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Queen Mary Global Policy Institute

Good Practices in Sovereign Debt Borrowing

The coronavirus pandemic, and the resulting collapse in economic activity, have significantly increased the risk of debt distress in many countries, especially the poorest ones. A number of initiatives, notably the G20 debt relief for the world’s poorest countries, have been unveiled to avert instances where servicing existing debt would compound and constrain those countries’ response to the crisis. 

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A montage of banknotes from various African countries.
A montage of banknotes from various African countries.

As the debt position of many countries and its long-term sustainability have been extensively scrutinised – and debt interest have increased as a result – the importance of assessing the real need to incur new debts and to improve transparency in sovereign borrowing has been also recognised.

Hence the theme of the recent Queen Mary Global Policy Institute event Good Practices in Sovereign Debt Borrowing, held in partnership with the Institute for Global Law Economics and Finance (IGLEF) at Queen Mary, brought together global experts on sovereign debt. 

Sovereign debt scandals

Several recent debt scandals confirm that debts sometimes are wrongly incurred, or the purpose of their use is not the appropriate one. It is clearly important to deal with debt ex post (debt incurred after the fact) and ensure that countries can manage distress situations. This has been evident through several restructuring situations. It is, however, equally important to deal with debt ex ante (referring to future events); assessing whether and at which conditions countries should incur in debt obligations. Focusing on debt resolution will only deal with the problems as they occur but it will not attempt to tackle the source. 

The panel of the Good Practices in Sovereign Debt Borrowing event.
The panel of the Good Practices in Sovereign Debt Borrowing event.

The panel discussion featured presentations from Barry Eichengreen, Professor in Economics and Political Science (University of California Berkeley), Anne O. Krueger, Former Chief Economist (World Bank) and Managing Director (IMF) as well as Alonso Soto, journalist with Bloomberg. Other presentations came from W. Gyude Moore, Senior Policy Officer (Center for Global Development), Rodrigo Olivares-Caminal, Professor in Banking and Finance Law (Queen Mary University of London) and Paola Subacchi, Professor in International Economics (Queen Mary Global Policy Institute). 

An interconnected world

A map of the world made up of banknotes from different countries.
A map of the world made up of banknotes from different countries.

Opening the event, Professor Colin Grant, Vice-Principal for International at Queen Mary University of London said: "The world of contagion, whether it is zoonotic or financial, or political or technological, has hammered home an obvious but simple message; we are all interconnected. 

"Asymmetries, exclusions, and perhaps of more direct relevance today, endless debt, are causing terrible damage. The hour for transparency and sustainability of sovereign debt is upon us. I for one hope that we can rise to the legal, financial and ethical challenge of our age."

Professor Rodrigo Olivares-Caminal provided the panel with an overview of the current situation. 

Professor Olivares-Caminal said: "We are moving towards a common framework which tries to bring China into the equation […] I am not sure that we are living in a situation which is that different from previous scenarios. Countries are facing financial difficulties, these can be temporary, created by issues related to Covid. What Covid has done has accelerated something that was in the making. Zambia, for example, is a country that had been facing financial difficulties for quite some years now. Basically what has happened, because of Covid, is that it has accelerated something which was unavoidable. 

"The bottom line is that we are once again encountering countries that have over borrowed and now they have to face the music or situations where there have been sudden external shocks and they do not have sufficient buffers, or they need liquid assistance to cope with the current environment. In that sense I would say that we are not in such a different scenario or situation."

Watch the event

To hear directly from our distinguished panel about the challenges of sovereign debt, watch the recording of the event below: