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The Seniority Structure of Sovereign Debt

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  • 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.

Suggested Citation

  • Matthias Schlegl & Christoph Trebesch & Mark L.J. Wright, 2019. "The Seniority Structure of Sovereign Debt," NBER Working Papers 25793, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25793
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    Cited by:

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    3. 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.
    4. 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.
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    6. 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.
    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. Horn, Sebastian & Reinhart, Carmen M. & Trebesch, Christoph, 2021. "China's overseas lending," Journal of International Economics, Elsevier, vol. 133(C).
    9. Elard, Ilaf, 2020. "Three-player sovereign debt negotiations," International Economics, Elsevier, vol. 164(C), pages 217-240.
    10. Marchesi, Silvia & Masi, Tania, 2021. "Life after default. Private and official deals," Journal of International Money and Finance, Elsevier, vol. 113(C).
    11. 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.
    12. Marchesi, Silvia & Masi, Tania, 2020. "Sovereign rating after private and official restructuring," Economics Letters, Elsevier, vol. 192(C).
    13. Cordella, Tito & Powell, Andrew, 2021. "Preferred and non-preferred creditors," Journal of International Economics, Elsevier, vol. 132(C).
    14. Enrique Alberola-Ila & Carlos Cantú & Paolo Cavallino & Nikola Mirkov, 2021. "Fiscal regimes and the exchange rate," BIS Working Papers 950, Bank for International Settlements.
    15. Silvia Marchesi & Tania Masi, 2020. "The price of haircuts: private and official default," Development Working Papers 460, Centro Studi Luca d'Agliano, University of Milano, revised 06 Feb 2020.
    16. Silvia Marchesi & Tania Masi & Pietro Bomprezzi, 2021. "Is to Forgive to Forget? Sovereign Risk in the Aftermath of a Default," Development Working Papers 475, Centro Studi Luca d'Agliano, University of Milano.
    17. 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.
    18. Accominotti, Olivier & Albers, Thilo & Oosterlinck, Kim, 2024. "Selective default expectations," LSE Research Online Documents on Economics 120657, London School of Economics and Political Science, LSE Library.
    19. 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).
    20. 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.
    21. Liu, Yan & Marimon, Ramon & Wicht, Adrien, 2023. "Making sovereign debt safe with a financial stability fund," Journal of International Economics, Elsevier, vol. 145(C).

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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • G1 - Financial Economics - - General Financial Markets

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