Can debt moratoria help countries weather negative shocks? We exploit the Debt Service Suspension Initiative (DSSI) to study the bond market effects of deferring official debt repayments. 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.
Lang, Valentin, David Mihalyi, and Andrea F. Presbitero.
"Borrowing Costs after Sovereign Debt Relief."
American Economic Journal: Economic Policy,
International Lending and Debt Problems
Asset Pricing; Trading Volume; Bond Interest Rates
National Debt; Debt Management; Sovereign Debt
Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance