The world is currently facing an unprecedented level of sovereign debt – and amount is continuing to pile up in the wake of the Covid-19 pandemic. The Global Policy Institute (GPI) and the Institute for Global Law Economics and Finance (IGLEF) hosted an online seminar where Professor Rodrigo Olivares-Caminal and Professor Paola Subacchi set out the findings of their latest research on creating a sustainable debt management framework.
The state of sovereign borrowing was critical prior to the Covid-19 pandemic, with several countries already facing limited fiscal space and increasing levels of debt, but the situation has deteriorated, tipping some economies over the edge.
The paper, The Debt Burden: How to Create a Better Debt Management Framework, changes the focus from ex-post debt management (after the fact) to ex-ante (before the event).
Professor Rodrigo Olivares-Caminal, Professor of Banking and Finance Law at Queen Mary said: “I think what we have been seeing lately, with the build-up of debt is that we tend to be running behind, trying to solve the problems. We will always be arriving late and having to deal with the debt, and dealing with the problems that the debt creates. We think that the focus should be on prevention. It is more about the problem not being generated in the first place rather than seeing how we cure and deal with it.”
Professor Paola Subacchi, Professor of International Economics at Queen Mary emphasised the importance of having a robust debt management framework, especially given the current crisis. Professor Subacchi said: “The key point and key research question is around crisis prevention. We have tried to demonstrate why it is important to look at the ex-ante and prevent debt accumulation. A point we make in our paper is that no matter how orderly the crisis resolution is, and the debt restructuring is, it is still a very costly, painful and disruptive process. Therefore, it is better to think about preventing crises.”
During the course of the seminar, Professor Olivares-Caminal and Professor Subacchi discussed the specific initiatives that could be put in place to address the causes and consequences of the debt problem. They highlighted how a lack of transparency has hindered accurate debt sustainability assessments, as well as investment analyses policy lessons, which are critical to successful debt management.
Professor Rodrigo Olivares-Caminal added that the rule of law also plays an important role in managing sovereign debt. “In the aftermath of recent scandals, we are trying to use certain principles, or the law of other jurisdictions, to hold people accountable. We need to fight opportunism and we need to fight corruption and for that we need the rule of law.”
The seminar was chaired by Karin Strohecker (Thomson Reuters) and discussants included Federico Bonaglia (Deputy Director, OECD Development Centre) Yannis Manuelides (Partner, Allen & Overy) Gelsomina Vigliotti (Director General for International Financial Relations, Italian Treasury). Watch a recording of the event below:
For media information, contact: