Working Paper: NBER ID: w25793
Authors: Matthias Schlegl; Christoph Trebesch; Mark L.J. Wright
Abstract: Sovereign governments owe debt to many foreign creditors and can choose which creditors to favor when making payments. This paper documents the de facto seniority structure of sovereign debt using new data on defaults (missed payments or arrears) and creditor losses in debt restructuring (haircuts). We overturn conventional wisdom by showing that official bilateral (government-to-government) debt is junior, or at least not senior, to private sovereign debt such as bank loans and bonds. Private creditors are typically paid first and lose less than bilateral official creditors. We confirm that multilateral institutions such as the IMF and World Bank are senior creditors.
Keywords: Sovereign Debt; Creditor Seniority; Debt Restructuring
JEL Codes: F3; F4; F5; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| IMF (F33) | repayment prioritization (G51) |
| bilateral official debt (F34) | repayment prioritization (G51) |
| private creditors (F34) | repayment prioritization (G51) |
| bilateral official debt (F34) | likelihood of default (G33) |
| private creditors (F34) | likelihood of default (G33) |
| creditor type (F34) | average haircut (P22) |
| IMF (F33) | creditor seniority (G33) |
| multilateral creditors (F34) | creditor seniority (G33) |
| trade creditors (G32) | creditor seniority (G33) |