As they fight the Covid-19 pandemic, countries across the world are pushed to spend big to weather the crisis. Due to their limited fiscal capacity, many low- and middle-income countries are facing debt distress which might lead to a future debt restructuring process. With the current conventional instrument of sovereign debt, debt restructuring is a painful process and sometimes hurts the economy more than is necessary. To improve the current approach, we propose an alternative sovereign debt instrument with the critical features of an automatic, rules-based restructuring process for bonds issued and a guarantee provided under this facility.
ISPI e Università di Torino