Abstract:
When disasters hit, sovereign borrowers need breathing room - not more debt. This paper estimates what would have happened if seven middle-income countries had debt pause clauses embedded in their bonds at the time of recent major shocks. Debt pause clauses allow borrowers to temporarily defer debt service payments when a crisis hits. They are gaining traction: adopted by multilateral and bilateral lenders, endorsed at the Fourth Financing for Development Conference, and now proposed for emerging market bonds by the London Coalition on Sustainable Sovereign Debt. We assessed the potential value of broad pause clauses by modelling the liquidity relief that seven middle-income countries would have received had such clauses been embedded across their bond stock during recent shocks. Every country in the study experienced natural disasters affecting at least 5% of its population between 2022 and 2025, and each would have met the proposed trigger conditions.
