Sovereign Debt After Covid-19: The Wrong View

by Nicolás Cachanosky
The American Institute for Economic Research

World economies were hit hard by Covid-19. The effects have been especially severe in underdeveloped countries, where economies are weaker and healthcare infrastructure is more limited. Covid-19 forced some underdeveloped economies to choose between serving their population’s needs during these difficult times and serving their sovereign debt. This has raised concerns regarding the fragility of the sovereign debt market.

International institutions and analysts are starting to pay attention to the future of the sovereign debt market. Kristalina Georgieva (International Monetary Fund) and Sigrid Kaag (Minister of Foreign Trade and Development for the Netherlands) argue that developed economies “need to do more to help countries with unsustainable debt burdens” because “low-income developing countries need strong financial support.” Similarly, Willem H. Buiter (Columbia University) and Anne Sibert (University of London) argue that the mechanisms of sovereign debt restructuration need to be revised because of the pressure that debtor countries receive when defaulting on their debt obligations.

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