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Borrowing Costs after Sovereign Debt Relief

Andrea Presbitero and David Mihalyi

No 15832, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Can debt moratoria help countries weather negative shocks? We study the bond market effects of an official debt service suspension endorsed by the international community during the Covid-19 pandemic. Using daily data on sovereign bond spreads and synthetic control methods, we show that countries eligible for official debt relief experience a larger decline in borrowing costs compared to similar, ineligible countries. This decline is stronger for countries that receive a larger relief, suggesting that the effect works through liquidity provision. By contrast, the results do not support the concern that official debt relief could generate stigma on financial markets.

Keywords: Debt relief; Sovereign debt; Developing countries; Sovereign bond spreads; Debt service suspension initiative (search for similar items in EconPapers)
JEL-codes: F34 H63 O23 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (3)

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