Creditors’ Seniority and Sovereign Risk: Evidence from Debt Composition
IMF Working Papers, July 31, 2026
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- Creditors’ Seniority and Sovereign Risk: Evidence from Debt Composition
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Bibliographic details
- Authors: Chiara Ferrero, Sansan Vincent de Paul Kambou, Kady Keita
- Published: July 31, 2026
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229053501.001
Key findings
- Analysis covers 119 low-income and emerging market countries over the period 1980–2022.
- Using the Relative Percentage in Default (RPID) by creditor group, debt owed to the IMF and the World Bank is, on average, the most senior.
- Official bilateral creditors are, on average, the next most senior after multilateral institutions.
- Private creditors—notably bondholders and commercial banks—are on average junior to official creditors.
- Commercial banks are identified as the least prioritized creditor group for repayments.
- IMF credit outstanding as a share of GNI is robustly and negatively associated with the probability of a debt crisis (instrumental variable estimation).
- The stabilizing (crisis-preventing) effect of IMF lending weakens progressively as debt stocks rise, indicating diminished effectiveness in situations of severe debt overhang.
- IMF lending is negatively associated with sovereign bond spreads.
Empirical approach and results
- Primary measure: Relative Percentage in Default (RPID) by creditor group.
- Sample: 119 low-income and emerging market countries; period 1980–2022.
- Methodology includes instrumental variable estimation to address endogeneity in the relationship between IMF credit outstanding and sovereign risk.
- Main empirical relationships documented:
- Negative association between IMF credit outstanding as a share of GNI and the probability of a debt crisis.
- Progressive weakening of that negative association with higher debt stocks.
- Negative association between IMF lending and sovereign bond spreads.
Economic interpretation and policy implications
- Creditor composition has economically meaningful implications for sovereign risk and borrowing costs.
- The de facto seniority hierarchy places multilateral institutions (IMF, World Bank) at the top, official bilateral creditors next, and private creditors (bondholders, commercial banks) lower in priority.
- IMF lending appears to play a crisis-preventing and spread-reducing role, but its effectiveness is constrained when sovereigns face severe debt overhang.
- Policy consideration: the stabilizing role of IMF credit may be most potent at moderate debt levels and less effective at very high debt stocks, implying that debt composition and debt relief or restructuring policies matter for crisis prevention and cost of borrowing.
Chiara Ferrero, Sansan Vincent de Paul Kambou, and Kady Keita. July 31, 2026. "Creditors’ Seniority and Sovereign Risk: Evidence from Debt Composition", IMF Working Paper No. 2026/161.
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