DP15832 Borrowing Costs after Sovereign Debt Relief
|Author(s):||Valentin Lang, David Mihalyi, Andrea Presbitero|
|Publication Date:||February 2021|
|Keyword(s):||Debt Relief, Debt Service Suspension Initiative, developing countries, Sovereign bond spreads, Sovereign debt|
|JEL(s):||F34, H63, O23|
|Programme Areas:||International Macroeconomics and Finance|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15832|
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.