Borrowing Costs After Sovereign Debt Relief

39 Pages Posted: 12 Oct 2020 Last revised: 22 Feb 2021

See all articles by Valentin Lang

Valentin Lang

University of Zurich

David Mihalyi

Natural Resource Governance Institute (NRGI)

Andrea Presbitero

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: October 29, 2020


Can debt moratoria help countries weather negative shocks? We study the bond market effects of an official debt service suspension endorsed by the international community during the Covid-19 pandemic. Using daily data on sovereign bond spreads and synthetic control methods, we show that countries eligible for official debt relief experience a larger decline in borrowing costs compared to similar, ineligible countries. This decline is stronger for countries that receive a larger relief, suggesting that the effect works through liquidity provision. By contrast, the results do not support the concern that official debt relief could generate stigma on financial markets.

Keywords: Debt relief; Sovereign debt, Developing countries, Sovereign bond spreads, Debt Service Suspension Initiative

JEL Classification: F34, H63, O23

Suggested Citation

Lang, Valentin and Mihalyi, David and Presbitero, Andrea, Borrowing Costs After Sovereign Debt Relief (October 29, 2020). Available at SSRN: or

Valentin Lang

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006

David Mihalyi

Natural Resource Governance Institute (NRGI) ( email )

80 Broad Street
New York, NY 10004
United States

Andrea Presbitero (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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