Embedding Resilience in Eurobonds for Low-Income Borrowers:
Options for their Design and Introduction
By Starla V. Griffin
In this paper, Starla V. Griffin delves into the complexities of the international capital market for sovereign debt, focusing on the sovereign Eurobond market and its implications for lower-income countries (LICs).
While designed to facilitate efficient capital flow, the current structure often fails to address the unique challenges faced by LICs, particularly those managing both concessional financing and obligations to non-traditional creditors.
- Conventional Eurobonds expose LICs to financial vulnerabilities, resulting in a diversion of critical resources from essential investments to cover rigid commercial debt obligations.
- The development of sustainable financing instruments aligned with the Sustainable Development Goals (SDGs) is essential, but progress is hindered by various operational and regulatory barriers.
- Strengthening governance, transparency, and accountability is vital for LICs to improve credit ratings and reduce capital costs, encouraging better financial management practices.
- Incorporating climate-resilient debt clauses (CRDCs) and debt pause clauses into financing arrangements can provide crucial protection against economic shocks, enhancing creditworthiness.
- Proposed modifications to existing Eurobond structures, supported by the London Coalition on Sustainable Sovereign Debt, aim to introduce flexibility and resilience features that benefit both creditors and borrowers.