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The Seniority Structure of Sovereign Debt

Author

Listed:
  • Mark Wright

    (Federal Reserve Bank of Minneapolis)

Abstract
We study the implicit seniority structure of sovereign debt, using new data on missed payments (arrears) towards six types of external creditors. The data reveal a clear pecking order of sovereign debt repayment and default. As expected, at the top are multilateral ocial creditors such as the IMF and the World Bank, who are least likely to be defaulted upon. Surprisingly, bilateral ocial creditors are junior to sovereign bondholders, especially in the period after 1990. Most junior are commercial banks and trade creditors. This pecking order is conrmed after controlling for a country's debt structure, economic fundamentals, and time and country xed eects. The seniority structure also holds when studying the outcome of sovereign debt restructurings, by comparing creditor losses (haircuts) on private and ocial external debt: On average, private creditors face signicantly lower haircuts than ocial creditors. Our results pose a challenge for the theoretical literature on sovereign debt.

Suggested Citation

  • Mark Wright, 2018. "The Seniority Structure of Sovereign Debt," 2018 Meeting Papers 928, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:928
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    Cited by:

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    3. Schumacher, Julian & Trebesch, Christoph & Enderlein, Henrik, 2021. "Sovereign defaults in court," Journal of International Economics, Elsevier, vol. 131(C).
    4. Silvia Marchesi & Tania Masi & Pietro Bomprezzi, 2024. "Is to Forgive to Forget? Sovereign Risk in the Aftermath of Private or Official Debt Restructurings," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(1), pages 292-334, March.
    5. Giancarlo Corsetti & Aitor Erce & Timothy Uy, 2020. "Official sector lending during the euro area crisis," The Review of International Organizations, Springer, vol. 15(3), pages 667-705, July.
    6. Mihalyi, David & Trebesch, Christoph, 2023. "Who lends to Africa and how? Introducing the Africa Debt Database," Kiel Working Papers 2217, Kiel Institute for the World Economy (IfW Kiel), revised 2023.
    7. Josefin Meyer & Carmen M Reinhart & Christoph Trebesch, 2022. "Sovereign Bonds Since Waterloo," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1615-1680.
    8. Graf von Luckner, Clemens M. & Meyer, Josefin & Reinhart, Carmen M. & Trebesch, Christoph, 2024. "Sovereign haircuts: 200 years of creditor losses," Kiel Working Papers 2270, Kiel Institute for the World Economy (IfW Kiel).
    9. Sebastian Horn & Carmen M. Reinhart & Christoph Trebesch, 2022. "Hidden Defaults," AEA Papers and Proceedings, American Economic Association, vol. 112, pages 531-535, May.
    10. Beers, David & de Leon-Manlagnit, Patrisha, 2019. "The BoC-BoE sovereign default database: what’s new in 2019?," Bank of England working papers 829, Bank of England.
    11. Horn, Sebastian & Reinhart, Carmen M. & Trebesch, Christoph, 2021. "China's overseas lending," Journal of International Economics, Elsevier, vol. 133(C).
    12. Elard, Ilaf, 2020. "Three-player sovereign debt negotiations," International Economics, Elsevier, vol. 164(C), pages 217-240.
    13. Yan Liu & Ramon Marimon & Adrien Wicht, 2022. "Making sovereign debt safe with a financial stability fund," Economics Working Papers 1829, Department of Economics and Business, Universitat Pompeu Fabra.
    14. Marchesi, Silvia & Masi, Tania, 2021. "Life after default. Private and official deals," Journal of International Money and Finance, Elsevier, vol. 113(C).
    15. Olivier Accominotti & Thilo N H Albers & Kim Oosterlinck, 2024. "Selective Default Expectations," The Review of Financial Studies, Society for Financial Studies, vol. 37(6), pages 1979-2015.
    16. Martin Guzman & Domenico Lombardi, 2018. "Assessing the Appropriate Size of Relief in Sovereign Debt Restructuring," Documentos de trabajo del Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET) 2018-26, Universidad de Buenos Aires, Facultad de Ciencias Económicas, Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET).
    17. Cui, Wei, 2017. "Macroeconomic effects of delayed capital liquidation," LSE Research Online Documents on Economics 86156, London School of Economics and Political Science, LSE Library.
    18. Kapelko, Magdalena & Oude Lansink, Alfons & Zofío, José L., 2022. "Endogenous dynamic inefficiency and optimal resource allocation: An application to the European Dietetic Food Industry," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1444-1457.
    19. Marchesi, Silvia & Masi, Tania, 2020. "Sovereign rating after private and official restructuring," Economics Letters, Elsevier, vol. 192(C).
    20. Cordella, Tito & Powell, Andrew, 2021. "Preferred and non-preferred creditors," Journal of International Economics, Elsevier, vol. 132(C).
    21. Bai, Ye & Banerji, Sanjay & Wang, Zilong & Zhang, Wenjing, 2024. "Can participation in IMF programs facilitate sovereign debt rescheduling? The role of program size," Journal of International Money and Finance, Elsevier, vol. 144(C).
    22. Liu, Yan & Marimon, Ramon & Wicht, Adrien, 2023. "Making sovereign debt safe with a financial stability fund," Journal of International Economics, Elsevier, vol. 145(C).
    23. Enrique Alberola-Ila & Carlos Cantú & Paolo Cavallino & Nikola Mirkov, 2021. "Fiscal regimes and the exchange rate," BIS Working Papers 950, Bank for International Settlements.

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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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