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Mr. Jochen R. Andritzky and Julian Schumacher
Sovereign debt restructurings are perceived as inflicting large losses to bondholders. However, many bonds feature high coupons and often exhibit strong post-crisis recoveries. To account for these aspects, we analyze the long-term returns of sovereign bonds during 32 crises since 1998, taking into account losses from bond exchanges as well as profits before and after such events. We show that the average excess return over risk-free rates in crises with debt restructuring is not significantly lower than the return on bonds in crises without restructuring. Returns differ considerably depending on the investment strategy: Investors who sell during crises fare much worse than buy-and-hold investors or investors entering the market upon signs of distress
Danny Leipziger

ledger and insufficiently sensitive to the revenue aspects of foreign assistance. This absence of a present value focus is especially acute vis-á-vis IDA appropriations, which are financed by donors over the project lives of credits that stretch out ten years or more. The potential gains that could emerge from a clarification of the preferences of donors and borrowers are all the more significant given the current shortage of long-term, low-interest financing. A hypothetical borrower whose long-term return on capital is 15 percent would gain a grant element benefit

International Monetary Fund. Western Hemisphere Dept.

Salvador public debt is not that high if we measure it, for instance, by European standards, the authorities are well aware that reducing the debt burden is imperative to guarantee fiscal sustainability in the long term. Returning to pre-crisis debt levels would restore fiscal space to manage shocks and reduce financing needs to more manageable levels. However, the government’s options to ease the burden appear to be quite limited, given El Salvador’s poor track record of fostering growth and the polarized political environment ahead of next February’s presidential

International Monetary Fund

uncertainty is the scale of new lending associated with the economic fallout from the COVID-19 pandemic. The paper proposes that the EA payout be delayed by one year to allow the payout decision to be informed by the outcome of the Investment Account (IA) review, including possible revisions to the investment strategy and the long-term return outlook. Following the informal meeting with Executive Directors in October 2020 to discuss provisioning for impairment losses, staff proposes that the approach for addressing potential cases of impairment, including the use of

International Monetary Fund. European Dept.

fiscal stance is expansionary with an estimated impulse this year of around 1 percent of mainland trend GDP. Spending of petroleum revenues corresponds to 2.8 percent of the Government Pension Fund Global (GPFG), well under the 4 percent estimated long-term return on the Fund indicated in the fiscal framework. The authorities share the key point in staff’s report that the decline in oil-related activities is a structural trait that cannot merely be met by short-term fiscal policy measures. An overly expansionary fiscal policy would harm the private sector