{
  "id": "S19",
  "slug": "sovereign-debt-reset",
  "title": "Coordinated sovereign debt reset",
  "version": "0.3.0",
  "status": "active",
  "orientation": "upside",
  "family": "A",
  "short_title": "Sovereign debt reset",
  "thematics": [
    "economic-security-supply-chains",
    "resilience-crisis-preparedness"
  ],
  "likelihood_type": "systemic",
  "likelihood_note": null,
  "scores": {
    "likelihood_2y": {
      "band": 2,
      "rationale": "The 2025 Sevilla Commitment and the Jubilee report revived the case for relief on the scale of the 1990s, but the Common Framework remains slow and no creditor coalition has formed."
    },
    "likelihood_10y": {
      "band": 3,
      "rationale": "The HIPC Initiative took a decade of pressure to deliver; a repeat within ten years is possible."
    },
    "impact_systemic": {
      "level": 2,
      "rationale": "Level 2: small in global output, large for the nations treated."
    },
    "impact_national": {
      "level": 4,
      "rationale": "Level 4 as a gain: debt service falls by half and fiscal space returns for health, education and investment."
    },
    "confidence": {
      "level": "medium",
      "reason": "Precedents are well documented; the creditor base is harder to coordinate than in 1996."
    },
    "priority": 8,
    "tier": "III",
    "source": "ginc-desk-v0.3"
  },
  "scorecard": {
    "onset": "rapid (months)",
    "duration": "3 years",
    "warning": "months",
    "scope": "global (about 50 nations)",
    "origin": "negotiated between creditors and debtors",
    "external_support": "full",
    "policy_response": "best practice",
    "recovery_horizon": "years"
  },
  "summary": "Official, Chinese and private creditors agree a single, time-bound treatment for about 50 debt-distressed nations: maturities extended, interest cut and principal written down where needed, with new multilateral lending alongside. Debt service falls by half for the nations treated and the saving is tied to health, education and infrastructure. It is the mirror of S04: the funding crisis resolved before it breaks. Creditors take losses, credit ratings fall before they recover, and nations that paid their debts on time ask what they gained.",
  "distribution": {
    "gains": [
      "About 50 debt-distressed nations",
      "Their health and education systems",
      "Exporters selling to recovering economies"
    ],
    "loses": [
      "Bondholders and bilateral creditors, who take losses",
      "Nations that paid on time and receive nothing",
      "Borrowers shut out of markets during the pause"
    ]
  },
  "narrative": {
    "dateline": "April 2029",
    "text": "The term sheet is two pages, which is the point. Any country with debt service above a fifth of revenue can opt in. Maturities go out fifteen years, the coupon falls to 2 per cent, and bondholders who refuse are bound by a majority vote written into law in New York and London the previous autumn. China's policy banks sign on the same terms as the Paris Club for the first time. Forty-seven governments apply in the first six months. In the finance ministry of a West African state, the line for interest, which had been larger than health and education together, is cut in half, and the difference is assigned in the budget to teachers' salaries and a vaccine cold chain. The currency rises. The rating agencies downgrade every applicant to selective default on the day of signing and upgrade most of them within eighteen months. Not everyone is pleased. A neighbour that cut spending for a decade to stay current gets nothing and says so. Two asset managers sue. Lending to the poorest borrowers dries up for a year, then returns at lower rates than before. The measure of the deal comes later: whether the space was spent on capability or on the next election."
  },
  "anchors": [
    {
      "shock_id": "london-debt-agreement-1953",
      "date": "1953",
      "event": "London Debt Agreement",
      "what_happened": "West Germany's external debt was cut by about half, with repayment linked to export earnings",
      "calibrates": "relief as a basis for recovery"
    },
    {
      "shock_id": "brady-plan-1989",
      "date": "1989",
      "event": "Brady Plan",
      "what_happened": "Bank loans to indebted countries, mainly in Latin America, were exchanged for tradable bonds with reduced principal or interest",
      "calibrates": "private creditor participation"
    },
    {
      "shock_id": "hipc-initiative-and-mdri-1996",
      "date": "1996 and 2005",
      "event": "HIPC Initiative and MDRI",
      "what_happened": "Debt relief for more than 35 low-income countries, worth over US$100 billion in total",
      "calibrates": "Standard Severe scale"
    },
    {
      "shock_id": "debt-service-suspension-initiative-2020",
      "date": "May 2020 to December 2021",
      "event": "Debt Service Suspension Initiative",
      "what_happened": "48 countries deferred about US$13 billion of official debt service",
      "calibrates": "speed when creditors agree"
    },
    {
      "shock_id": "g20-common-framework-2020",
      "date": "2020 onward",
      "event": "G20 Common Framework",
      "what_happened": "Chad, Zambia, Ghana and Ethiopia sought treatment; negotiations took years",
      "calibrates": "counter-anchor on speed"
    },
    {
      "shock_id": "sevilla-commitment-and-jubilee-report-2025",
      "date": "2025",
      "event": "Sevilla Commitment and Jubilee report",
      "what_happened": "The fourth Financing for Development conference and a Vatican-backed commission called for faster and deeper debt treatment",
      "calibrates": "current momentum"
    }
  ],
  "parameters": {
    "common": {
      "severity": {
        "major": "major",
        "severe": "severe",
        "extreme": "extreme"
      },
      "duration": {
        "major": null,
        "severe": "3 years",
        "extreme": null
      },
      "onset": {
        "major": null,
        "severe": "rapid (months)",
        "extreme": null
      },
      "warning": {
        "major": null,
        "severe": "months",
        "extreme": null
      },
      "scope": {
        "major": null,
        "severe": "global (about 50 nations)",
        "extreme": null
      },
      "origin": {
        "major": null,
        "severe": "negotiated between creditors and debtors",
        "extreme": null
      },
      "external_support": {
        "major": null,
        "severe": "full",
        "extreme": null
      },
      "concurrency": {
        "major": null,
        "severe": "standalone",
        "extreme": null
      },
      "policy_response": {
        "major": null,
        "severe": "best practice",
        "extreme": null
      },
      "recovery_horizon": {
        "major": null,
        "severe": "years",
        "extreme": null
      }
    },
    "specific": [
      {
        "name": "Nations treated",
        "default": "50",
        "range": "20–70",
        "unit": null,
        "note": null
      },
      {
        "name": "Reduction in debt service over five years",
        "default": "50 per cent",
        "range": "25–75",
        "unit": "per cent",
        "note": null
      },
      {
        "name": "Creditor participation",
        "default": "official, Chinese and private",
        "range": "options: official only",
        "unit": null,
        "note": null
      },
      {
        "name": "Principal write-down",
        "default": "case by case",
        "range": "options: none / across the board",
        "unit": null,
        "note": null
      },
      {
        "name": "Conditionality",
        "default": "savings tied to social and capital spending",
        "range": "options: none",
        "unit": null,
        "note": null
      },
      {
        "name": "New multilateral lending alongside",
        "default": "yes",
        "range": null,
        "unit": null,
        "note": null
      }
    ]
  },
  "transmission": [
    "Creditors agree common terms; eligible nations opt in.",
    "Debt service falls; fiscal space opens.",
    "Ratings fall to selective default, then recover.",
    "Savings are directed to health, education and infrastructure, or are not.",
    "Creditors book losses; lending to low-income borrowers pauses.",
    "Nations that did not qualify contest the fairness of the deal.",
    "Market access returns on better terms where the space was used well."
  ],
  "loading": [
    {
      "dimension": "Hard",
      "domain": "defence-security",
      "load": "Low",
      "channel": "budget room; reduced fragility"
    },
    {
      "dimension": "Hard",
      "domain": "strategic-infrastructure",
      "load": "Medium",
      "channel": "capital spending resumes"
    },
    {
      "dimension": "Hard",
      "domain": "critical-technology",
      "load": "Low",
      "channel": "imported equipment affordable again"
    },
    {
      "dimension": "Soft",
      "domain": "government-effectiveness",
      "load": "High",
      "channel": "debt management, budget credibility, use of fiscal space"
    },
    {
      "dimension": "Soft",
      "domain": "human-capital",
      "load": "High",
      "channel": "health and education budgets restored"
    },
    {
      "dimension": "Soft",
      "domain": "influence-cohesion",
      "load": "Medium",
      "channel": "creditor relationships; fairness between debtors"
    },
    {
      "dimension": "Economic",
      "domain": "macro-financial",
      "load": "High",
      "channel": "debt service, ratings, market access"
    },
    {
      "dimension": "Economic",
      "domain": "industry-trade-supply",
      "load": "Medium",
      "channel": "import financing recovers"
    },
    {
      "dimension": "Economic",
      "domain": "energy-resources",
      "load": "Low",
      "channel": "fuel import capacity"
    }
  ],
  "stakeholders": {
    "government": {
      "exposure": "Debtor nations gain fiscal space; creditor nations book losses",
      "actions": [
        "Publish all debt, including collateralised and state-enterprise loans",
        "Commit the saving in the budget before signing",
        "Creditors: legislate majority voting for bondholders"
      ],
      "watch": [
        "Creditor committee announcements",
        "Debt service to revenue ratios",
        "IMF and World Bank framework reviews"
      ],
      "relevance": 3
    },
    "technology": {
      "exposure": "Public digital and infrastructure spending resumes in treated nations",
      "actions": [
        "Prepare for public investment pipelines to restart"
      ],
      "watch": [
        "Capital budgets in treated nations"
      ],
      "relevance": 2
    },
    "investors": {
      "exposure": "Haircuts on frontier sovereign bonds; a re-rating afterwards",
      "actions": [
        "Test frontier holdings on the common terms",
        "Price the recovery path after selective default"
      ],
      "watch": [
        "Rating actions",
        "Collective action clause legislation",
        "Frontier bond spreads"
      ],
      "relevance": 4
    },
    "public": {
      "exposure": "Health and education spending restored where the saving is used well",
      "actions": [],
      "watch": [
        "Budget allocations after relief"
      ],
      "relevance": 4
    }
  },
  "regions": [
    {
      "region": "north-america",
      "exposure": "Low",
      "rationale": "Creditor; New York law governs many bonds"
    },
    {
      "region": "europe",
      "exposure": "Low",
      "rationale": "Creditor; London law and the Paris Club"
    },
    {
      "region": "china",
      "exposure": "Medium",
      "rationale": "Largest bilateral creditor; books losses and sets a precedent"
    },
    {
      "region": "indo-pacific",
      "exposure": "Low",
      "rationale": "Laos and Pacific islands among those treated"
    },
    {
      "region": "south-asia",
      "exposure": "High",
      "rationale": "Pakistan, Sri Lanka and Bangladesh among the candidates"
    },
    {
      "region": "gulf-middle-east",
      "exposure": "Medium",
      "rationale": "Egypt, Jordan and Lebanon as debtors; Gulf states as creditors"
    },
    {
      "region": "africa",
      "exposure": "High",
      "rationale": "Most of the nations treated; interest bills above health and education"
    },
    {
      "region": "latin-america",
      "exposure": "Medium",
      "rationale": "Bolivia, Ecuador and Argentina as candidates"
    },
    {
      "region": "russia-eurasia",
      "exposure": "Low",
      "rationale": "Little direct exposure"
    }
  ],
  "indicators": [
    {
      "name": "Debt service as a share of revenue",
      "source": "IMF, World Bank",
      "threshold": null,
      "cadence": null
    },
    {
      "name": "Nations at high risk of or in debt distress",
      "source": "IMF DSA ratings",
      "threshold": null,
      "cadence": null
    },
    {
      "name": "Common Framework case durations",
      "source": null,
      "threshold": null,
      "cadence": null
    },
    {
      "name": "Creditor composition by country",
      "source": "World Bank International Debt Statistics",
      "threshold": null,
      "cadence": null
    },
    {
      "name": "Collective action clause legislation in New York and London",
      "source": null,
      "threshold": null,
      "cadence": null
    },
    {
      "name": "Frontier sovereign bond spreads",
      "source": "EMBI",
      "threshold": null,
      "cadence": null
    }
  ],
  "compounds": {
    "triggers": [],
    "triggered_by": [
      {
        "id": "S04",
        "note": "a cluster of defaults forces coordination"
      },
      {
        "id": "S03",
        "note": null
      }
    ],
    "amplified_by": [
      {
        "id": "S18",
        "note": "creditor cooperation"
      }
    ],
    "triggered_by_other": [],
    "amplifying_trends": [
      "debt accumulation",
      "aid retrenchment",
      "creditor diversification",
      "high global interest rates"
    ]
  },
  "open_questions": [
    "Whether relief without reform of how nations borrow only resets the clock.",
    "How to treat nations that stayed current and receive nothing.",
    "Whether a negotiated event belongs in a library of shocks."
  ],
  "commentary": null,
  "overview": {
    "source": "ginc-desk-v0.3",
    "lenses": {
      "political": "**China's policy banks sign** on the same terms as the Paris Club. A neighbour that stayed current gets nothing and says so.",
      "economic": "Debt service **falls by half**. Applicants are downgraded to selective default on signing and most are upgraded within eighteen months.",
      "social": "The interest line was larger than health and education together. The saving goes to **teachers' salaries and a vaccine cold chain**.",
      "technological": "Public investment restarts; otherwise the **technology load is low**.",
      "legal": "Holdouts are **bound by majority vote**, written into law in New York and London. Two asset managers sue.",
      "environmental": "**Capital spending resumes** on water, power and climate resilience where the saving is used well."
    },
    "regions": {
      "north-america": "A creditor. **New York law** governs many of the bonds.",
      "europe": "A creditor: **London law** and the Paris Club.",
      "china": "The **largest bilateral creditor** books losses and sets a precedent by signing common terms.",
      "indo-pacific": "**Laos and Pacific islands** are among those treated.",
      "south-asia": "**Pakistan, Sri Lanka and Bangladesh** are candidates.",
      "gulf-middle-east": "Egypt, Jordan and Lebanon as debtors; **Gulf states as creditors**.",
      "africa": "**Most of the nations treated** are here. Interest bills had passed health and education combined.",
      "latin-america": "**Bolivia, Ecuador and Argentina** are candidates.",
      "russia-eurasia": "**Little direct exposure**."
    }
  },
  "history": [
    {
      "edition": 2027,
      "rank": null,
      "L2y": 2,
      "L10y": 3,
      "impact_systemic": 2,
      "impact_national": 4,
      "confidence": "medium"
    }
  ],
  "changelog": [
    {
      "version": "0.3.0",
      "date": "2026-10-03",
      "change": "Entered the Library at v0.3 as an upside scenario, with GINC desk scores."
    }
  ],
  "citation": "GINC (2027). Scenario S19 Coordinated sovereign debt reset, Scenario Library v0.3. scenarios.ginc.org/library/sovereign-debt-reset"
}