{
  "id": "S04",
  "slug": "sovereign-funding-crisis",
  "title": "Sovereign funding crisis",
  "version": "0.2.0",
  "status": "active",
  "orientation": "downside",
  "family": "A",
  "short_title": "Sovereign funding crisis",
  "thematics": [
    "economic-security-supply-chains",
    "resilience-crisis-preparedness"
  ],
  "likelihood_type": "idiosyncratic",
  "likelihood_note": null,
  "scores": {
    "likelihood_2y": {
      "band": 3,
      "rationale": "Two to five sovereign defaults or restructurings a year across 197 nations implies 1 to 2.5 per cent per nation per year."
    },
    "likelihood_10y": {
      "band": 4,
      "rationale": ""
    },
    "impact_systemic": {
      "level": 2,
      "rationale": "Unless a G20 sovereign."
    },
    "impact_national": {
      "level": 5,
      "rationale": "Sri Lanka lost fuel, medicines and its government."
    },
    "confidence": {
      "level": "high",
      "reason": ""
    },
    "priority": 15,
    "tier": "I",
    "source": "ginc-desk-v0.2"
  },
  "scorecard": {
    "onset": "rapid (weeks)",
    "duration": "1 year",
    "warning": "months",
    "scope": "national",
    "origin": "accidental or adversarial (sanctions)",
    "external_support": "partial",
    "policy_response": "current plans",
    "recovery_horizon": "years"
  },
  "summary": "A nation loses the ability to fund itself: market access closes, the currency collapses, reserves are exhausted or frozen, or external aid is withdrawn. The IMF's Debt Sustainability Frameworks already specify standardised stress tests for this; the scenario adapts them to capability. Three variants: market loss (Sri Lanka 2022), sanctions and reserve freeze (Russia 2022) and aid withdrawal (the 2025 US foreign-aid freeze for aid-dependent states). An advanced-economy variant exists (the UK gilt crisis of September 2022).",
  "narrative": {
    "dateline": "August 2027",
    "text": "The auction fails on a Thursday. By Monday the currency has lost 30 per cent, fuel importers cannot open letters of credit and the central bank has 11 days of import cover left. The finance ministry's contingency plan assumes a swap line that the partner central bank declines to extend. Queues form at petrol stations, then at pharmacies, then at the ports where ships wait for payment before unloading grain. Public-sector salaries are paid late, then in part. The government requests an IMF programme and discovers that the restructuring requires creditors who do not sit in the same room. A second variant plays elsewhere: a mid-sized economy wakes to find its reserves frozen by a coalition of central banks and its banks cut from messaging systems; the import economy stalls within a fortnight. A third: a low-income state learns that the donor financing a third of its health budget has suspended disbursements, and the drug supply chain breaks before the budget year ends."
  },
  "anchors": [
    {
      "shock_id": "sri-lanka-default-2022",
      "date": "April 2022",
      "event": "Sri Lanka default",
      "what_happened": "First default; fuel, medicine and food shortages; government fell in July",
      "calibrates": "market-loss variant"
    },
    {
      "shock_id": "russia-reserve-freeze-2022",
      "date": "February–March 2022",
      "event": "Russia reserve freeze",
      "what_happened": "About US$300 billion of central bank reserves immobilised; payments exclusion",
      "calibrates": "sanctions variant"
    },
    {
      "shock_id": "uk-gilt-crisis-2022",
      "date": "September–October 2022",
      "event": "UK gilt crisis",
      "what_happened": "Pension LDI margin spiral; Bank of England emergency purchases",
      "calibrates": "advanced-economy variant"
    },
    {
      "shock_id": "ghana-and-zambia-restructurings-2020",
      "date": "2020–2024",
      "event": "Ghana and Zambia restructurings",
      "what_happened": "Protracted creditor coordination under the Common Framework",
      "calibrates": "recovery horizon"
    },
    {
      "shock_id": "us-foreign-aid-freeze-2025",
      "date": "January 2025 onward",
      "event": "US foreign-aid freeze",
      "what_happened": "Suspension and dismantling of large parts of US development assistance",
      "calibrates": "aid-withdrawal variant"
    },
    {
      "shock_id": "imf-world-bank-lic-debt-sustainability-framework-2018",
      "date": "2018 guidance",
      "event": "IMF–World Bank LIC Debt Sustainability Framework",
      "what_happened": "Standardised stress tests: growth, primary balance, exports, exchange rate, contingent liabilities, natural disaster",
      "calibrates": "parameter conventions"
    }
  ],
  "parameters": {
    "common": {
      "severity": {
        "major": "major",
        "severe": "severe",
        "extreme": "extreme"
      },
      "duration": {
        "major": null,
        "severe": "1 year",
        "extreme": null
      },
      "onset": {
        "major": null,
        "severe": "rapid (weeks)",
        "extreme": null
      },
      "warning": {
        "major": null,
        "severe": "months",
        "extreme": null
      },
      "scope": {
        "major": null,
        "severe": "national",
        "extreme": null
      },
      "origin": {
        "major": null,
        "severe": "accidental or adversarial (sanctions)",
        "extreme": null
      },
      "external_support": {
        "major": null,
        "severe": "partial",
        "extreme": null
      },
      "concurrency": {
        "major": null,
        "severe": "standalone",
        "extreme": null
      },
      "policy_response": {
        "major": null,
        "severe": "current plans",
        "extreme": null
      },
      "recovery_horizon": {
        "major": null,
        "severe": "years",
        "extreme": null
      }
    },
    "specific": [
      {
        "name": "Trigger",
        "default": "market loss",
        "range": "options: sanctions / aid withdrawal / combined",
        "unit": null,
        "note": null
      },
      {
        "name": "Reserve cover at onset",
        "default": "2 months of imports",
        "range": "0–6",
        "unit": "months of imports",
        "note": null
      },
      {
        "name": "Depreciation",
        "default": "50 per cent",
        "range": "20–80",
        "unit": "per cent",
        "note": null
      },
      {
        "name": "Foreign-currency share of external debt",
        "default": "70 per cent",
        "range": "30–95",
        "unit": "per cent",
        "note": null
      },
      {
        "name": "Multilateral programme available",
        "default": "yes within six months",
        "range": null,
        "unit": null,
        "note": "no at Extreme"
      },
      {
        "name": "Aid share of public spending (aid variant)",
        "default": "25 per cent",
        "range": "5–50",
        "unit": "per cent",
        "note": null
      }
    ]
  },
  "transmission": [
    "Funding stops.",
    "Currency and reserves collapse.",
    "Import financing fails: fuel, food, medicines.",
    "Public services and salaries are cut.",
    "Social unrest and political change.",
    "Restructuring drags; investment stalls for years."
  ],
  "loading": [
    {
      "dimension": "Hard",
      "domain": "defence-security",
      "load": "Medium",
      "channel": "budget and import financing of equipment and fuel"
    },
    {
      "dimension": "Hard",
      "domain": "strategic-infrastructure",
      "load": "Medium",
      "channel": "fuel imports; maintenance deferred"
    },
    {
      "dimension": "Hard",
      "domain": "critical-technology",
      "load": "Low",
      "channel": "imported equipment"
    },
    {
      "dimension": "Soft",
      "domain": "government-effectiveness",
      "load": "High",
      "channel": "fiscal management, debt management, programme negotiation, service continuity"
    },
    {
      "dimension": "Soft",
      "domain": "human-capital",
      "load": "High",
      "channel": "health and education budgets; emigration"
    },
    {
      "dimension": "Soft",
      "domain": "influence-cohesion",
      "load": "High",
      "channel": "legitimacy; alliance dependence"
    },
    {
      "dimension": "Economic",
      "domain": "macro-financial",
      "load": "High",
      "channel": "reserves, banking, payments sovereignty"
    },
    {
      "dimension": "Economic",
      "domain": "industry-trade-supply",
      "load": "High",
      "channel": "import financing"
    },
    {
      "dimension": "Economic",
      "domain": "energy-resources",
      "load": "High",
      "channel": "fuel import capacity"
    }
  ],
  "stakeholders": {
    "government": {
      "exposure": "Reserve adequacy, debt structure, payment-rail dependence",
      "actions": [
        "Pre-arrange swap lines and contingent financing",
        "Diversify payment rails",
        "Protect health and food import lines in the contingency plan"
      ],
      "watch": [
        "Import cover",
        "Spreads",
        "Rollover calendar"
      ],
      "relevance": 4
    },
    "technology": {
      "exposure": "Payment and cloud service continuity under sanctions",
      "actions": [
        "Sovereign-cloud and offline fallbacks"
      ],
      "watch": [
        "Correspondent banking withdrawals"
      ],
      "relevance": 2
    },
    "investors": {
      "exposure": "Sovereign exposure",
      "actions": [
        "Run IMF DSF stress tests on holdings"
      ],
      "watch": [
        "EMBI spreads",
        "Reserve data",
        "Donor budgets"
      ],
      "relevance": 5
    },
    "public": {
      "exposure": "Prices, fuel, medicines",
      "actions": [],
      "watch": [
        "FX parallel-market gap"
      ],
      "relevance": 5
    }
  },
  "regions": [
    {
      "region": "north-america",
      "exposure": "Low",
      "rationale": null
    },
    {
      "region": "europe",
      "exposure": "Low",
      "rationale": "Medium for highly indebted members"
    },
    {
      "region": "china",
      "exposure": "Low",
      "rationale": null
    },
    {
      "region": "indo-pacific",
      "exposure": "Medium",
      "rationale": "Pacific islands, Laos, Pakistan-adjacent"
    },
    {
      "region": "south-asia",
      "exposure": "High",
      "rationale": null
    },
    {
      "region": "gulf-middle-east",
      "exposure": "Medium",
      "rationale": "Egypt, Lebanon, Jordan"
    },
    {
      "region": "africa",
      "exposure": "High",
      "rationale": "Debt distress and aid dependence"
    },
    {
      "region": "latin-america",
      "exposure": "High",
      "rationale": "Argentina, Bolivia, Ecuador, Venezuela"
    },
    {
      "region": "russia-eurasia",
      "exposure": "Medium",
      "rationale": "Sanctions variant"
    }
  ],
  "indicators": [
    {
      "name": "Import cover months",
      "source": null,
      "threshold": null,
      "cadence": null
    },
    {
      "name": "EMBI spreads",
      "source": null,
      "threshold": "above 1,000 basis points",
      "cadence": null
    },
    {
      "name": "IMF DSA risk ratings",
      "source": null,
      "threshold": null,
      "cadence": null
    },
    {
      "name": "Eurobond maturity walls",
      "source": null,
      "threshold": null,
      "cadence": null
    },
    {
      "name": "Parallel-market FX premium",
      "source": null,
      "threshold": null,
      "cadence": null
    },
    {
      "name": "Donor disbursement data",
      "source": "OECD CRS",
      "threshold": null,
      "cadence": null
    },
    {
      "name": "Correspondent banking withdrawals",
      "source": null,
      "threshold": null,
      "cadence": null
    },
    {
      "name": "Sanctions designations",
      "source": null,
      "threshold": null,
      "cadence": null
    }
  ],
  "compounds": {
    "triggers": [
      {
        "id": "S07",
        "note": null
      },
      {
        "id": "S08",
        "note": "outward"
      },
      {
        "id": "S11",
        "note": "food import failure"
      }
    ],
    "triggered_by": [
      {
        "id": "S03",
        "note": null
      },
      {
        "id": "S09",
        "note": null
      },
      {
        "id": "S10",
        "note": null
      },
      {
        "id": "S14",
        "note": null
      },
      {
        "id": "S01",
        "note": "secondary sanctions"
      }
    ],
    "amplified_by": [],
    "triggered_by_other": [],
    "amplifying_trends": [
      "debt accumulation",
      "aid retrenchment",
      "dollar dependence"
    ]
  },
  "open_questions": [
    "Whether the advanced-economy variant should be a separate scenario.",
    "How to score nations inside currency unions.",
    "Whether aid withdrawal is a shock or a trend after 2025."
  ],
  "commentary": null,
  "overview": {
    "source": "ginc-desk-v0.2",
    "lenses": {
      "political": "Late salaries and queues bring **unrest and political change**. Sri Lanka's government fell within months of its default.",
      "economic": "The auction fails, the currency loses 30 per cent and the central bank has **11 days of import cover**.",
      "social": "Queues form at petrol stations, then pharmacies. **Public-sector salaries** are paid late, then in part.",
      "technological": "In the sanctions variant banks are cut from **messaging systems**; payment and cloud services need offline fallbacks.",
      "legal": "Restructuring requires creditors who **do not sit in the same room**. Reserves can be frozen by a coalition of central banks.",
      "environmental": "**Fuel importers** cannot open letters of credit and ships wait for payment before unloading grain."
    },
    "regions": {
      "north-america": "Rated **Low**: the scenario is not expected to strike here at Standard Severe.",
      "europe": "Low overall and **Medium for highly indebted members**. The 2022 gilt crisis is the advanced-economy variant.",
      "china": "Rated **Low**: the scenario is not expected to strike here at Standard Severe.",
      "indo-pacific": "Risk concentrates in **Pacific islands**, Laos and economies adjacent to Pakistan.",
      "south-asia": "**High exposure**. Sri Lanka's 2022 default is the market-loss anchor: fuel, medicine and food shortages.",
      "gulf-middle-east": "**Egypt, Lebanon and Jordan** carry the exposure.",
      "africa": "**Debt distress and aid dependence**. A donor suspends disbursements and the drug supply chain breaks within the budget year.",
      "latin-america": "**Argentina, Bolivia, Ecuador and Venezuela** carry the exposure.",
      "russia-eurasia": "The **sanctions variant**: reserves immobilised and banks excluded from payments."
    }
  },
  "history": [
    {
      "edition": 2027,
      "rank": 10,
      "L2y": 3,
      "L10y": 4,
      "impact_systemic": 2,
      "impact_national": 5,
      "confidence": "high"
    }
  ],
  "changelog": [
    {
      "version": "0.2.0",
      "date": "2026-10-02",
      "change": "Entered the Library at v0.2 with GINC desk scores."
    }
  ],
  "citation": "GINC (2027). Scenario S04 Sovereign funding crisis, Scenario Library v0.2. scenarios.ginc.org/library/sovereign-funding-crisis"
}