 Sustainable Debt Restructuring in the time of Covid 19: Investment and Non-Elite ParticipationSayantan Ghosal and Dania Thomas Working Papers from Business School - Economics, University of Glasgow Abstract: This paper demonstrates that the medium-term consequences of the Covid 19 shock on developing countries depends on how sovereign debt obligations are restructured now. We develop a necessary and sufficient condition for sustainable debt restructuring which implies an upper bound on the interest rate which debt is restructured. We show that this upper bound on the interest rate is increasing in the level of financing (the sum of debt repayments rolled over, debt write-downs and new investment). We use our result to examine the sustainability of a debt standstill. Using data from the UN Economic Commission for Africa, we carry out a simple calibration exercise to quantify the impact of investment on interest rate charged. We examine the role of contingent contracts and show they may have a limited role in ensuring debt sustainability. We examine the role of creditor heterogeneity and debtor moral hazard and demonstrate that participation in the debt restructuring process by community groups, civil society organisations is key to restoring sustainability. Keywords: Debt; restructuring; sustainability; investment; negative shock; political economy; elite; non-elite; UNCTAD road map (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2020_17 Access Statistics for this paper More papers in Working Papers from Business School - Economics, University of Glasgow Contact information at EDIRC. |
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