of losses over three years in capital adequacy ratios. - Participation rates: most cases over 90 percent, many close to 99 percent. - Duration (months) from announcement to completion: - Grenada: 30 months. - Barbados: a couple of months. - Jamaica: a couple of months. - Sri Lanka: almost 20 months. - Argentina: nine months. - Monitoring and oversight examples: - Jamaica: Economic Programme Oversight Committee (EPOC) with private sector, public sector, civil society membership. - Barbados: Barbados Economic Recovery and Transformation Plan Monitoring Committee (BERT MC). ### Complementary policies and macroeconomic outcomes - DDRs were part of broader burden-sharing frameworks including EDRs, fiscal and monetary adjustments, IMF financing, and structural reforms. - Exchange-rate regime effects: - Fixed exchange rate countries (Barbados, Grenada, St. Kitts and Nevis) undertook larger fiscal adjustment: 7.6 percent of GDP over four years versus 3.6 percent of GDP for flexible exchange rate countries. - Monetary policy and inflation examples: - Ghana: inflation surged to 39 percent in 2023 (reaching 55 percent by year-end); policy rate rose from 14.5 percent in 2021 to 30 percent by DDR announcement in 2023; real interest rates hovered around 10 percent through mid-2025. - Sri Lanka: inflation jumped to 46 percent in 2022 from 6 percent the previous year; policy rate hiked by nearly 1,000 bps to 15 percent in 2022, then gradually lowered to 10 percent as inflation turned to deflation (reaching -4 percent) starting in September 2024. - Debt and GFN outcomes: - Barbados lowered GFN by 35 percentage points of GDP through a haircut and new instruments. - Grenada reduced GFN by 15 percentage points. - Jamaica saved interest costs equivalent to 2.5 percent of GDP from 2010 to 2013. - Preliminary 2024 data: Sri Lanka saw a six-percentage point decline in GFN from 2023 to 2024 but remained five percentage points higher than original IMF program projections for 2024. ### Assessment: macroeconomic outturns and debt dynamics - Ratings typically fall to selective default (SD) at DDR onset and are gradually upgraded thereafter (examples: Argentina, Barbados, Ghana, Jamaica, Sri Lanka). - Four-year-ahead projection vs actual/latest projection (selected entries from Table 12; percent of GDP contributions preserved exactly): - Argentina (2020 projection; 2024 actual/latest): projection pb -1.1, r 1.7, g 2, r-g -0.3, pb-(r-g) -0.8; actual/latest pb 1.8, r -30.8, g 2.7, r-g -28.1, pb-(r-g) 29.9. - Barbados (2018 projection; 2022 actual/latest): projection pb 6, r 1.2, g 1.9, r-g -0.7, pb-(r-g) 6.7; actual/latest pb 2.5, r -2.8, g 9.8, r-g -12.6, pb-(r-g) 15.1. - Ghana (2023 projection; 2027 actual/latest): projection pb 1, r 2.9, g 4.2, r-g -1.3, pb-(r-g) 2.3; actual/latest pb 0, r 1, g 2.9, r-g -1.9, pb-(r-g) 1.9. - Sri Lanka (2023 projection; 2027 actual/latest): projection pb 2.3, r 1.8, g 3.2, r-g -1.4, pb-(r-g) 3.7; actual/latest pb 2.3, r 2.5, g 3.2, r-g -0.7, pb-(r-g) 3.0. - St. Kitts and Nevis (2011 projection; 2015 actual/latest): projection pb 6.5, r 7.6, g 5.7, r-g 1.9, pb-(r-g) 4.6; actual/latest pb 16, r 3.9, g 6.2, r-g -2.3, pb-(r-g) 18.3. - Burden sharing and contributions over three years (selected figures from Table 13; values preserved exactly): - Barbados: Treated Domestic Debt 130 (Percent of GDP), NPV Haircut 43 (Percent), Contribution from DDR 55.9 (Percent of GDP), Contribution from Cumulative Fiscal Consolidation -2.7 (Percent of GDP), Primary Balance in Base Year -4.2 (Percent of GDP). - Ghana: Treated Domestic Debt 28, NPV Haircut 32, Contribution from DDR 9.0, Contribution from Cumulative Fiscal Consolidation 5.1, Primary Balance in Base Year 4.2. - Grenada: Treated Domestic Debt 22, NPV Haircut 50., Contribution from DDR 11.1, Contribution from Cumulative Fiscal Consolidation 7.8, Primary Balance in Base Year 9.5. - Jamaica (2010): Treated Domestic Debt 65, NPV Haircut 26, Contribution from DDR 16.7, Contribution from Cumulative Fiscal Consolidation 2.1, Primary Balance in Base Year 1.4. - Sri Lanka: Treated Domestic Debt 29, NPV Haircut 12, Contribution from DDR 3.5, Contribution from Cumulative Fiscal Consolidation 6.1, Primary Balance in Base Year 5.1. - St. Kitts and Nevis: Treated Domestic Debt 64, NPV Haircut 65, Contribution from DDR 41.6, Contribution from Cumulative Fiscal Consolidation 5.4, Primary Balance in Base Year 2.8. ### Financial stability outcomes and banking-sector effects - Overall: financial stability preserved in the cases examined; no deposit runs observed. - Banking indicators (selected exact figures from Table 15): - Argentina: Pre-DDR 2019 — CAR 17.5, NPL 5.7, RoA 5.4; Post-DDR 2021 — CAR 25.7, NPL 4.3, RoA 1.1. - Barbados: Pre-DDR 2017 — CAR 19.1, NPL 5.9, RoA 1.7; Post-DDR 2019 — CAR 14.0, NPL 6.1, RoA 1.8. - Ghana: Pre-DDR 2022 — CAR 16.6, NPL 14.8, RoA 3.2; Post-DDR 2024 — CAR 14.0, NPL 21.8, RoA 5.0. - Grenada: Pre-DDR 2012 — CAR 12.6, NPL 10.0, RoA 1.5; Post-DDR 2016 — CAR 14.2, NPL 6.7, RoA 1.5. - Jamaica: Pre-DDR 2012 — CAR 14.1, NPL 6.8, RoA 0.4; Post-DDR 2014 — CAR 16.0, NPL 4.9, RoA 0.6. - Sri Lanka: Pre-DDR 2022 — CAR 16.2, NPL 11.3, RoA 0.8; Post-DDR 2024 — CAR 20.3, NPL 12.3, RoA 1.6. - Banking-sector stabilization mechanisms: - Financial Sector Stabilization Funds and recapitalization mechanisms used in some cases (Jamaica, St. Kitts and Nevis); Ghana used the Ghana Financial Stability Fund to recapitalize state-owned and indigenous institutions. - Stress testing, liquidity facilities, and time-bound recapitalization strategies were common preparatory measures. ### Market functioning, T-bills, and long-term effects - T-bill issuance costs surged post-DDR due to high policy rates and sovereign risk premia. - T-bond markets largely remained closed during and shortly after DDRs in many cases. - Jamaica (2010): bond market access restored within three months. - Jamaica (2013): about three years to restore confidence and resume bond issuance. - Barbados: resumed bond issuance four and a half years post-DDR. - Grenada: about three years to issue a two-year T-bond. - As of 3Q2025, Ghana had not resumed bond auctions due to the “Limitation of Future Issuance Clause.” - Long-term risks include prolonged financial repression, frozen interbank markets, illiquid secondary markets, and slow unwinding of the sovereign-bank nexus. ### Risk mitigation and best practices (policy implications) - Preparatory and mitigation steps when contemplating DDR: - Conduct stress tests for different DDR scenarios. - Establish emergency liquidity facilities, deposit insurance, crisis management committees, early intervention and resolution frameworks, and contingency plans for bank capital. - Ensure independence of auditors and regulators conducting stress tests. - Incorporate potential recapitalization costs (explicit note: up to 5 percent of GDP cited as potential recapitalization cost in Suriname context) into macroeconomic plans. - Recommended design principles: - Prefer comprehensive, deep, and swift DDRs over selective, shallow, and lengthy ones to limit prolonged uncertainty and market dysfunction. - Sequence DDR ahead of EDR when both are required to preserve government policy space and reduce disorderly default risk. - Implement credible recapitalization strategies and liquidity backstops to preserve confidence. - Communicate clear objectives, processes, and timelines to build public support and reduce market uncertainty. - Consider a multi-year domestic borrowing break to reinforce DDR gains and allow monetary policy to tame inflation without fiscal consequences of higher borrowing costs. - Role of the IMF: - Provide macroeconomic anchoring via IMF-supported programs. - Conduct DSA and set restructuring targets when debt is unsustainable. - Assess and monitor financial stability risks and advise on mitigation strategies. - Share international experience and act as neutral referee to facilitate creditor participation. ### Case note: Suriname (2021–24) - Approach: arrears clearance rather than DDR. - Program milestones and amounts: - Completed IMF Extended Fund Facility program in March 2025 alongside a comprehensive debt restructuring totaling about $1.5 billion (26 percent of 2024 GDP). - Initial conditions: - Parallel exchange rate depreciated by over 130 percent. - Inflation surged to 61 percent due to continued monetary financing. - Public debt rose to nearly 150 percent of GDP; GFN reached 18 percent of GDP. - Banking sector and recapitalization risk: - Domestic debt accounted for one-third of total government debt. - Potential recapitalization costs up to 5 percent of GDP. - Outcomes (2020–end-2024): - Domestic debt-to-GDP fell by 25 percentage points to nearly 10 percent of GDP. - GFN fell by 10 percentage points to 7.5 percent of GDP. - NPLs fell by half; spreads fell to a historic low; market confidence recovering. - Policy steps: clearing delayed T-bills and notes arrears (about 2.5 percent of GDP), restructuring legacy central bank debt into a 27-year loan with a two-year grace period, and strengthening domestic debt recording and reporting systems. ### Key statistics (selected, preserved exactly) - Average DDR coverage patterns: domestic debt coverage 70 percent of total domestic debt; external debt coverage 50 percent of total external debt. - Table 6 (Total, Domestic, External Debt prior to restructuring and Treated debt; percent of GDP and ratios): - Argentina 2019: Total 89, Treated 59, Ratio 0.7; Domestic 51, Treated 40, Ratio 0.8; External 40, Treated 19, Ratio 0.5 - Barbados 2018: Total 158, Treated 147, Ratio 0.9; Domestic 130.8, Treated 130, Ratio 1.0; External 28, Treated 17, Ratio 0.6 - Ghana 2022: Total 90, Treated 55, Ratio 0.5; Domestic 48, Treated 28, Ratio 0.6; External 42, Treated 27, Ratio 0.6 - Grenada 2013: Total 110, Treated 65, Ratio 0.6; Domestic 37, Treated 22, Ratio 0.6; External 73, Treated 42, Ratio 0.5 - Jamaica 2010: Total 128, Treated 65, Ratio 0.5; Domestic 66, Treated 65, Ratio 1.0; External 62, Treated 0, Ratio 0.0 - Jamaica 2013: Total 147, Treated 64, Ratio 0.4; Domestic 79, Treated 64, Ratio 0.8; External 68, Treated 0, Ratio 0.0 - Sri Lanka 2022: Total 126, Treated 72, Ratio 0.6; Domestic 65, Treated 29, Ratio 0.5; External 64, Treated 43, Ratio 0.7 - St. Kitts & Nevis 2010: Total 164, Treated 96, Ratio 0.5; Domestic 114, Treated 64, Ratio 0.6; External 50, Treated 27, Ratio 0.5 - Simple average: Total 121, Treated 71, Ratio 0.6; Domestic 69, Treated 51, Ratio 0.7; External 52, Treated 20, Ratio 0.4 - Central bank capital (Table 8; percent of GDP): - Argentina: Pre-DDR 2018 0; Post-DDR 2021 -5 ~ -7 - Barbados: Pre-DDR 2017 0.8; Post-DDR 2019 -13.8 - Ghana: Pre-DDR 2021 1.8; Post-DDR 2024 -8.8 - Sri Lanka: Pre-DDR 2021 1.2; Post-DDR 2024 1.0 - Jamaica: Pre-DDR 2010 1.9; Post-DDR 2014 0.9 - Bank of Ghana monetary tightening: 1,550 bps. - Central Bank of Barbados NPV loss: 76 percent. - GFN and debt projections cited: - Sri Lanka 2021 staff report projected public debt 118.9 percent and GFN 30.1 percent of GDP in 2021; public debt projected to rise to 125.3 percent of GDP by 2026. - Without restructuring, public debt-to-GDP would have exceeded 120 percent in Barbados and 134 percent in Grenada (IMF 2014, 2018a). - Ghana 2023 program projections without restructuring: public debt 90 percent of GDP and GFN 30 percent of GDP in 2025. - Inflation and policy rate examples: - Ghana: inflation 39 percent in 2023 (55 percent by year-end); policy rate increased from 14.5 percent in 2021 to 30 percent by DDR announcement in 2023. - Sri Lanka: inflation 46 percent in 2022; policy rate hiked by nearly 1,000 bps to 15 percent in 2022; policy rate lowered to 10 percent as inflation turned to deflation (reaching -4 percent) starting in September 2024. - Suriname restructuring total: about $1.5 billion (26 percent of 2024 GDP); domestic debt-to-GDP fell by 25 percentage points to nearly 10 percent of GDP between 2020 and end-2024; GFN fell by 10 percentage points to 7.5 percent of GDP. *International Monetary Fund — Restructuring Sovereign Domestic Debt in Developing Countries: New Cases and Lessons (source document inventory and references).* ### References ............................................................................................................. ### wpiea2025202-source-pdf - References ### Key figures and tables (inventory from source) - Figures: 1 through 18 (including Figure 78 misnumbering) covering topics such as: - General Government Debt in Emerging Market (Ex. China) - Emerging Market Bond Index (EMBI) Sovereign Spreads - Sovereign Debt Restructuring and Selective Sovereign Defaults - Macroeconomic Conditions; Sovereign Spread and Change in Domestic Debt - Bank Deposits and T-bill Rates; Public Debt and GFN; DDR Execution; Duration of DDR - Nominal Effective Exchange Rates; Primary Fiscal Balance; Fiscal Financing Composition - Banking Sector Size; T-Bill Spreads over Policy Rate; Share of Short-Term Debt - Tables: 1 through 17 and Annex tables, covering: - Key Dates for DDR and EDR; IMF-Supported Program timing - Key Triggers for DDR; Composition of Domestic Debt Investor Base and Instruments - Domestic and External Debt prior to restructuring and treated debt; Perimeter and Treatment by investor type - Central Bank Capital before and after DDR; Pros and Cons of Loss Allocation by Creditor Types - Macroeconomic Outcomes (3-year change post DDR); Standard and Poor’s Local Currency Ratings - Contribution of Primary Balance, Real Interest Rate, and Real Growth Rate to Debt Reduction - Burden Sharing of DDR and Cumulative Fiscal Consolidation over Three Years - Financial sector health metrics and DDR impact on domestic bond market access - Annexes: - Annex 1. Table of Summary - Annex 2. The Treatment of Suriname’s Domestic Debt (2021-24) - Annex 3. Domestic Debt Treatments in Ghana and Zambia: Divergent Paths ### Glossary (selected entries preserved verbatim) - AQR asset quality review - BERT MC Barbados Economic Recovery and Transformation Plan Monitoring Committee - CAC collective action clause - CoT comparability of treatment - DDR domestic debt restructuring - EPOC Economic Program Oversight Committee - EDR external debt restructuring - ELA Emergency Liquidity Assistance - EM emerging market - EMDEs emerging market and developing economies - FX foreign exchange - FY fiscal year - GDP gross domestic product - GFN gross financing needs - IFRS International Financial Reporting Standards - LC local currency - LIC low-income country - LIC DSF Low-Income Country Debt Sustainability Framework - LL local law instrument - MAC DSA Debt Sustainability Framework for Market Access Countries - NOP net open position - NPL nonperforming Loan - NPV net present value - PV present value - SD selective default - S&P Standard & Poor’s - SOE state-owned enterprise - SRDSF Sovereign Risk and Debt Sustainability Framework - T-billTreasury bill - T-bondTreasury bond - US$ U.S. dollars ### Background: recent trends and risks (preserved findings) - Domestic government debt has been rising in emerging market and developing economies (EMDEs) in recent years. - Drivers and context: - In most emerging markets (EMs): deliberate policies to deepen domestic government debt markets after sovereign balance sheet currency mismatches in the late 1990s and early 2000s. - In low-income countries (LICs): domestic financing historically served cash management functions; domestic debt increased when external financing dried up in the run-up to the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative in the mid-2000s. - Rapid domestic debt accumulation in both EMs and LICs as governments supported their economies during the COVID-19 pandemic. - Post-pandemic coincided with major Eurobond maturities and elevated global interest rates and spreads for EMDEs, leaving some vulnerable economies with high government debt levels and reduced international market access, contributing to further increases in domestic debt. - Benefits and risks of domestic government debt: - Benefits: domestic financing in local currency reduces exchange rate risk; in well-functioning markets, government bonds serve as collateral, a benchmark yield curve, and support monetary policy transmission. - Risks: safe-asset status depends on government creditworthiness; rapid accumulation amid high debt and deficits increases riskiness. In shallow financial systems, heavy reliance on T-bill issuance elevates refinancing risk; a narrow investor base—often dominated by commercial banks—deepens sovereign-bank linkages and crowds out private investment. - Restructuring incidence and recent cases: - Since 2019, several EMDEs have had to restructure government debt. - Countries that have concluded or are undergoing government debt restructurings include Argentina, Chad, Ecuador, Ethiopia, Ghana, Malawi, Sri Lanka, Suriname, and Zambia. - Argentina (2019-20), Ghana (2022-23), and Sri Lanka (2022-23) undertook both DDR and EDR. - Chad, Ecuador, Ethiopia, Malawi, and Zambia carried out only EDR. - Suriname chose not to undertake a DDR but cleared arrears on its domestic debt following a disorderly default. - Historical Caribbean examples: Barbados (2018), Grenada (2013-15), St. Kitts and Nevis (2011-12) restructured both domestic and external debt; Jamaica (2010 and 2013) restructured only domestic debt. - Since 1999, roughly half of all sovereign debt restructurings have involved DDRs, with persistent frequency in recent years. ### Literature review and contributions (preserved claims and citations as in source) - Recent studies emphasize increasing relevance and complexity of DDRs: - IMF (2021a) and Mitchener and Trebesch (2023): predict increasing relevance of domestic debt restructuring given growing volumes of domestic debt. - Erce, Mallucci, and Picarelli (2022): frequency and size of domestic defaults are increasing, mostly on bonds, with significant NPV losses to creditors predominantly through maturity extensions. - Lazard (2023, 2025): domestic debt restructuring no longer taboo when certain conditions met. - Two main dimensions in literature on DDR consequences: - Financial stability implications: - IMF (2021a): spillover risks from DDR can be mitigated. - Grigorian (2023): banking sector implications and need to weigh debt relief benefits against banking sector recapitalization costs. - Sovereign-bank nexus literature documents doom loop and consequences of sovereign default on banking sector (Dell’Ariccia et al. 2018; IMF 2022). - Barrail, Dehmej and Wezel (forthcoming): impact of DDR with high sovereign-bank nexus. - Gennaioli, Martin, and Rossi (2014): banks’ holdings of government bonds large—particularly where banks make fewer loans—and negative correlation between banks’ bondholding and lending after sovereign default. - Macroeconomic consequences: - Atsebi and Menkulasi (2025): adverse impacts contingent on design, sovereign-bank nexus, and financial development. - Clifford Chance (2023): DDR economic impact highly country specific. - Ando et al. (2025): including domestic creditors in restructurings, combined with fiscal consolidation, helped reduce debt ratios. - Literature on debt overhang and debt intolerance documents costs of inaction (Reinhart, Rogoff, and Savastano 2003; Reinhart and Rogoff 2013; Salmon 2021). - Fitch Ratings (2013): weighed inflation versus DDR as policy options. - Lazard (2023): cautioned about second- and third-round effects undermining DDR benefits. - Buchheit et al. (2019): dilemma of burden sharing between domestic and external creditors given collateral damage from domestic creditor losses. - Melville (2021) and Breuer, Dhungana, and Li (2025): distributional consequences of DDR in Barbados and Sri Lanka, respectively. - Paper’s contribution: - Evaluates intertemporal costs and benefits of DDRs from macroeconomic and financial stability perspectives. - Documents how countries have carried out DDRs, balancing immediate debt relief benefits against associated risks. - Assesses contribution of DDRs to economic stabilization and restoration of domestic and external balance over time. - Frames DDRs as a sovereign choice among difficult adjustment options and focuses on mitigating costs and macro-financial risks in DDR design. ### Methodology and case selection (preserved approach and cases) - Methodology: - Draws on recent cases of government debt restructuring to identify common and country-specific factors in DDR processes. - Builds on earlier country studies and cautions against over-simplification given complexity and heterogeneity of domestic debt defaults. - Systematically compares DDR cases in developing countries to examine design, execution, and impact—analyzing causes, scope, legal frameworks, and outcomes—to draw practical lessons for future restructurings. - Notes limitation: limited number of cases implies caution in generalizing conclusions; each DDR should be assessed case-by-case. - Cases analyzed (explicit list with years preserved): - Argentina (2019-20) - Barbados (2018) - Ghana (2022-23) - Grenada (2013-15) - Jamaica (2010 and 2013) - Sri Lanka (2022-23) - St. Kitts and Nevis (2011-12) - Scope exclusions (preserved): - Recent cases deemed distressed exchange by rating agencies—Argentina (2022-24), El Salvador (2024), and the Republic of Congo (2024)—were not studied. - Eurozone debt restructurings following the global financial crisis are not the subject of this study. *International Monetary Fund — Restructuring Sovereign Domestic Debt in Developing Countries: New Cases and Lessons (source document inventory and introduction content).* ### 8. The rest of the paper is organized as follows: Section II presents the initial macroeconomic ### II. Pre-DDR: Early Signs and Risks ### A. Deteriorating Macroeconomic Conditions and Outlook - Amid a fragile macroeconomic backdrop and tightening financial conditions, debt restructuring emerged as the only viable path to restoring debt sustainability and macroeconomic balance. - Concerns about DDR focused on negative impacts on financial stability, dysfunction in the government bond market, and economic growth. - Leading up to the DDRs, macroeconomic conditions were deteriorating in all countries in the sample. All country cases faced twin fiscal and external deficits financed by debt, increasing interest payment burdens. - Interest payments as a share of revenues in selected cases: - Sri Lanka (2021): nearly 70 percent of revenues. - Jamaica (2009): 63 percent of revenues. - Ghana (2021-22): 47 percent of revenues. - Real output growth: All cases, except Ghana, experienced negative real output growth. - Exchange rate-inflation spirals occurred in countries with flexible exchange rates: Argentina, Ghana, and Sri Lanka. - Central banks intervened to counter depreciation or devaluation pressures, depleting foreign currency reserves: - Barbados’s reserves fell to one month of imports. - Sri Lanka’s reserves fell to less than one month of imports (stated as “to less” in the source). - After loss of access to international capital markets, domestic debt became the primary source to cover government financing needs: - Argentina, Ghana, Jamaica (2010), and Sri Lanka last issued in the international capital market about 1.5-2 years before their defaults, while their spreads surged. - Domestic debt levels rose sharply with limited external funding—examples of increases in domestic debt within three years prior to DDR: - Ghana and Sri Lanka: over 15 percent of GDP. - Barbados and Jamaica: over 25 percent of GDP. - Timing of restructuring decisions relative to IMF/World Bank assessments: - In Grenada (2013), Argentina (2019), and Ghana (2022), the decision to restructure was made before the IMF (and the World Bank, in Ghana and Grenada) assessed the debt as unsustainable. - In Sri Lanka, the Article IV report had assessed debt as unsustainable before an IMF arrangement was requested. - In Barbados, Jamaica (2010 and 2013), and St. Kitts and Nevis, launch/completion/announcement of debt restructurings were prior actions required to access IMF financial arrangements. ### B. Rising Domestic Debt Vulnerabilities - Domestic debt vulnerabilities unfolded in stages and manifested in various ways; common patterns included failed auctions, nonmarket placements, shortened maturities, indexed instruments, a shift toward captive investors, rising domestic arrears, increased central bank lending, falling nonresident demand, an intensified sovereign-bank nexus, and increased financial repression. - Auction failures and central bank intervention: - Since 2019, half of Ghana’s auctions have been undersubscribed. - In Jamaica and Sri Lanka, central banks stepped in to purchase government securities when auctions failed; auctions were eventually suspended in Ghana and Sri Lanka. - Argentina experienced volatile auction subscriptions in 2018-19, and its final auction before the DDR was declared “deserted.” - Increased use of nonmarket-based placements: - Ghana resorted to tap issuances and private placements with half of auctions uncovered during 2019-22. - Grenada’s financing under Petrocaribe increased to 2.6 percent of GDP (2011-13); new bonds were primarily sold to the National Insurance Scheme and domestic insurance companies through private placements. - Shortened maturities and rising rollover risk: - T-bills became the primary market financing option in several cases. - Argentina issued only T-bills to domestic private investors; GFN was projected to reach 22 percent of GDP in 2020. - Ghana and Sri Lanka: T-bill issuance accounted for the majority of annual gross borrowing and 20-30 percent of total domestic debt in 2022-2023. - Ghana’s share of short-term debt rose by 6 percentage points (2021-22); gross financing needs (GFN) reached close to 35 percent of GDP on the eve of the DDR. - Barbados: between FY2006/07 and FY2017/18, commercial bank holdings of T-bills increased from 6 percent to 18 percent of GDP, and GFN reached 51 percent of GDP. - Shift toward indexed instruments and currency composition changes: - Argentina increased issuance of dollar-denominated, dollar-linked T-bills, and inflation-indexed securities. - Sri Lanka issued short-term dollar-denominated securities to commercial banks to manage FX deposit risk. - Jamaica saw investor demand for short-term floating-rate and dollar-denominated instruments. - Investor composition shifted toward local captive investors and central bank holdings: - By the time of the DDR in Ghana, about one-third of total domestic debt consisted of nonmarketable instruments, primarily held by the central bank. - Domestic expenditure arrears increased: - Barbados accumulated expenditure arrears exceeding 10 percent of GDP on the eve of the DDR. - St. Kitts and Nevis, Ghana, and Grenada accumulated arrears to domestic suppliers amounting to 8, 7.4, and 4 percent of GDP, respectively. - Central bank lending and monetary financing increased: - By end-2019, the Central Bank of Argentina held over 40 percent of domestic government debt (23 percent of GDP), mostly in nonmarketable instruments, and provided an additional 7.4 percent of GDP in monetary financing to the government in 2020. - Before restructuring, the Central Bank of Barbados’s claims on the central government stood at over 20 percent of GDP, mainly in T-bills. - Grenada drew 6 percent of GDP in overdraft facilities from the Eastern Caribbean Central Bank. - The Bank of Ghana extended 7.2 percent of GDP in overdraft facilities to the government. - Nonresident investor demand fell: - Ghana: nonresident holdings of domestic debt fell from 19 percent ($4.7 billion) at end-2021 to 8.6 percent ($1.6 billion) at end-2022. - Sri Lanka: nonresident holdings dropped from 4 percent of total domestic debt ($2 billion) to practically zero. - Argentina introduced capital controls restricting access to the official foreign exchange market for financial account transactions. - Intensified sovereign-bank nexus and regulatory drivers: - In Ghana and Sri Lanka, government securities reached over 30 percent of total banking sector assets. - Sri Lanka regulations required banks to invest in sovereign Eurobonds and local FX-denominated bonds. - In Barbados, regulatory changes led to increased bank holdings of government securities before the DDR. - In Jamaica, connections between securities dealers and financial conglomerates raised acute concerns. - Increased financial repression: - Ghana and Sri Lanka kept the policy interest rate below inflation for nearly a year prior to entering DDR; auctions were cut off at rates below the policy rate. - Banks continued investing in government securities despite negative real interest rates by maintaining positive net interest margins while deposit rates were kept even lower. - Sri Lankan state-owned banks were required to direct credit toward the government and SOEs, reducing credit available to the private sector. - Barbados’s central bank doubled banks’ statutory minimum requirement for government securities holdings to 20 percent. - Argentina implemented forced rollovers of public sector holdings of government securities and gave priority to noncompetitive allocations. - Banking sector concentration and regulatory context: - Under the standardized Basel approach, sovereign exposures are risk-weighted according to external ratings; national discretion can lower weights for domestic-currency-denominated and funded exposures. - No concentration limits apply to sovereign debt, and sovereign debt is exempt from large exposure requirements that limit exposures to 25 percent of eligible capital. ### C. Main Risk Considerations for Deciding on a DDR - The initial macroeconomic conditions and outlook critically determine prospects for debt sustainability and the need for restructuring. - The IMF’s debt sustainability analysis methodologies consider initial conditions and the forward-looking macroeconomic framework, including the growth outlook, financing availability, fiscal adjustment, and external balance. - Given domestic debt vulnerabilities and investor refusal to finance the government, DDR sometimes became necessary before debt was formally assessed as unsustainable by IMF/World Bank analyses. - In several cases, DDR actions were taken as prerequisites to access IMF financial support or were executed prior to official unsustainability determinations, underscoring the role of immediate financing constraints and market access considerations in the decision to restructure. *IMF Working Papers — Restructuring Sovereign Domestic Debt in Developing Countries: New Cases and Lessons* ### 13. Governments hesitated to undertake a DDR because of concerns about its potential cost. ### 13. Governments hesitated to undertake a DDR because of concerns about its potential cost. ### Financial stability risks - Deep DDR can inflict substantial financial losses on the banking sector when sovereign and banks are highly interconnected through large holdings of sovereign debt. - Banks often lack adequate provisions for sovereign risk because sovereign debt is assigned a zero risk weight under regulations and treated as high-quality liquid assets. - Sovereign default consequences: - Banks forced to recognize losses and classify them as nonperforming loans (NPLs), diminishing capital adequacy. - Deposit-holder confidence may fall, risking bank runs and potential social unrest if depositors cannot withdraw funds. - Public debt often held at cost in "held-to-maturity" accounts even when market values decline. - Significant capital depletion can lead to a credit crunch, undermining prospects for timely economic recovery. - Banks may take time to repair balance sheets if capital adequacy is not restored quickly, prolonging a credit squeeze. ### Domestic bond market disruption - DDR can reverse progress in developing local government bond markets by eroding investor confidence in government securities. - As governments lose access to international capital markets, the domestic market becomes the primary source of public financing; disruption would put public finances at risk and jeopardize government functioning. - DDR may raise the sovereign risk premium for a prolonged period, increasing borrowing costs and restricting local financing during and after DDR. ### Growth and spillover effects - DDR imposes losses on domestic stakeholders and, combined with fiscal consolidation, inevitably has a negative impact on economic growth. - Key channels and risks: - Withering banking sector could durably depress economic activity by limiting credit provision to private and public sectors. - Banks with market power may charge higher lending rates and increase interest margins to recover DDR losses, at the expense of borrowers and depositors. - Elevated interest rates transmit to private sector lending, constraining bank credit to businesses and households. - Resulting debt overhang undermines development of a robust government debt market as sovereign credit risk grows. - To meet rising interest obligations, governments may cut spending in critical areas such as health, education, and infrastructure—often procyclically—with significant distributive consequences. - Market suppression may occur through directed lending and nonmarket interest rates, weakening bank balance sheets. ### Alternatives to DDR and counterfactuals - Fundamental government assessment questions: - Can DDR be avoided without resorting to other forms of debt repudiation, and what are the alternatives? - Alternatives while markets remain open: - Liability management operations to reduce refinancing risk, though potentially costly and inconsistent with debt sustainability during debt distress. - Risks of exhausting policies to avoid DDR: - Monetary financing can trigger an inflation–exchange rate depreciation spiral, destabilizing the economy. - Debt deemed unsustainable, fiscal adjustment maximized to politically and socially feasible levels, and burden sharing extended to both external and domestic creditors. - When domestic creditors refuse to roll over holdings, DDR can become inevitable. - Baseline without restructuring (useful benchmark): - Alternative policy paths may entail more aggressive fiscal consolidation, deeper haircuts in EDR, prolonged reliance on monetary financing with elevated inflation, or intensified financial repression. - Consequences include delays in financial sector development, adverse distributional and welfare effects, unraveling of domestic government bond market functioning, demand for only short-term instruments or indexed debt with sizable risk premia. ### Case evidence and key statistics - IMF staff report projections and case statistics: - Without restructuring, public debt-to-GDP would have exceeded 120 percent in Barbados and 134 percent in Grenada (IMF 2014, 2018a). - In the 2021 staff report for Sri Lanka, public debt and GFN were projected to reach 118.9 percent and 30.1 percent of GDP, respectively, in 2021, with public debt rising to 125.3 percent of GDP by 2026. - In Ghana, at the time of the 2023 IMF-supported program request in 2023, even under a large and frontloaded fiscal adjustment scenario, public debt was projected to reach 90 percent of GDP and GFN 30 percent of GDP in 2025—well above the 14 percent GFN benchmark—without debt restructuring (IMF 2023b). - Triggers for DDR across cases (high-level summary of Table 3): - Argentina: Collapse of domestic auction, fiscal and external imbalances - Barbados: Rising domestic arrears, external imbalances, credit downgrades, political transition - Ghana: Collapse of domestic bond auctions, fiscal and external imbalances - Grenada: Hurricane Ivan, legacy weak growth, unsustainable debt - Jamaica: Spike in spreads, loss of investor confidence, ratings downgrade - Sri Lanka: Depletion of reserves, runaway inflation, market refusal to roll over debt - St. Kitts and Nevis: Post-crisis recession, high debt service burden - DDR coverage patterns: - On average, higher coverage for domestic debt (70 percent of total domestic debt) than for external debt (50 percent of total external debt). - Lower external coverage reflects exclusion of international financial institutions with preferred creditor status in most cases. ### Designing DDRs and mitigating measures - Key design questions when DDR unavoidable: - Can design features and mitigating measures minimize risks and reduce DDR costs? - A well-designed and executed DDR with mitigating measures can prevent a disorderly default and address concerns. - Objectives of a DDR: - Reduce short- and medium-term borrowing needs, restore debt sustainability, and contribute to macroeconomic stabilization. - Programs typically target both stock adjustments (to lower the debt ratio) and flow adjustments (to reduce rollover risks through GFN reduction). - Key steps in DDR design: - Identify investors, debt instruments outstanding, and their holders (commercial banks were dominant holders in most cases; pension and social security funds were dominant in Barbados; securities dealers in Jamaica). - Choose the DDR perimeter (which instruments and investors are included); perimeter varies by country circumstances and investor base. - Determine loss allocation by assessing capacity of creditor categories to absorb losses while accounting for political, legal, and social welfare considerations. - Mitigating measures to safeguard financial stability: - Preparatory work prior to executing DDR, including sensitivity analyses and/or stress tests by supervisory authorities to estimate potential capital needs and public sector support. - Identification of sources to provide liquidity support, possibly including emergency liquidity assistance. - Preparation of a gap analysis of crisis-management and bank recovery and resolution frameworks. - Sequencing DDR and EDR: - DDR implemented ahead of EDR in Barbados, Ghana, and Sri Lanka (pre-emptive restructurings), and in Jamaica. - Argentina and Grenada pursued both simultaneously, as domestic debt was already in default. - Early and decisive DDR can reduce market uncertainty, stabilize macro conditions, and strengthen government position in EDR negotiations. - Delaying DDR increases refinancing risks due to short maturities, driving up borrowing costs and potentially triggering disorderly default with surge in NPLs, bank runs, and credit freeze. - Perimeter and coverage observations: - Some governments determined perimeter upfront (Argentina, Barbados, Grenada, and St. Kitts and Nevis); others used an iterative approach (Ghana, Sri Lanka). - Argentina, Barbados, and Jamaica executed the most comprehensive domestic debt restructurings; Ghana, Grenada, and Sri Lanka restructured between 50 and 60 percent of total domestic debt. *IMF Working Papers — Restructuring Sovereign Domestic Debt in Developing Countries: New Cases and Lessons* ### 29. The structure of domestic debt played a key role in defining the DDR perimeter. In countries ### 29. The structure of domestic debt played a key role in defining the DDR perimeter. In countries ### DDR perimeter and domestic debt structure - T-bills: When T-bills accounted for a high share of total domestic debt, their inclusion in the DDR perimeter was unavoidable because they triggered rollover crises (Argentina in 2019; Barbados in 2018). - Regional issuance exceptions: Grenada and St. Kitts and Nevis included only privately placed T-bills, excluding those issued in the Regional Government Securities Market to avoid regional spillovers. - Exclusions to preserve financing: Ghana and Jamaica (2013) excluded T-bills from the DDR perimeter to preserve budget financing sources during the crisis. - Partial exclusions: Sri Lanka excluded local-currency T-bills and T-bonds held by commercial banks, which resulted in less than a quarter of commercial bank holdings of domestic debt being restructured. - Local-law FX or FX-linked instruments: Local-law, foreign currency-denominated, or foreign currency-linked debt was included in several cases due to pressure on FX reserves (Argentina, Ghana, Grenada, Jamaica, and Sri Lanka). ### Loss absorption capacity and creditor categories (general considerations) - Key investor characteristics to assess: time horizons, financial strength, availability of financial backstops, and residency. - Safeguards: Preserving the banking sector was a priority to contain financial stability risks and support economic recovery. - Institutional investors: Pension funds and insurance companies typically have longer time horizons than banks and greater capacity to absorb maturity extensions; central banks can be part of recapitalization strategies but with implications for independence and credibility. - Measurement of losses: Total NPV loss, expressed as percent of original face value and calculated based on discount rates set by local accounting standards, varied significantly across cases. Table 7 in the source illustrates how DDRs apportioned losses to each creditor group. ### Banking sector: design, assessments, and risk-mitigation - Bank cooperation rationale: Banks cooperated recognizing that government default would significantly damage bank balance sheets, especially where the bank-sovereign nexus had tightened. - Heterogeneity: Banks in Barbados and Ghana were mostly well capitalized and profitable; state-owned banks in Ghana and Sri Lanka faced greater challenges due to smaller pre-DDR buffers and larger sovereign exposures; many Caribbean banks were foreign-owned subsidiaries with parental support. - Recapitalization design aim: DDRs were designed to preserve banks’ capital adequacy ratios above the minimum requirement, avoiding onerous recapitalization plans or public fund injections, though weaker banks sometimes faced severe impact and regulatory forbearance was used. - FX risk management: Assess banks’ net open positions (NOPs). Examples: local-law FX liabilities restructured via coupon reductions and maturity extensions (Argentina, Grenada) or partial conversion to local-currency debt (Sri Lanka). In Sri Lanka, converting FX debt to local currency led to a large increase in FX NOPs, forcing banks to purchase FX, causing FX market volatility and central bank intervention that undermined reserve targets. - Risk-mitigation measures implemented: - Bank-by-bank stress testing and sensitivity analyses in Barbados, Ghana, Jamaica, Sri Lanka, and St. Kitts and Nevis; St. Kitts and Nevis had quarterly stress testing by the Eastern Caribbean Central Bank. - Liquidity support: Bank of Ghana prepared ELA (established in 2021); Ghana Financial Stability Fund established in 2023. Eastern Caribbean Central Bank set discount windows, repo facilities, and an ELA framework via the Banking Sector Reserve Fund. Central Bank of Sri Lanka expanded eligible collateral for ELA. Central Bank of Barbados developed an ELA framework. Bank of Jamaica established a Financial Sector Support Fund in 2010 and 2013 with resources from multilateral lenders. - Recapitalization plans: Fiscal resources may be needed for systemically important or state-owned banks. Sri Lanka planned public capital injections; Bank of Ghana required banks to submit recap plans and banned dividend distribution. - Asset Quality Review (AQR): Generally not required for DDR impact assessment, but Sri Lanka introduced a structural benchmark to conduct a comprehensive AQR. - Resolution frameworks: Legal toolkits introduced or amended—Grenada revised the Banking Resolution Act in 2015; Sri Lanka issued the Banking (Special Provisions) Act, No. 17 of 2023; Ghana’s Banks and Specialized Deposit-Taking Institutions Bill in place since 2016. - Crisis management committees: Intra-agency coordination committees formed (examples: Ghana during 2017–2019; Sri Lanka’s Financial Sector Crisis Management Committee in 2023). ### Pension funds: impact by plan type and country approaches - General point: Impact depends on fund characteristics and financial health; defined benefit plans face different challenges than defined contribution plans. - Treatment tendencies: DDRs with pension funds generally involved maturity extension with minimal face value and/or coupon reductions to reflect long-term liabilities. - Defined benefit plans: - Examples: National Insurance Scheme holdings—Barbados: 70 percent of assets in government securities; Grenada: 30 percent. - Consequences: An NPV haircut of 40 percent for Barbados and 59 percent for Grenada depleted reserves 10 years earlier for Barbados and five years for Grenada. - Defined contribution plans: - Example Sri Lanka: Employees’ Provident Fund (central bank managed) saw maturities of T-bonds extended and new coupons set near historical average; local accounting authority ruled no accounting loss and new instruments recorded at par; post-DDR pension fund outflows were negligible. - Ghana: Pension assets more dispersed; negotiations involved three rounds of public offerings, resulting in higher coupons than banks in exchange for longer maturity extensions. ### Central banks: balance sheet impacts, credibility, and reforms - Trade-offs for central bank involvement: Apportioning losses from DDR to central bank holdings brings forward future dividends to alleviate government borrowing needs but can undermine central bank independence and credibility if negative equity emerges. - Risks of negative equity: Can erode confidence in local currency, prompt monetization of liabilities, fuel inflation, and weaken willingness to tighten policy if operational costs dominate inflation control incentives. - Recovery options: Moderate losses can be rebuilt through retained earnings; severe losses require future government recapitalization and fiscal cost should be included in projections. Stress testing of central bank balance sheets is recommended. - Credibility-enhancing reforms: Prohibitions on monetary financing and strengthened governance are essential to prevent renewed fiscal dominance. - Central bank impacts observed: - Large losses inflicted on central banks in Argentina, Barbados, Ghana, and Sri Lanka due to large government debt holdings. - Bank of Ghana: negative equity dipped to -6 percent of GDP due to DDR losses, aggressive monetary tightening (by 1,550 bps), and sterilization; options under evaluation include recapitalization via budgetary or asset transfers, suspension of profit transfers, and/or use of buffers. - Central Bank of Barbados: faced negative equity of 14 percent of GDP resulting from a 76 percent NPV loss; recapitalization plan involved profit retention initially, then a gradual predetermined payment plan after approximately seven years. - Sri Lanka: central bank losses more limited, prospects for recovery through future operational income, though valuation of restructured instruments uncertain. - Treatment caveat: Restructuring government debt held by central banks may not reduce consolidated public sector debt. Central bank losses are transfers within the public sector and should not create long-lasting distortions. - Legal and policy reforms enacted: - Barbados and Sri Lanka enacted a new Central Bank Act with provisions limiting central bank credit to the government. - Ghana: monetary financing prohibited under IMF-supported program; in June 2025 authorities submitted amendments to the Bank of Ghana Act to Parliament to de jure safeguard against monetary financing (pending enactment). - Sri Lanka: gradual reduction of government debt held by the central bank embedded in the IMF-supported program. ### Nonresident investors and nonbank institutions - Nonresidents: - Tend to liquidate holdings before DDR due to fears of capital controls and potential losses. - Their repatriation increases FX demand; external creditors may pressure for inclusion of nonresidents in DDR perimeter to reduce their losses. - Policy responses: Argentina introduced capital controls prohibiting FX outflows as reserves dwindled. Sri Lanka excluded nonresidents where their holdings were insignificant. In Barbados, Ghana, Grenada, and Jamaica nonresidents treated equally with resident investors according to the instruments they held. - Nonbank institutions (other than pension funds): - Typically included in DDR and treated according to instruments held, except in Sri Lanka where exclusions applied. - Retail investors: excluded in Argentina and Grenada. In Ghana, individual bondholders were initially excluded to protect household savings but later included to broaden burden-sharing; individual bondholders were offered slightly better terms than institutional investors (shorter-maturity bonds and higher coupons). ### Key statistics from tables and case facts - Table 6 (Total, Domestic, External Debt prior to restructuring and Treated debt; figures in percent of GDP and ratios): - Argentina 2019: Total 89, Treated 59, Ratio 0.7; Domestic 51, Treated 40, Ratio 0.8; External 40, Treated 19, Ratio 0.5 - Barbados 2018: Total 158, Treated 147, Ratio 0.9; Domestic 130.8, Treated 130, Ratio 1.0; External 28, Treated 17, Ratio 0.6 - Ghana 2022: Total 90, Treated 55, Ratio 0.5; Domestic 48, Treated 28, Ratio 0.6; External 42, Treated 27, Ratio 0.6 - Grenada 2013: Total 110, Treated 65, Ratio 0.6; Domestic 37, Treated 22, Ratio 0.6; External 73, Treated 42, Ratio 0.5 - Jamaica 2010: Total 128, Treated 65, Ratio 0.5; Domestic 66, Treated 65, Ratio 1.0; External 62, Treated 0, Ratio 0.0 - Jamaica 2013: Total 147, Treated 64, Ratio 0.4; Domestic 79, Treated 64, Ratio 0.8; External 68, Treated 0, Ratio 0.0 - Sri Lanka 2022: Total 126, Treated 72, Ratio 0.6; Domestic 65, Treated 29, Ratio 0.5; External 64, Treated 43, Ratio 0.7 - St. Kitts & Nevis 2010: Total 164, Treated 96, Ratio 0.5; Domestic 114, Treated 64, Ratio 0.6; External 50, Treated 27, Ratio 0.5 - Simple average: Total 121, Treated 71, Ratio 0.6; Domestic 69, Treated 51, Ratio 0.7; External 52, Treated 20, Ratio 0.4 - Table 8 (Central Bank Capital: Before and After the DDR; Percent of GDP): - Argentina: Pre-DDR Year 2018 Percent of GDP 0; Post-DDR Year 2021 Percent of GDP -5 ~ -7 - Barbados: Pre-DDR Year 2017 Percent of GDP 0.8; Post-DDR Year 2019 Percent of GDP -13.8 - Ghana: Pre-DDR Year 2021 Percent of GDP 1.8; Post-DDR Year 2024 Percent of GDP -8.8 - Sri Lanka: Pre-DDR Year 2021 Percent of GDP 1.2; Post-DDR Year 2024 Percent of GDP 1.0 - Jamaica: Pre-DDR Year 2010 Percent of GDP 1.9; Post-DDR Year 2014 Percent of GDP 0.9 - Specific central bank and monetary policy figures: - Bank of Ghana experienced aggressive monetary tightening by 1,550 bps (basis points) in the aftermath of DDR losses and related measures. - Central Bank of Barbados faced a 76 percent NPV loss from the DDR. *IMF Working Paper excerpt: Restructuring Sovereign Domestic Debt in Developing Countries: New Cases and Lessons* ### 41. The modalities for executing DDR range from market friendly to varying degrees of ### 41. The modalities for executing DDR range from market friendly to varying degrees of coercion, depending on the domestic legal framework and political landscape ### Legal authorization and objectives - Domestic debt is under local jurisdiction; Parliaments authorized the DDR, which helps establish a clear legal basis for debt restructuring. - Parliamentary authorization content differed by country: - Some approved the restructuring plan or framework, while actual restructuring terms were determined through negotiations with creditors (Ghana, Grenada, Jamaica, Sri Lanka). - Others determined terms in approved legislation (Argentina, Barbados). - Objective: achieve a quick resolution, minimizing potential execution and litigation risks, while ensuring consistency with the domestic legal framework. ### Pros and cons of loss allocation by creditor types (Table 9) - Banks - Pros: Typically large holders of T-bonds and T-bills; captive investors via regulation or state ownership. - Cons: Financial stability risks, bank runs, credit crunch; major drivers of economic recovery; counterparty risk. - Pension - Pros: Can offer large debt relief and take in long-term debt; generally friendly to maturity extensions. - Cons: Risk of social unrest, early redemptions, and fewer inflows to pension funds. - Central bank - Pros: Advancement of future central bank dividends; no immediate spillovers; can warehouse bridge finance during crises. - Cons: May lead to negative cash flows and a downward spiral of central bank balance sheet; undermine policy credibility and autonomy; high sterilization costs. - Nonresident investors - Pros: Bring in FX during EDR. - Cons: Easy to reverse; volatile flows; costly funding. - Nonbanks - Pros: Can absorb losses and pass them to end-investors with limited spillovers. - Cons: Front-running and bond market turmoil. Note: Banks include both state-owned and privately owned institutions; nonbank financial institutions include mutual funds, insurance, and individual investors; pension funds include provident funds, corporate pensions, and social security funds. EDR = external debt restructuring. ### Modalities and legal/operational mechanisms (Figure 9 and text) - Voluntary exchange, NPV neutral - Government offers bondholders option to swap old bonds for new bonds with different maturities, coupons, or principal amounts. - Voluntary exchanges with no NPV losses are liability management operations, not considered DDR in this paper. - Voluntary exchange, NPV negative - A DDR imposes NPV losses on bondholders to achieve savings for the government, but can still be implemented through a voluntary exchange. - Examples: Jamaica (constitution required voluntary restructuring), Ghana, Grenada, Sri Lanka. - Retro-fit Collective Action Clauses (CAC) - CACs bind all bondholders if a supermajority agrees; common in international bonds and can be added via legislation to domestic debt. - Example: Barbados retrofitted CACs to domestic bonds and activated them in its DDR. - Decree/Legislative approach - Argentina: emergency law authorized restructuring; subsequent executive decree specified new terms and conditions of restructured securities. - Despite decree-specified terms, restructuring took place in the form of a voluntary exchange where investors could choose not to participate. - Argentina: participation rate of over 99 percent; residual mainly due to unidentified holders who did not come forward. ### Incentives to encourage participation (Sticks and Carrots) - Sticks (regulatory and tax pressures) - Sri Lanka: introduced withholding and income tax on the source (old) bond, penalizing nonparticipants. - Ghana: banking regulator introduced risk weights on the source bond and delisted it from the stock exchange. - These measures made it unattractive to continue holding source bonds, incentivizing participation. - Carrots (incentives and regulatory relief) - Availability of central bank credit at favorable rates; regulatory forbearance; capital buffer releases; extended recovery timelines. - Ghana: banks allowed to spread recognition of losses over three years in capital adequacy ratios. - Barbados: restructured debt remained de jure T-bills to minimize valuation losses, de facto maturities extended via automatic 10-year rollovers. - Sri Lanka: granted banks more time to close FX NOPs and restore capital buffers. - Economic oversight committees created in Jamaica and Barbados gave some creditors a seat at the table and helped secure participation. ### Participation rates, litigation, and execution risks - Participation rates were high: most cases over 90 percent, many close to 99 percent. - Litigation was not an issue in any of the cases reviewed. - Regulatory tools raised questions about the voluntariness of transactions in some cases. ### Duration of DDRs (Figure 10 and related text) - Duration measured from announcement to completion of the restructuring. - Reported durations (months) across cases: - Grenada: 30 months. - Barbados: a couple of months. - Jamaica: a couple of months (noting Jamaica has examples in 2010 and 2013). - Sri Lanka: almost 20 months. - Argentina: nine months. - Drivers of duration: complexity of debt structure, creditor diversity, government capacity, political will. - Observations: - Swift and decisive action, assisted by strong political will, accelerated the process (Barbados, Jamaica). - Grenada’s DDR delayed because it was synchronized with the EDR. - Argentina negotiated its debt restructuring in nine months despite complexity and scale. - In Argentina, Barbados, and Grenada, DDRs and EDRs took place simultaneously; in Ghana and Sri Lanka, DDR completed first. - General comparison: DDR execution times have been shorter than Eurobond restructurings, which have lasted more than 24 months in recent cases. ### Monitoring and oversight (Box 1) - Jamaica: Economic Programme Oversight Committee (EPOC) created after second DDR in 2013 to monitor government compliance with economic reforms. - Membership: private sector, public sector, civil society; co-chaired by Governor of the Central Bank and CEO of Sagicor Group. - Terms of reference included: (i) receive and review information on progress of IMF-agreed Memorandum of Economic and Financial Policies; (ii) assist in ensuring agreed targets are achieved; (iii) advise the public where appropriate. - EPOC provided extra layer of protection for creditors and influenced public opinion through press releases. - Barbados: Barbados Economic Recovery and Transformation Plan Monitoring Committee (BERT MC) formed in 2018 with similar monitoring role and stakeholder participation. ### Complementary policy measures during the DDR transition period - DDRs were part of broader burden-sharing frameworks including EDRs, fiscal and monetary adjustments, new IMF financing, and structural reforms. - Exchange rate regimes influenced policy paths: - Flexible exchange rate countries (Argentina, Ghana, Sri Lanka): sharp currency depreciation acted as shock absorber, partly reducing fiscal adjustment burden. Jamaica (managed float in practice) experienced large depreciation. - Fixed exchange rate countries (Barbados, Grenada, St. Kitts and Nevis): fiscal adjustment was much larger—7.6 percent of GDP over four years—compared with 3.6 percent of GDP for flexible exchange rate countries. - Monetary policy responses to inflation and depreciation: - Ghana: inflation surged to 39 percent in 2023 (reaching 55 percent by year-end), up from 10 percent two years earlier; Bank of Ghana raised policy rate from 14.5 percent in 2021 to 30 percent by time of DDR announcement in 2023; real interest rates hovered around 10 percent through mid-2025. - Sri Lanka: inflation jumped to 46 percent in 2022, from 6 percent the previous year; policy rate hiked by nearly 1,000 bps to 15 percent in 2022, then gradually lowered to 10 percent as inflation turned to deflation (reaching -4 percent) starting in September 2024. - Argentina (2019): DDR coincided with COVID-19 pandemic and was conducted without IMF arrangement; inflation spikes eroded real value of debt. - Countries with fixed exchange rate regimes were able to maintain stable inflation rates. - Financing mix post-DDR: - Argentina, Ghana, Sri Lanka: net domestic financing continued to be positive through DDR; net external financing was negative or slightly positive due to IMF support. - Reliance on costly domestic debt—mostly T-bills—increased gross financing needs (GFN) that had to be refinanced at high interest rates. - Barbados, Grenada, Jamaica, St. Kitts and Nevis: net domestic financing remained mostly negative, supported by external official sector financing, contributing to lower GFN. ### Assessment: macroeconomic outturns (Section V.A) - Attribution caveats: isolating DDR contribution is challenging due to concurrent EDRs, policy reforms, financial conditions, external shocks, financing sources, pace of fiscal adjustment, and DDR design. - Output growth - Real GDP growth deteriorated leading up to DDR with sharp declines around restructuring year. - Post-DDR growth rebounded in many cases: - Barbados, Ghana, Sri Lanka, St. Kitts and Nevis: solid growth recovery the year after. - Jamaica and Grenada: more gradual recovery. - Inflation - Pre-DDR central bank financing fueled inflation; currency depreciation in Argentina, Ghana, Sri Lanka worsened inflation. - Inflation spikes helped alleviate real domestic debt burden but increased external debt burden via depreciation. - IMF-supported programs introduced fiscal adjustments and prohibited central bank financing, helping inflation subside. - Fixed exchange rate countries (Barbados, Grenada, St. Kitts and Nevis) saw relatively stable inflation. - Public debt to GDP - Sharp fall in headline debt-to-GDP in year of DDRs in Barbados, Grenada, St. Kitts and Nevis due to large nominal principal haircuts (including external restructurings). - Within two to three years post-restructuring, debt-to-GDP declined by: - 30 percentage points in Barbados. - 15 percentage points in Grenada. - 40 percentage points in St. Kitts and Nevis (largely driven by a debt-land swap). - Ghana and Jamaica: no principal haircuts applied and debt reduction was more gradual. - GFN to GDP - DDRs reduced interest payments and refinancing needs through reduced coupons, principal haircuts, maturity extensions, conversion of variable to fixed rates. - Barbados lowered GFN by 35 percentage points of GDP through a haircut and issuance of new instruments with step-up coupon rates. - Grenada reduced GFN by 15 percentage points. - Jamaica saved interest costs equivalent to 2.5 percent of GDP from 2010 to 2013. - Preliminary 2024 data suggest a six-percentage point decline for Sri Lanka from 2023 to 2024—still five percentage points higher than original IMF-supported program projections for 2024, mostly due to high interest costs on T-bills and lack of T-bond issuance. *Source: IMF staff.* ### 50. The short-term macroeconomic impact of ### 50. The short-term macroeconomic impact of ### Macroeconomic outcomes: IMF arrangements vs DDR cases - DDRs in these countries broadly mirror the positive trends seen under IMF arrangements, but with even more favorable outcome. - Kogan et al (2024) found that, three years after the approval of an IMF arrangements—most of which did not involve a DDR—, macroeconomic conditions improved, with higher growth and lower debt ratios and inflation, though with large variation across countries. - Compared to these IMF program cases, the six DDR cases supported by IMF arrangements exhibited: - slightly higher growth, and - significantly lower inflation and debt ratios. - Sovereign rating trajectory around DDRs (Table 11 examples): - Argentina (2019): SD date Aug. 29, 2019; DDR date (completed) Aug. 30, 2019; Before SD B-/Negative; Post-DDR, immediate CCC-/Negative; Post-DDR 1YR SD/--; Post-DDR current CCC/Stable. - Argentina (2020): SD date Jan. 21, 2020; DDR date (completed) Sep. 07, 2020; Before SD CCC-/Negative; Post-DDR, immediate CCC+/Stable; Post-DDR 1YR CCC-/Negative; Post-DDR current CCC/Stable. - Barbados (2018): SD date Aug. 7, 2018; DDR date (completed) Nov. 16, 2018; Before SD CCC/Negative; Post-DDR, immediate B-/Stable; Post-DDR 1YR B-/Positive; Post-DDR current B/Positive. - Ghana (2023): SD date Dec. 06, 2022; DDR date (completed) Feb. 24, 2023; Before SD CCC+/Negative; Post-DDR, immediate CCC+/Stable; Post-DDR 1YR CCC+/Stable; Post-DDR current CCC+/Stable. - Jamaica (2010): SD date Jan. 14, 2010; DDR date (completed) Feb. 24, 2010; Before SD CCC/Negative; Post-DDR, immediate B-/Stable; Post-DDR 1YR B-/Negative; Post-DDR current BB-/Positive. - Jamaica (2013): SD date Feb. 12, 2013; DDR date (completed) Mar. 06, 2013; Before SD B-/Negative; Post-DDR, immediate CCC+/Stable; Post-DDR 1YR B-/Positive; Post-DDR current BB-/ Positive. - Sri Lanka (2023): SD date Sep. 19, 2023; DDR date (completed) Sep. 25, 2023; Before SD CCC-/Negative; Post-DDR, immediate CCC+/Stable; Post-DDR 1YR CCC+/Stable/C; Post-DDR current CCC+/Stable. - Ratings typically fall to selective default (SD) at the onset of a DDR and are gradually upgraded thereafter (example: Barbados, Jamaica). ### Debt and GFN: Ex-ante (program) targets and outturns - Earlier restructuring cases (Barbados, Grenada, Jamaica, and St. Kitts and Nevis) broadly met their respective public debt and GFN-to-GDP targets. - DDR design features and financing context: - DDRs were comprehensive, featuring substantial NPV haircuts—including T-bills in some cases—that significantly lowered GFN. - Ample official external financing limited net domestic financing needs, helping avoid new issuances of high-cost, short-term domestic debt. - Together with strong fiscal adjustments and bailout financing, these countries were able to achieve (or are on track to achieve) their program targets. - Recent cases and intermediate outcomes: - Argentina (local-currency domestic debt excluded in 2020): exclusion combined with fiscal laxity led to a constant domestic refinancing crisis and continued reliance on monetary financing thereafter. - Sri Lanka: exclusion of commercial banks’ holdings of T-bills and T-bonds left GFN elevated at 27.6 percent of GDP in 2023 (of which 26.5 percent of GDP was for domestic debt service in 2023); resulting partial erosion of DDR benefits. - Ghana: DDR reduced GFN from 19.3 percent of GDP in 2022 to 11 percent of GDP in 2024; net domestic financing remained substantial at 4 percent of GDP in 2024. T-bills increased fivefold between 2022 and 2024 in domestic currency terms; high inflation helped lower debt-to-GDP and GFN-to-GDP ratios. ### Drivers of debt dynamics: four-year-ahead projections vs actual/latest projections - The four-year-ahead projection decomposes debt drivers into primary balance (pb), real interest burden (r), and real growth (g). The pb-(r-g) difference helps determine whether fiscal effort and debt relief were sufficient for a positive debt dynamic. - Table 12: Contribution of Primary Balance, Real Interest Rate, and Real Growth Rate to Debt Reduction: Four-Year-Ahead Projection and Actual/Latest Projection since Program Inception (Percent of GDP) - Argentina (2020 projection; 2024 actual/latest): projection pb -1.1, r 1.7, g 2, r-g -0.3, pb-(r-g) -0.8; actual/latest pb 1.8, r -30.8, g 2.7, r-g -28.1, pb-(r-g) 29.9. - Barbados (2018 projection; 2022 actual/latest): projection pb 6, r 1.2, g 1.9, r-g -0.7, pb-(r-g) 6.7; actual/latest pb 2.5, r -2.8, g 9.8, r-g -12.6, pb-(r-g) 15.1. - Ghana (2023 projection; 2027 actual/latest): projection pb 1, r 2.9, g 4.2, r-g -1.3, pb-(r-g) 2.3; actual/latest pb 0, r 1, g 2.9, r-g -1.9, pb-(r-g) 1.9. - Grenada (2013 projection; 2017 actual/latest): projection pb 3.5, r 2.3, g 2.1, r-g 0.2, pb-(r-g) 3.3; actual/latest pb 5.7, r 1.4, g 3.9, r-g -2.5, pb-(r-g) 8.2. - Jamaica (2010 projection; 2014 actual/latest): projection pb 9.1, r 2.4, g 1.9, r-g 0.5, pb-(r-g) 8.6; actual/latest pb 7, r 1.8, g 0.9, r-g 0.9, pb-(r-g) 6.1. - Jamaica (2013 projection; 2017 actual/latest): projection pb 7.5, r 2.4, g 2.1, r-g 0.3, pb-(r-g) 7.2; actual/latest pb 7, r 1.8, g 0.9, r-g 0.9, pb-(r-g) 6.1. - Sri Lanka (2023 projection; 2027 actual/latest): projection pb 2.3, r 1.8, g 3.2, r-g -1.4, pb-(r-g) 3.7; actual/latest pb 2.3, r 2.5, g 3.2, r-g -0.7, pb-(r-g) 3.0. - St. Kitts and Nevis (2011 projection; 2015 actual/latest): projection pb 6.5, r 7.6, g 5.7, r-g 1.9, pb-(r-g) 4.6; actual/latest pb 16, r 3.9, g 6.2, r-g -2.3, pb-(r-g) 18.3. - Key observations: - In all DDR cases, the debt burden was eased, but through different mechanisms. - Argentina, Grenada, and St. Kitts and Nevis outperformed their projected primary balance—partly due to revenues from citizenship-by-investment programs and land sales—and benefited from negative r-g, resulting in a higher-than-expected debt reduction. - The primary balance contribution did not materialize as projected for Barbados, Ghana, and Jamaica. - An optimism bias on real growth was observed in Ghana and Jamaica. - Argentina’s debt dynamics were assisted by high inflation, which eroded the value of domestic debt. - The overall positive primary balance and interest-growth rate differential indicate debt dynamics were on a declining path in steady state, not accounting for real exchange rate paths and other one-off items. ### Burden sharing and comparability of treatment - Fiscal consolidation is a critical component of burden-sharing arrangements supporting successful debt reduction. - DDR addresses the debt-stock overhang by shifting part of the burden to debt holders; sustained primary surpluses are essential for durable debt-sustainability outcomes. - A DDR accompanied by fiscal consolidation reinforces policy credibility, restores investor confidence, and eventually lowers financing costs. - When paired with strong fiscal policy, a DDR is seen as a one-time event, helping to avoid concerns of repeated restructuring. - Relative contributions of DDR vs fiscal consolidation over three years (Table 13, selected figures): - Barbados: Treated Domestic Debt 130 (Percent of GDP), NPV Haircut 43 (Percent), Contribution from DDR 55.9 (Percent of GDP), Contribution from Cumulative Fiscal Consolidation -2.7 (Percent of GDP), Primary Balance in Base Year -4.2 (Percent of GDP); Consolidation Period FY2018/19-FY2021/22. - Ghana: Treated Domestic Debt 28, NPV Haircut 32, Contribution from DDR 9.0, Contribution from Cumulative Fiscal Consolidation 5.1, Primary Balance in Base Year 4.2, Consolidation Period 2022-2025. - Grenada: Treated Domestic Debt 22, NPV Haircut 50., Contribution from DDR 11.1, Contribution from Cumulative Fiscal Consolidation 7.8, Primary Balance in Base Year 9.5, Consolidation Period 2013-2016. - Jamaica (2010): Treated Domestic Debt 65, NPV Haircut 26, Contribution from DDR 16.7, Contribution from Cumulative Fiscal Consolidation 2.1, Primary Balance in Base Year 1.4, Consolidation Period FY2009/10-FY2013/14. - Jamaica (2013): Treated Domestic Debt 64, NPV Haircut 8, Contribution from DDR 4.8, Contribution from Cumulative Fiscal Consolidation 2.3, Primary Balance in Base Year 2.4, Consolidation Period FY2013/14-FY2016/17. - Sri Lanka: Treated Domestic Debt 29, NPV Haircut 12, Contribution from DDR 3.5, Contribution from Cumulative Fiscal Consolidation 6.1, Primary Balance in Base Year 5.1, Consolidation Period 2022-2025. - St. Kitts and Nevis: Treated Domestic Debt 64, NPV Haircut 65, Contribution from DDR 41.6, Contribution from Cumulative Fiscal Consolidation 5.4, Primary Balance in Base Year 2.8, Consolidation Period 2010-2013. - Interpretations and trade-offs: - The impact of DDR on debt reduction was much larger than that of fiscal consolidation in Barbados and St. Kitts and Nevis, followed by Jamaica and Grenada. - For Jamaica, marginal fiscal effort was low because the primary balance at the beginning was already high. - In Ghana and Sri Lanka, contributions from DDR and fiscal consolidation were comparable. - Fiscal consolidation was front loaded in all cases. - Burden sharing between domestic and external creditors: - In all cases studied except Jamaica, the DDR was accompanied by an EDR; governments had to address burden sharing between domestic and external creditors. - From external creditors’ perspective, including domestic debt in the perimeter can reduce their debt restructuring burden when targets are set on: - foreign currency debt service (where domestic debt is in foreign currency); - gross financing needs; or - external debt service (where debt is defined on a residency basis and non-residents hold foreign- or domestic-currency debt). - Restructuring domestic debt can create fiscal space, but may trigger bank runs, a sharp decline in bank credit, and a sharp fall in economic activity—potentially undermining ability to meet external obligations. - External creditors have typically not insisted on comparability of treatment between DDR and EDR; they are generally agreeable that DDR be implemented according to the loss-absorptive capacity of domestic creditors. - Comparability is hampered by technical difficulties in establishing discount rates for NPV loss calculations and by the presence of nonresident holders of domestic debt (examples: Argentina 2020 exclusion of local-currency domestic debt with significant nonresident presence; Zambia). - Resident holders of external debt are subject to the same deal as external holders even if domestic banks must take a capital hit (example: Sri Lanka). - Not all commercial bank creditors are domestic; foreign bank subsidiaries are classified as domestic investors but their financial-stability implications differ from indigenous domestic banks. *IMF WORKING PAPERS — Restructuring Sovereign Domestic Debt in Developing Countries: New Cases and Lessons (excerpt).* ### 58. Overall, financial stability was preserved in the DDR cases examined. Despite concerns, ### 58. Overall, financial stability was preserved in the DDR cases examined. Despite concerns, ### Financial stability and banking-sector effects - No deposit runs or signs of financial stress were observed in the DDR cases examined. - Banks’ capital positions weakened due to DDR losses, but public funds were used to recapitalize state-owned banks only in Ghana. - Credible recapitalization strategies and backstop mechanisms helped preserve confidence; regulatory forbearance played a role in some cases (Table 13). - Real interest rates on T-bills were significantly positive before the DDR in Argentina, Ghana, and Jamaica, and more so for T-bonds (Table 14). - Real interest rates declined sharply when inflation spiked in the run-up to the DDR, and returned to positive territory afterward. - Bank profits generally rose during and after the DDR, driven by high yielding government securities and monetary policy instruments (Barbados, Ghana, and Sri Lanka), which were favored over private lending due to high NPL ratios and zero capital risk weights (Table 15). - The minimum Tier 1 capital ratio is 6 percent (Bank for International Settlement 2011). In some countries, individual banks fell below the minimum capital ratio—in particular, four domestically owned and one foreign-owned banks in Ghana. - Banking-system structure notes (from Table 15): - Barbados and Grenada: dominated by foreign banks. - Ghana: approximately equal mix of strong foreign and domestic banks. - Sri Lanka: even split between state-owned and locally owned private banks. - For Ghana, the 2022 data already reflected impairment provisions in anticipation of the DDR in 2023. - Key pre- and post-DDR banking indicators (extracted from Table 15; values preserved exactly): - Argentina: Pre-DDR 2019 — CAR 17.5, NPL 5.7, RoA 5.4; Post-DDR 2021 — CAR 25.7, NPL 4.3, RoA 1.1. - Barbados: Pre-DDR 2017 — CAR 19.1, NPL 5.9, RoA 1.7, Real private credit 0.5; Post-DDR 2019 — CAR 14.0, NPL 6.1, RoA 1.8, Real private credit -1.6; Real private credit growth (10yr) -10.2. - Ghana: Pre-DDR 2022 — CAR 16.6, NPL 14.8, RoA 3.2, Real private credit 3.3; Post-DDR 2024 — CAR 14.0, NPL 21.8, RoA 5.0, Real private credit -75.6; Real private credit growth (10yr) -12.1. - Grenada: Pre-DDR 2012 — CAR 12.6, NPL 10.0, RoA 1.5, Real private credit -0.3; Post-DDR 2016 — CAR 14.2, NPL 6.7, RoA 1.5, Real private credit -3.1; Real private credit growth (10yr) 0.9. - Jamaica: Pre-DDR 2012 — CAR 14.1, NPL 6.8, RoA 0.4, Real private credit -1.1; Post-DDR 2014 — CAR 16.0, NPL 4.9, RoA 0.6, Real private credit 5.0; Real private credit growth (10yr) 7.3. - Sri Lanka: Pre-DDR 2022 — CAR 16.2, NPL 11.3, RoA 0.8, Real private credit 3.0; Post-DDR 2024 — CAR 20.3, NPL 12.3, RoA 1.6, Real private credit -5.8; Real private credit growth (10yr) 2.0. ### Short-term impact on credit provision and banking-sector size - Short-term negative impact of the DDR on banks’ balance sheets may reduce bank lending to the private sector. - The overall size of bank balance sheets declined in Barbados, Ghana and Sri Lanka (Figure 17). - Without timely recapitalization, weakened banking-sector balance sheets will persist, exacerbating credit constraints. - Even before a DDR, economic uncertainty made banks risk averse, prompting them to preserve capital and withdraw from credit intermediation. - Post-DDR, unrepaired capital losses and limited access to new capital worsened the credit crunch, and credit growth recovery has been slow (Table 16). - The unwinding of the sovereign-bank nexus will likely be slow as the economy takes time to recover. ### Valuation, accounting, and market-practice issues - Valuation of new debt instruments was central to assessing the financial impact of DDR, particularly for estimating NPV relief and recapitalization needs. - Under IFRS 9, if revised cash flows exceed a 10 percent change in NPV, the instrument must be revalued at the new market value, with the difference recorded as a loss. - Public-sector debt restructuring has externalities that alter broader economic and market conditions, making valuation complex. - For external debt, market practice is to mark to market at the expected exit yield, rather than the distressed yield on existing bonds. - In the absence of reliable benchmarks, Ghana and Sri Lanka used historical average yields (15.5-21 percent and 10-12 percent, respectively). - Regulators, domestic accounting authorities, and market participants collaborated to agree on the valuation approach for the exit bonds. ### Financial Sector Stabilization Funds and recapitalization mechanisms - Financial Sector Stabilization Funds were established in some cases to reassure markets and provide liquidity and solvency backstops. - Examples: - Jamaica’s 2010 and 2013 DDRs introduced Financial System Support Funds. - St. Kitts and Nevis set up the Banking Sector Reserve Fund. - The banking sectors proved more resilient than expected, with adequate capital buffers, private recapitalization, and emergency central bank liquidity facilities. - At the beginning of IMF-supported programs, central banks of Ghana and Sri Lanka were asked to develop time-bound recapitalization strategies, supported by structural benchmarks. - None of the banking sectors in the case studies used public money to recapitalize banks, except in Ghana, where recapitalization of state-owned and indigenous financial institutions adversely affected by the DDR was financed through the Ghana Financial Stability Fund. - Recapitalization of a previously insolvent state-owned bank was addressed outside of the Ghana Financial Stability Fund. ### Impact on the domestic debt securities market - T-bill issuance costs surged after the DDRs due to both a high policy rate and a sovereign risk premium during and immediately following the DDR (Figure 18). - In most cases, T-bills were exempted from the DDR and remained the only viable domestic financing option. - Sri Lanka: market disruption began before the announcement of the DDR (June 2023), following the external debt default (April 2022). - Despite exemption of T-bonds held by banks from the DDR in Sri Lanka, market disruption was comparable to Ghana, where T-bonds were restructured. - In Argentina, Ghana, and Sri Lanka, high rollover needs at high interest rates risked undoing the fiscal space created by the DDRs. - In Ghana, policy rates that were high relative to T-bill rates meant that T-bills competed with central bank securities used for monetary policy operations, leading to difficulties meeting financing needs. - T-bond markets largely remained closed during and shortly after DDRs (Table 17). Domestic market access recovery varied: - Jamaica (2010): bond market access restored within three months; 2013 DDR took nearly three years to restore confidence and resume bond issuance. - Barbados: resumed bond issuance four and a half years post-DDR. - Grenada: about three years to issue a two-year T-bond. - As of 3Q2025, Ghana had not resumed bond auctions, constrained by the “Limitation of Future Issuance Clause” in the new bond contract. - Sri Lanka managed to issue long-term bonds at reasonable cost and subscription one year after the DDR, with purchasers mainly captive investors. - The persistence of net domestic financing needs, combined with high T-bill rates and the absence of T-bond issuance, has reversed some of the benefits of DDR: - Domestic interest payments post-DDR, while lower than pre-DDR, remained significant mainly owing to new T-bills issued (Argentina, Ghana, Sri Lanka). - These created higher-than-expected domestic financing needs, leading to a rapid increase in the stock of T-bills. - GFN (Gross Financing Need) remained above 20 percent of GDP in Sri Lanka two years after the DDR. - In Ghana, GFN almost doubled after dropping significantly following the DDR. - In Argentina, GFN increased a year after the DDR. - In Ghana, the share of short-term debt as a percent of total domestic debt continued to rise (Figure 19). ### Longer-term market functioning and financial repression - The long-term financial impact of DDR should account for prolonged effects of financial repression and the level of financial-market development. - In most DDR cases, the interbank market froze during and after the DDR; trust among banks eroded due to high uncertainties about the DDR. - After the DDR, banks were reluctant to accept restructured bonds as collateral, inhibiting the repo market. - Illiquid secondary markets and a nascent market-pricing mechanism meant that financial repression continued to shape the primary market. - Artificially lowering financing costs may provide short-term relief but ultimately distort markets. - Continued suppression of financial markets can have detrimental long-term consequences, including inefficient resource allocation and reduced growth. ### Key empirical findings on commercial bank credit to the private sector (Table 16; values preserved exactly) - Low group examples: - Argentina: Pre-DDR 2018 — 15.4 percent of GDP; Post-DDR 2021 — 11.2 percent of GDP; 10-year historical average 13.5 percent of GDP. - Barbados: Pre-DDR 2017 — 82.1 percent of GDP; Post-DDR 2019 — 77.2 percent of GDP; 10-year historical average 79.7 percent of GDP. - Jamaica: Pre-DDR 2008 — 30.2 percent of GDP; Post-DDR 2010 — 26.4 percent of GDP; 10-year historical average 42.3 percent of GDP. - St. Kitts and Nevis: Pre-DDR 2011 — 58.4 percent of GDP; Post-DDR 2013 — 55.3 percent of GDP; 10-year historical average 55.8 percent of GDP. - High group examples: - Ghana: Pre-DDR 2022 — 10.4 percent of GDP; Post-DDR 2024 — 7.6 percent of GDP; 10-year historical average 13.6 percent of GDP. - Grenada: Pre-DDR 2012 — 82.8 percent of GDP; Post-DDR 2014 — 74.3 percent of GDP; 10-year historical average 56.6 percent of GDP. - Sri Lanka: Pre-DDR 2022 — 30.8 percent of GDP; Post-DDR 2024 — 27.3 percent of GDP; 10-year historical average 32.4 percent of GDP. ### Conclusions, policy implications, and recommended practices - The study analyzes St. Kitts and Nevis (2011-12), Jamaica (2010, 2013), Grenada (2015), Argentina (2019-20), Ghana (2023), and Sri Lanka (2023). - The decision to undertake a DDR and its design is part of a larger burden-sharing exercise that authorities must manage in response to a crisis. - Inaction shifts costs to the broader economy through greater fiscal adjustment, financial repression, and/or higher inflation, and to external creditors through greater haircuts, whereas DDR apportions losses among domestic creditors. - IMF and other international financial institutions, when called upon as lenders of last resort, contribute to burden sharing by providing concessional or below-market financing. - DDRs are costly, but the cost of inaction and delays can be greater; delaying can require sustained and high fiscal consolidation—including cuts in social expenditures and infrastructure investment—which may be economically or politically infeasible. - Fundamental macroeconomic adjustment is required to handle the crisis; DDR only buys space for adjustment. - DDR can convert short-term instruments to long-term debt, eliminate the need for monetary financing, and create space for the central bank to pursue tight monetary policy. - DDR limits the impact of high interest rates on the fiscal path in the initial stabilization period and helps avoid re-accumulation of debt. - Macroeconomic stability supports DDR by increasing credibility, lowering financing costs, improving recovery value of restructured debt, and paving the way for return to the bond market (example: Jamaica 2013). - Stakeholder resilience matters for burden-sharing: - When the banking sector is strong and profitable with large capital buffers, DDR-imposed burdens on banks can be absorbed without government recapitalization. - When the banking system is undercapitalized and on the verge of a deposit run, a DDR is less advisable. - Loss allocation should consider the nature of creditors’ business and investment time horizons. - Communication and process design: - If a DDR is chosen, clear objectives and processes should be established and communicated early to garner public support and reduce market uncertainty. - Communication should present clear objectives, rationale, implementation processes, and timelines; emphasize creditor collaboration and public support. - Repeated negotiations of DDR should be avoided to maintain confidence and credibility. - Authorities should build support around their economic program with market participants through active investor-relations efforts to prepare the market for future issuance after a sufficient pause. - Domestic borrowing break: - A multi-year domestic borrowing break after a DDR reinforces its gains while creating space to achieve macroeconomic stabilization. - A healing process of two to three years might be needed to re-access the local government bond market following a DDR. - Financing mix during disruption should maximize loans from external official creditors while frontloading fiscal adjustment. - Domestic debt issuances during market disrepair and tight monetary policy will undermine DDR gains, as primary surplus generated will be absorbed by high borrowing cost incurred during market dysfunction. - A domestic borrowing holiday will enable monetary policy to tame inflation without fiscal consequences of increasing borrowing costs. *IMF Working Paper — Restructuring Sovereign Domestic Debt in Developing Countries: New Cases and Lessons* ### 73. Risk mitigation measures, particularly to minimize financial stability risk, are a critical ### 73. Risk mitigation measures, particularly to minimize financial stability risk, are a critical ### Risk mitigation and financial sector preparedness - When a DDR is contemplated, the financial sector should be stress tested for different DDR scenarios to assess its ability to absorb losses. - A crisis management framework should be in place and include: - emergency liquidity facilities, - deposit insurance schemes, - a crisis management committee, - a robust early intervention and resolution framework, - contingency planning for shoring up bank capital. - Independence of the auditors and regulators conducting stress tests and crisis-preparedness exercises is a key consideration. - Mitigation costs such as recapitalization costs can be incorporated into the macroeconomic plan by considering the negative impacts of a DDR. - Rationale: better preparedness to mitigate the risk of a bank run or capital flight increases confidence that a DDR can be executed successfully. - Explicit numeric note: potential recapitalization costs cited as up to 5 percent of GDP in the context of Suriname decision-making. ### Depth, speed, and perimeter of DDRs - Comprehensive, deep, and swift DDRs are preferred over selective, shallow, and lengthy ones. - Costs and risks of a shallow DDR: - A shallow DDR can produce similar costs to a comprehensive DDR in terms of sovereign rating downgrades, domestic market disruption, and sovereign reputation risk. - A shallow DDR may leave lingering debt sustainability concerns and fears of a repeat restructuring, delaying recovery of domestic market functioning. - A lengthy DDR slows growth by increasing uncertainty: households and corporates reduce consumption and investment; banks preserve capital and restrain lending; financial conditions tighten. - The government must continue to borrow under high costs and elevated uncertainties during a lengthy DDR, which could lead to a debt spike. - Benefits of a deep and swift DDR: - Sufficient buffers could be preserved for future shocks. - Political economy constraints: - Domestic political appetite and financial positions of financial institutions often determine the perimeter and depth of a DDR. - A lengthy, shallow, and limited DDR is more likely where political constraints and vested interests are strong, making the tradeoff of a DDR less desirable given substantial side effects. ### Sequencing: DDR versus EDR - Recommendation: complete the DDR before the EDR when both are to be carried out. - Rationale: - The government has more policy tools and better control over the DDR process than over the EDR. - Delaying the DDR increases the risk of a disorderly default with greater balance sheet consequences compared with mark-to-market losses in a pre-emptive restructuring. - Early action reduces domestic policy uncertainty and enables the process of economic repair to begin. - External creditors and comparability: - External creditors are cognizant of the challenges associated with DDR; successfully implementing a DDR signals that the government is taking necessary steps to restore debt sustainability. - EDR could take longer due to a complex external investor base and negotiation-based approach. - Comparability of treatment with external creditors is generally not expected, except perhaps in cases involving foreign-currency-denominated domestic debt and nonresident holders of domestic debt. ### Role of the IMF in DDRs - The decision to undertake a DDR and to determine burden-sharing arrangements is a sovereign decision. - The IMF’s roles include: - providing an anchor for macroeconomic stability through IMF-supported programs, - restoring long-term viability and safeguarding vulnerable populations, - acting as a neutral referee to facilitate creditor participation in negotiations. - Technical contributions of the IMF: - conducting debt sustainability assessments and setting targets for debt restructuring when debt is assessed to be unsustainable, - producing macroeconomic projections that account for fiscal adjustment, debt restructuring, and new low-cost financing, - helping assess and monitor financial stability risks and design mitigation strategies during planning and after implementation, - sharing international experience with authorities who often have little or no experience with DDRs. ### Case study: Suriname’s domestic debt treatment (2021–24) - Approach: arrears clearance rather than a DDR. - Program milestones and amounts: - Successfully completed the IMF Extended Fund Facility program in March 2025, alongside a comprehensive debt restructuring totaling about $1.5 billion (26 percent of 2024 GDP). - DDR was initially ruled out due to financial sector stability concerns (IMF 2021). - Authorities cleared outstanding domestic arrears and restructured legacy debt to the Central Bank of Suriname. - Initial macro conditions (as described): - parallel exchange rate had depreciated by over 130 percent, - inflation surged to 61 percent due to continued monetary financing, - public debt rose to nearly 150 percent of GDP, - GFN reached 18 percent of GDP. - Motivation and banking sector impacts: - Domestic debt accounted for one-third of total government debt. - Undercapitalized banks implied potential recapitalization costs of up to 5 percent of GDP. - Asset quality reviews revealed government debt overhang weakening bank balance sheets; arrears drove up NPLs and capital shortfalls. - Perimeter and execution of arrears clearance: - Began clearing delayed T-bills and notes arrears in 2020, authorities assumed full control by 2023, and completed arrears clearance by January 2024. - Total amount estimated at around 2.5 percent of GDP, funded with external funding from international financial institutions. - Arrears clearance covered instruments held by commercial banks, pension funds, and individual investors, with settlements negotiated individually and a focus on prioritizing weaker banks. - Legacy debts to the Central Bank were restructured into a 27-year loan with a two-year grace period, and short-term advances (about 2 percent of GDP) were cleared in 2023. - EDR covered debt owed to the bilateral official sector, state-guaranteed commercial debt, Eurobonds, and commercial loans. - Outcomes and indicators: - Early signs suggest modest improvements in the banking sector, with NPLs falling by half. - Between 2020 and end-of-2024: - domestic debt-to-GDP fell by 25 percentage points to nearly 10 percent of GDP, - GFN fell by 10 percentage points to 7.5 percent of GDP. - Measures to prevent recurrent arrears included an Indicative Target under the IMF program and strengthening domestic debt recording and reporting systems via structural conditionality and technical assistance. - Spreads fell to a historic low, and market confidence has been recovering. - Authorities plan to reopen and develop a domestic government securities market after it had been closed since 2021. ### Annex: Divergent domestic debt treatments in Ghana and Zambia - Pre-restructuring comparative vulnerabilities (as described): - Domestic debt levels: 55-60 percent of GDP in Ghana (2022) and Zambia (2021-22). - High gross financing needs of about 30 percent of GDP. - Domestic amortization about 10 percent of GDP. - Domestic interest payments 5.5-6 percent of GDP. - High net domestic financing of 8.5-9% of GDP in 2022 and accumulated domestic arrears. - Sovereign-bank interconnectedness: 35 percent of total banking sector assets held in sovereign debt in Ghana and 30 percent in Zambia. - Diverging policy choices and market developments: - Ghana: - Bond auctions failed and were abandoned in 2022 as investors retreated. - Non-resident holdings: over 10 percent of GDP in 2019, dwindled to 3 percent of GDP by 2022. - Authorities abandoned bond auctions, relied on T-bills, and resorted to monetary financing. - Authorities determined financial stability risk could be managed by excluding T-bills, containing losses commensurate with banking sector loss-absorption capacity, and setting up mitigating measures. - Zambia: - Non-resident holdings: 5 percent of GDP in 2019, rising to 15 percent of GDP by 2021. - Continued issuing bonds at high real interest rates, attracting non-resident investors; subscription rates fell from 84 percent in 2018 to 34 percent in 2024. - Zambia had already defaulted in 2020; the domestic market remained a lifeline until an IMF arrangement was finalized. - Stress testing indicated domestic debt restructuring could be destabilizing, leading authorities to avoid a full DDR and focus on possible treatment of non-resident investors without broad financial stability implications, though separating them proved difficult. *Source: IMF WORKING PAPERS Restructuring Sovereign Domestic Debt in Developing Countries: New Cases and Lessons, INTERNATIONAL MONETARY FUND.* ### References ### References ### Major topics covered by the cited literature - Sovereign domestic debt restructuring (case studies, methodologies, legal frameworks, and operational guidance) - Sovereign-bank nexus and macrofinancial implications - Debt sustainability analysis and IMF program documents (Article IV, Extended Fund Facility, Extended Credit Facility) - Domestic debt operations, liability management, and distressed exchanges - Local-currency bond market development and liquidity-support frameworks - Historical and empirical studies of sovereign defaults, haircuts, and debt overhang - Ratings and market-access considerations in sovereign debt contexts ### Key cited works (selected by theme and exact citation as in source) - Sovereign domestic debt restructuring—case studies and lessons: - Ando, S., T. Asonuma, P. Mishra, and A. Sollaci. 2025. “Sovereign Debt Restructuring and Reduction in Debt-to-GDP Ratio.” SSRN Working Paper, Social Science Research Network, Rochester, NY. - Anthony, M., G. Impavido, and B. van Selm. 2020. “Barbados' 2018-19 Sovereign Debt Restructuring-A Sea Change?” IMF Working Paper 20/34, International Monetary Fund, Washington, DC. - Asonuma, Tamon, M. Xin Li, M. G. Papaioannou, S. Thomas, and E. Togo. 2017. “Sovereign Debt Restructurings in Grenada: Causes, Processes, Outcomes, and Lessons Learned.” IMF Working Paper 17/171, International Monetary Fund, Washington, DC. - Breuer, P., S. Dhungana, and M. Xin Li. 2025. “Sri Lanka’s Sovereign Debt Restructuring: Lessons from Complex Processes.” IMF Working Paper 2025/175, International Monetary Fund, Washington, DC. - Grigorian, D. A. 2023. “Restructuring Domestic Sovereign Debt: An Analytical Illustration.” IMF Working Paper 2023/024, International Monetary Fund, Washington, DC. - Buchheit, L. C., G. Chabert, C. DeLong, and J. Zettelmeyer. 2019. “How to Restructure Sovereign Debt: Lessons from Four Decades.” Working Paper 19-8, Peterson Institute for International Economics, Washington, DC. - Schmid, Juan Pedro. 2016. Addressing Debt Overhang: Experiences from Two Debt Operations in Jamaica. Policy Brief No IDB-PB-259. Washington, DC: Inter-American Development Bank. - Sovereign-bank nexus, financial stability, and bank stress: - Dell’Ariccia, G., C. Ferreira, N. Jenkinson, L. Laeven, A. Martin, C. Minoiu, and A. Popov. 2018. “Managing the Sovereign-Bank Nexus.” IMF Staff Discussion Note /18/04, International Monetary Fund, Washington, DC. - IMF. 2022. “The Sovereign-Bank Nexus in Emerging Markets: A Risky Embrace.” In Global Financial Stability Report, April, Chapter 2l. Washington, DC: International Monetary Fund. - Barrail, Z., S. Dehmej, and T. Wezel. Forthcoming. “The Sovereign-Bank Nexus in Emerging Markets and Developing Economies: Trends, Determinants and Macrofinancial Implications.” International Monetary Fund, Washington, DC. - Moody’s Investors Service. 2023. “Banking System Outlook: Africa.” Sector In-Depth. New York: Moody’s Investors Service. - IMF. 2024f. “Central Bank Stress Testing—Guidance Note.” International Monetary Fund, Washington, DC. - IMF program documents and country reports (selected exact citations): - IMF. 2010. “Jamaica: 2009 Article IV Consultation and Request for a Stand-By Arrangement.” IMF Country Report 10/267, International Monetary Fund, Washington, DC. - IMF. 2018a. “Barbados: Request for an Extended Arrangement Under the Extended Fund Facility.” IMF Country Report 18/290, International Monetary Fund, Washington, DC. - IMF. 2020a. “Argentina: Staff Technical Note on Public Debt Sustainability.” Technical Assistance Report. IMF Country Report 20/83, International Monetary Fund, Washington, DC. - IMF. 2021b. Barbados: Fifth Review Under the Extended Arrangement Under the Extended Fund Facility… IMF Country Report 21/128, International Monetary Fund, Washington, DC. - IMF. 2023b. “Ghana: Request for an Arrangement under the Extended Credit Facility.” IMF Country Report 23/168, International Monetary Fund. - IMF. 2025a. “Sri Lanka: Third Review under the Extended Arrangement under the Extended Fund Facility, Financing Assurances Review, and Monetary Policy Consultation Clause.” IMF Country Report 25/56, International Monetary Fund, Washington, DC. - IMF. 2025b. “Sri Lanka: Fourth Review under the Extended Fund Facility, Request for Wavier of Applicability of Performance Criteria, Modification of Performance Criteria, and Financing Assurances Review.” IMF Country Report 25/162, International Monetary Fund, Washington, DC. - IMF. 2025c. “Ghana: Fourth Review under the Extended Credit Facility, Request for Modification of Performance Criterion and Financing Assurances Review.” IMF Country Report 25/175, International Monetary Fund, Washington, DC. - Legal, procedural, and policy guidance on debt restructuring and information sharing: - IMF. 2023a. “Information Sharing in the Context of Sovereign Debt Restructurings.” Staff Guidance Note, International Monetary Fund. Washington, DC. - Diwan, I., and M. Kessler. 2023. “A Principled Approach to Domestic Debt Restructuring.” Finance for Development Lab, Paris. - Clifford Chance. 2023. “Restructuring Sovereign Domestic Debt and the International Financial Architecture.” Clifford Chance Briefing, London. - Government of Barbados. 2018. Debt Holder (Approval of Debt Restructuring) Act, 2018-24. - Bank of Ghana. 2021. ”Liquidity Assistance Framework.” (Available at https://www.bog.gov.gh/wp-content/uploads/2021/02/Bank-of-Ghana-Liquidity-Assistance-Framework-February-2021.pdf) Accra: Bank of Ghana. - Government of Ghana, Ministry of Finance. n.d. “Debt Operations.” (Available at: https://mofep.gov.gh/debt-operations.) - Government of Sri Lanka, Ministry of Finance. 2023. Domestic Debt Optimization Program. (Available at: https://www.treasury.gov.lk/api/file/dop) - Historical, empirical, and quantitative studies on sovereign defaults, haircuts, and market access: - Erce, A., E. Mallucci, and M. Picarelli, 2022. “A Journey in the History of Sovereign Defaults on Domestic-Law Public Debt.” International Finance Discussion Paper 1338, Board of Governors of the Federal Reserve System, Washington, DC. - Reinhart, C. M., and C. Trebesch. 2018. “Sovereign Haircuts: 200 Years of Creditor Losses.” Working Paper No. 25373. Cambridge, MA: National Bureau of Economic Research. - Reinhart, C. M., and K. Rogoff. 2013. “Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten.” Working Paper No. 13/266. Washington, DC: International Monetary Fund. - Reinhart, C. M., K. Rogoff, and M. Savastano. 2003. “Debt Intolerance.” Working Paper No. 03/44. Washington, DC: International Monetary Fund. - Guscina, A., S. Malik, and M. Papaioannou. 2017. “Assessing Loss of Market Access: Conceptual and Operational Issues.” IMF Working Paper 2017/246, International Monetary Fund, Washington, DC. - Mitchener, K. J., and C. Trebesch. 2022. Sovereign Debt in the 21st Century, NBER Working Paper Series, Working Paper 28598. - Market, advisory, and rating perspectives: - Lazard Sovereign Advisory Group. 2023. “Domestic Debt Restructuring: An Exercise in Laser Surgery.” Policy Brief presented at the IMF-led Global Sovereign Debt Roundtable Workshop, September 2023. - Lazard Sovereign Advisory Group. 2025. “The 2020-25 Sovereign Debt Crisis: What have we learnt and what lies ahead?”, Policy Brief, January. - Standard and Poor’s. 2025. “Sovereign Debt Liability Management and Distressed Exchanges.” June 11. - Fitch Ratings (2013). “Why Sovereigns Can Default on Local-Currency Debt. Printing Money No Panacea as High Inflation is a Costly Policy Option.” Special Report, May 10, New York and London. - Melville, J. 2021. “Barbados Domestic Debt Restructuring: A Retrospective Look at the Distributional Impact on Creditors.” Social and Economic Studies, Vol. 70, No. ¾. - Salmon, J. 2021. “The Impact of Public Debt on Economic Growth.” Cato Journal, Vol. 41, No. 3: 489-514. Washington, DC: Cato Institute. ### Institutional and regional materials cited - International organizations and joint guidance: - IMF and World Bank. 2021. Guidance Note For Developing Government Local Currency Bond Markets. - IMF, European Bank for Reconstruction and Development, Organisation for Economic Co-operation and Development, and World Bank. 2013. “Local Currency Bond Markets—A Diagnostic Framework.” Washington, DC. - Country and program-specific documents: - BERT (Barbados Economic Recovery and Transformation) Monitoring Committee. 2019. “Barbados Economic Recovery and Transformation Plan Monitoring Committee Public Report #1.” - Suriname Debt Management Office. 2025. “Suriname Debt Restructuring Process in 2020-2025. Recovering from a Debt Crisis.” - Government of Sri Lanka. 2025. Sri Lanka’s Public Debt Restructuring. January. Colombo: Government of Sri Lanka. *Source: wpiea2025202-source-pdf - References.* --- _Source: https://www.imf.org/-/media/files/publications/wp/2025/english/wpiea2025202-source-pdf.pdf_