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Debtor (non-)participation in sovereign debt relief: A real option approach

Author

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  • Cassimon, Danny
  • Essers, Dennis
  • Presbitero, Andrea
Abstract
Developing countries have recently proved reluctant to participate in sovereign debt moratoria and debt relief initiatives. We argue that debtors' (non-)participation decisions can be understood through the lens of real options. Eligible countries compare the net benefits of participating in a debt relief initiative now with the value of waiting to potentially execute their participation option later, when they may have more information on the benefits and costs. We corroborate the real option framing with anecdotal evidence and through a survival analysis that exploits cross-country and time variation in the requests to participate in the Debt Service Suspension Initiative (DSSI), which provided temporary debt moratoria during the COVID-19 pandemic. Structured along the policy levers suggested by the real option framework, we discuss a number of ways in which participation in debt relief initiatives can be made more attractive to debtor countries.

Suggested Citation

  • Cassimon, Danny & Essers, Dennis & Presbitero, Andrea, 2023. "Debtor (non-)participation in sovereign debt relief: A real option approach," CEPR Discussion Papers 18415, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18415
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    File URL: https://cepr.org/publications/DP18415
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    Keywords

    Sovereign debt; Real options; Survival analysis;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements

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