Sleep now in the fire: Sovereign Bonds and the Covid-19 Debt Crisis

Public debt levels have been on the rise over the past decade and this dynamic has been exacerbated further by the Covid-19 pandemic. This report aims to shed light on the lack of transparency
in the case of sovereign bonds of middle- and low-income countries.

Developing countries buckling under the weight of the pandemic are yet to receive debt relief from private creditors. Meanwhile hundreds of millions are suffering and investors have amassed record profits collecting public debt repayments throughout the pandemic.

The first step towards addressing this unacceptable situation is a clear diagnosis of the problem. Unfortunately, a lack of transparency on public debt has turned this assessment into a challenging process and sovereign bonds are a central part of this problem. Despite their status as public contracts, there is a substantial lack of transparency when it comes to the terms, clauses and participants in bond markets. Without a clear understanding of these crucial issues, efforts to ensure private creditor participation are bound to fail.

To safeguard the lives and rights of people across developing countries, this report calls for concrete measures to improve transparency on sovereign bonds and ensure private creditor participation in debt relief. These include the following:

  • The establishment of a public registry system for loan and debt data, including full disclosure of information on sovereign bonds.
  • Improved regulations for disclosures of bond contracts and holdings by underwriters and investors such as investment banks and hedge funds.
  • The adoption of a statutory approach for private creditor participation in debt relief under a multilateral sovereign debt workout mechanism. Such a mechanism is vital to address the structural power imbalance between creditors and debtors and provide a level playing field for equitable debt resolution that places human rights at the centre of the multilateral response.

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Nerea Craviotto
Iolanda Fresnillo
Financial Transparency Coalition
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