{
  "title": "The Perils of Bilateral Sovereign Debt",
  "publication": "IMF Working Papers, November 7, 2025",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2025/11/07/the-perils-of-bilateral-sovereign-debt-571475",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2025/11/07/the-perils-of-bilateral-sovereign-debt-571475",
  "overlayPath": "/en/publications/wp/issues/2025/11/07/the-perils-of-bilateral-sovereign-debt-571475/index.md",
  "summary": "We study the interaction between private and official sovereign debts. We develop a quantitative sovereign default model featuring a senior creditor with whom borrowing terms are negotiated.",
  "sections": [
    {
      "heading": "Summary and research question",
      "content": "- We study the interaction between private and official sovereign debts.\n- We develop a quantitative sovereign default model featuring a senior creditor with whom borrowing terms are negotiated.\n- We use this model to evaluate implications of the emergence of new official lenders not bound by the Paris Club framework."
    },
    {
      "heading": "Model features and mechanism",
      "content": "- Quantitative sovereign default model with a senior creditor negotiating borrowing terms.\n- Key modeled mechanism: endogenous cross-elasticity of bilateral terms to market debt, which generates a relational overborrowing effect."
    },
    {
      "heading": "Main findings",
      "content": "- The dynamics of bilateral bargaining lead the government to issue more market debt.\n- Increased market debt raises default risk.\n- The increase in default risk creates welfare losses.\n- The relational overborrowing effect arises in the model due to an endogenous cross-elasticity of bilateral terms to market debt.\n- The cross-elasticity can be assessed in practice to evaluate new forms of bilateral sovereign debt."
    },
    {
      "heading": "Policy implications and evaluation use",
      "content": "- The model can be used to evaluate implications of the emergence of new official lenders not bound by the Paris Club framework.\n- Practical assessment of the endogenous cross-elasticity can inform evaluation of new forms of bilateral sovereign debt and their potential welfare and risk consequences."
    },
    {
      "heading": "Metadata and classification",
      "content": "- Authors: Francisco Roldan, Cesar Sosa Padilla\n- Publication date: November 7, 2025\n- Series: Working Paper No. 2025/235\n- Issue: 235\n- Volume: 2025\n- Pages: 30\n- DOI: https://doi.org/10.5089/9798229027878.001\n- Stock No: WPIEA2025235\n- ISBN: 9798229027878\n- ISSN: 1018-5941\n- Subjects: Debt default; External debt; Financial institutions; Financial markets; Loans; Public and publicly-guaranteed external debt; Public debt; Securities markets\n- Keywords: bilateral bargaining; borrowing country; Debt default; debt dilution; debt price; default probability; Global; IMF working papers; large lender; Loans; market debt; official debt; Public and publicly-guaranteed external debt; Securities markets; Sovereign debt\n\nIMF Working Papers — The Perils of Bilateral Sovereign Debt, Francisco Roldan and Cesar Sosa Padilla, November 7, 2025; Working Paper No. 2025/235; DOI: https://doi.org/10.5089/9798229027878.001\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2025/11/07/the-perils-of-bilateral-sovereign-debt-571475"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2025/11/07/the-perils-of-bilateral-sovereign-debt-571475/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2025/11/07/the-perils-of-bilateral-sovereign-debt-571475/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2025/11/07/the-perils-of-bilateral-sovereign-debt-571475/bundle-manifest.json)",
    "Authors: Francisco Roldan, Cesar Sosa Padilla",
    "Published: November 7, 2025",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798229027878.001",
    "We study the interaction between private and official sovereign debts.",
    "We develop a quantitative sovereign default model featuring a senior creditor with whom borrowing terms are negotiated.",
    "We use this model to evaluate implications of the emergence of new official lenders not bound by the Paris Club framework.",
    "Quantitative sovereign default model with a senior creditor negotiating borrowing terms.",
    "Key modeled mechanism: endogenous cross-elasticity of bilateral terms to market debt, which generates a relational overborrowing effect.",
    "The dynamics of bilateral bargaining lead the government to issue more market debt.",
    "Increased market debt raises default risk.",
    "The increase in default risk creates welfare losses.",
    "The relational overborrowing effect arises in the model due to an endogenous cross-elasticity of bilateral terms to market debt.",
    "The cross-elasticity can be assessed in practice to evaluate new forms of bilateral sovereign debt.",
    "The model can be used to evaluate implications of the emergence of new official lenders not bound by the Paris Club framework.",
    "Practical assessment of the endogenous cross-elasticity can inform evaluation of new forms of bilateral sovereign debt and their potential welfare and risk consequences.",
    "Authors: Francisco Roldan, Cesar Sosa Padilla",
    "Publication date: November 7, 2025",
    "Series: Working Paper No. 2025/235",
    "Issue: 235",
    "Volume: 2025",
    "Pages: 30",
    "DOI: https://doi.org/10.5089/9798229027878.001",
    "Stock No: WPIEA2025235",
    "ISBN: 9798229027878",
    "ISSN: 1018-5941",
    "Subjects: Debt default; External debt; Financial institutions; Financial markets; Loans; Public and publicly-guaranteed external debt; Public debt; Securities markets",
    "Keywords: bilateral bargaining; borrowing country; Debt default; debt dilution; debt price; default probability; Global; IMF working papers; large lender; Loans; market debt; official debt; Public and publicly-guaranteed external debt; Securities markets; Sovereign debt",
    "**Working Paper**"
  ],
  "related": [
    {
      "title": "Working Paper",
      "role": "paper",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2025/english/wpiea2025235-source-pdf.pdf",
      "summary": {
        "path": "/-/media/files/publications/wp/2025/english/wpiea2025235-source-pdf.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/wp/2025/english/wpiea2025235-source-pdf.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2025/11/07/the-perils-of-bilateral-sovereign-debt-571475/index.md",
    "json": "/en/publications/wp/issues/2025/11/07/the-perils-of-bilateral-sovereign-debt-571475/index.json",
    "bundleManifest": "/en/publications/wp/issues/2025/11/07/the-perils-of-bilateral-sovereign-debt-571475/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-17T02:37:46.770Z"
}