⚠️Automatic translation pending review by an economist.
A sovereign debt restructuring is, within a legally defined framework, an exchange of sovereign debt financial instruments (loans or bonds) for cash or a new financial instrument. There are three types of debt restructuring:
– debt refinancing: lowering interest rates to reduce debt servicing costs, extending the maturity of existing debt
– debt reduction: reduction in the nominal value of the debt stock
– debt buyback for cash: this means that the government concerned repays the debt now at a favorable rate
Between 1950 and 2010, 60% of sovereign debt restructurings involved debt refinancing, 30% involved debt reduction, and 10% involved debt buybacks (Source: U. Das, M. Papaioannou, and C. Trebesch, IMF 2013).
