Sovereign Debt Restructuring: Knowing How to Navigate in Turbulent Waters

With the Covid-19 pandemic, public debts will reach unprecedented levels around the world, and many countries are already struggling to meet their obligations. The future of our societies will depend on the ability of governments to support such levels of debt, or, if need be, to devise appropriate strategies to reduce them. Governments are unequal in terms of debt, with some of them perfectly able to support a debt weighing almost twice the GDP when others are forced into default with significantly lower debt ratios. The actions of central banks play a very large role in explaining this phenomenon. To measure the risks of a debt crisis, other indicators are therefore more relevant than a simple measure of the stock compared to GDP. The ability to refinance debt and the weight of the interest burden on the budget are key indicators. When debt restructuring becomes inevitable, developing countries face a new landscape in which traditional players - like the Club de Paris - no longer play the leading role. It is therefore necessary to reflect on initiatives to recreate an effective international framework promoting orderly restructuring processes.