Writing for UNESCO’s Inclusive Policy Lab as part of its team on COVID-19: what social sciences need policymakers to know, Professor Sayantan Ghosal and Dr Dania Thomas, Adam Smith Business School, University of Glasgow, share a new report on sustainable debt restructuring with investment and non-elite participation.

Abstract

Should the consequences of the COVID-19 shock on developing countries be treated as a temporary shock or as one with potentially longer-term consequences and if so, what are the implications for debt restructuring? Is new financing required to ensure sustainable debt restructuring? How is sustainable debt restructuring impacted by creditor heterogeneity? How should issues of debtor moral hazard be addressed?

In this paper, we provide a theoretical analysis of these issues. Our broad conclusions are as follows: (a) sustainable debt restructuring must involve a mix of debt write down and financing in the form of outright grants and loans at very low interest rates, and (b) participation in the debt restructuring process by community groups, civil society organisations is key to restoring sustainability.

Read the full report on the UNESCO Inclusive Policy Lab website.