## The Debt Pandemic – IMF F&D ## Source details **Canonical URL:** [The Debt Pandemic – IMF F&D](https://www.imf.org/en/publications/fandd/issues/2020/09/debt-pandemic-reinhart-rogoff-bulow-trebesch) ## Other formats - [Markdown version](/en/publications/fandd/issues/2020/09/debt-pandemic-reinhart-rogoff-bulow-trebesch/index.md) - [Structured JSON version](/en/publications/fandd/issues/2020/09/debt-pandemic-reinhart-rogoff-bulow-trebesch/index.json) - [Bundle manifest](/en/publications/fandd/issues/2020/09/debt-pandemic-reinhart-rogoff-bulow-trebesch/bundle-manifest.json) ## Bibliographic details - Authors: JEREMY BULOW, CARMEN REINHART, KENNETH ROGOFF, CHRISTOPH TREBESCH - Published: September 1, 2020 --- ### Scope and immediate findings - The COVID-19 pandemic has greatly lengthened the list of developing and emerging market economies in debt distress; for some, a crisis is imminent. - Default rates are rising, and the need for debt restructuring is growing. - Emerging market governments issued $124 billion in hard currency debt during the first six months of 2020, with two-thirds of the borrowing coming in the second quarter. - Remittances from emerging market citizens working in other countries are expected to drop by more than 20 percent this year. - Rising budget pressures have been accompanied by a new wave of sovereign debt downgrades, surpassing peaks during prior crises. - History: a review of 89 default episodes from 1827 to 2003 shows the typical experience to be a sharp rise in borrowing, both external and domestic, in the run-up to default. - Default episodes have taken, on average, seven years to resolve and typically involve multiple restructurings. ### Role of multilateral lenders, official creditors, and private creditors - The IMF, the World Bank, and other multilaterals acted quickly to provide funding as government revenues collapsed and private capital flows stopped. - G20 creditors granted a debt moratorium to the world’s poorest countries and have encouraged private lenders to follow suit, with little success. - Although official sector loans are theoretically senior to private sector claims, historical experience often shows private creditors extracting outsize shares of repayment. - When private investors retrench, official lenders often step in; official creditors may end up bearing the bulk of losses even when they start with little of the outstanding debt. - Private creditors increasingly use holdout and litigation tactics; as restructurings have declined, an increasing share of them have involved lawsuits. ### Risks and outlook scenarios - The riskiest period may still lie ahead: the first wave is not over; experience from the 1918 influenza pandemic suggests the possibility of an even more severe second wave, especially if it takes until mid-2021 (or later) for an effective vaccine to become widely available. - Even in the best-case scenario, international travel will face roadblocks, and uncertainty among consumers and businesses is likely to remain high. - The COVID-19 crisis could, in the worst case, lead to another “lost decade” in development, with long delays in debt resolution. - Businesses in emerging markets have continued to accumulate foreign currency debt; under severe duress, governments may bail out corporate national champions, increasing public liabilities. ### Preexisting conditions worsening debt workouts - First preexisting condition: private creditors are increasingly claiming outsize shares of repayment in restructurings; analysis comparing haircuts taken by official and private creditors raises further doubt about official seniority. - Second preexisting condition: debt crises tend to drag on; delay can lead to repeated restructurings, bargaining for larger official infusions, and “evergreening” of debt by creditors. ### Practical policy recommendations to improve outcomes - More transparency on debt data and debt contracts - Strengthen transparency of debt statistics (World Bank, IMF, and G20 should insist on this). - Increase disclosure on China’s bilateral lending where nondisclosure clauses currently obscure a full picture. - Provide more granular data on private sector creditor exposure, including full disclosure on sovereign bond ownership and credit default swaps. - Improve domestic accounts: better data on domestic debt, debt owed by state-owned enterprises, and pension burdens. - Realistic economic forecasts that incorporate downside risks - Adopt realistic growth forecasts to avoid underestimating near-term financing needs and overestimating a country’s capacity to service debt. - Earlier detection of insolvency and identification of cases needing large write-downs can speed resolution. - New legislation to support orderly sovereign debt restructurings - National legislation in jurisdictions governing international bonds or payment processing can promote a more level playing field (examples in the text: UK 2010 law for HIPC participants; Belgium 2015 Anti–Vulture Funds Law). - Legislation could cap amounts reclaimable from defaulted government bonds bought at deep discounts. - Facilitate majority restructurings to allow a sovereign and a qualified majority of creditors to reach an agreement binding on all creditors subject to the restructuring. ### Desired objectives and concluding position - The global pandemic merits a generous response from official and private creditors toward emerging market and developing economies, including preserving the global trading system and helping countries weather debt problems. - It is essential to ensure inter-creditor equity and fair burden sharing, especially between official and private creditors. - The more official aid and soft loans can go toward helping needy citizens—and the less such assistance ends up as debt repayments to uncompromising creditors—the better. *Authors: JEREMY BULOW; CARMEN M. REINHART; KENNETH ROGOFF; CHRISTOPH TREBESCH.* --- ## Content in this bundle - **The Debt Pandemic – IMF F&D** - [The Debt Pandemic – IMF F&D (Markdown version)](/-/media/files/publications/fandd/article/2020/september/debt-pandemic-reinhart-rogoff-bulow-trebesch.pdf.md){rel="alternate" type="text/markdown"} - [The Debt Pandemic – IMF F&D (PDF)](/-/media/files/publications/fandd/article/2020/september/debt-pandemic-reinhart-rogoff-bulow-trebesch.pdf){rel="external" type="application/pdf"} - **Pandemia de deuda por la COVID-19 ● Finanzas y Desarrollo ● Septiembre de 2020** - [Pandemia de deuda por la COVID-19 ● Finanzas y Desarrollo ● Septiembre de 2020 (Markdown version)](/-/media/files/publications/fandd/article/2020/september/es/pandemia-deuda-reinhart-rogoff-bulow-trebesch.pdf.md){rel="alternate" type="text/markdown"} - [Pandemia de deuda por la COVID-19 ● Finanzas y Desarrollo ● Septiembre de 2020 (PDF)](/-/media/files/publications/fandd/article/2020/september/es/pandemia-deuda-reinhart-rogoff-bulow-trebesch.pdf){rel="external" type="application/pdf"} - **La pandémie de la dette** - [La pandémie de la dette (Markdown version)](/-/media/files/publications/fandd/article/2020/september/fr/pandemie-de-la-dette-reinhart-rogoff-bulow-trebesch.pdf.md){rel="alternate" type="text/markdown"} - [La pandémie de la dette (PDF)](/-/media/files/publications/fandd/article/2020/september/fr/pandemie-de-la-dette-reinhart-rogoff-bulow-trebesch.pdf){rel="external" type="application/pdf"} --- _Source: https://www.imf.org/en/publications/fandd/issues/2020/09/debt-pandemic-reinhart-rogoff-bulow-trebesch_