BoC-BoE Sovereign Default Database: What’s New in 2020?

Description of the database

Until recently, few efforts have been made to systematically measure and aggregate the nominal value of the different types of sovereign government debt in default. To help fill this gap, the Bank of Canada (BoC) developed a comprehensive database of sovereign defaults beginning in 2014. The database is posted on its website and updated annually in partnership with the Bank of England (BoE).

The database draws on previously published datasets compiled by various public and private sector sources. It combines elements of these, together with new information, to develop comprehensive estimates of stocks of government obligations in default. These include bonds and other marketable securities, bank loans and official loans, valued in US dollars, for the years 1960 to 2019 on both a country-by-country and a global basis.

This update of the BoC–BoE database, and future updates, will be useful to researchers analyzing the economic and financial effects of individual sovereign defaults and, importantly, the impact on global financial stability of episodes involving multiple sovereign defaults.

Special topics

• Incorporating domestic arrears into the database
• When sovereigns default, how big a share of government debt is involved?
• How frequently do sovereigns default on local currency debt?

2020 findings

Since 1960, 147 governments have defaulted on their obligations—well over half the current universe of 214 sovereigns.

Defaults had the biggest global impact in the 1980s, peaking at US$450 billion, or 6.1 percent of world public debt, by 1990. The scale of defaults has fallen substantially since then. Over the past decade, it has ranged between 0.3 and 0.9 percent of world public debt, and in 2019 it was an estimated 0.4 percent.

As in other recent years, the distribution of defaults in 2019 is highly skewed in terms of value. Just three sovereigns—Venezuela, Puerto Rico and Sudan—accounted for 61 percent of the US‑dollar value of debt in default globally, and the top 10 sovereigns in default accounted for 89 percent.

Our evidence offers a more nuanced view of earlier research on sovereign default “clusters”—spikes in the number of defaults followed by sharp declines—once we take into account the debt owed to official creditors. Such defaults often take longer to resolve than defaults involving private creditors. While the US‑dollar amounts can be low in absolute terms, a high number of low-income sovereigns can remain in default for long periods.

As a percentage of total government debt, shares of sovereign debt in default are skewed toward lower values. About 72 percent of observations are equal to or below 10 percent of government debt. These data provide further confirmation of sovereigns’ tendency to “default selectively.” Only 48 sovereigns—6 percent of observations—defaulted on shares ranging between 50 and 100 percent of the totals.

Defaults involving the Paris Club group of official creditors are declining in importance, but those involving other bilateral official creditors, including China, are growing.

Sovereign defaults on local currency debt are more common than sometimes assumed. Since 1960, 32 sovereigns have defaulted on local currency debt.

We conclude that defaults will pick up again in 2020 and in subsequent years. Many advanced and emerging-market economies are facing growing public debt burdens. And the impacts from the global shocks of COVID‑19 and the oil price collapse will continue to reverberate. Because of the potential scale and number of defaults, resolving them will test existing sovereign debt workout mechanisms—probably to an extent not seen since the debt crisis of developing countries in the 1980s.

In this year’s update, our first estimate puts the total value of sovereign debt in default at US$295.6 billion in 2019, down sharply from the revised total of US$395.9 billion in 2018. The data by major creditor categories show that last year’s decline mainly reflected lower defaults affecting “other official creditors.”1 This category had been boosted in 2018 by Greece’s restructuring of US$111 billion in official debt (from the European Stability Mechanism and other EU partners), which dropped out of the 2019 total.  

Foreign currency bonds in default rose by US$14 billion to nearly US$102 billion. This reflects:

• a first-time default by Barbados
• the restructuring of Argentina’s bonds governed by local law and Mozambique’s bonds governed by foreign law
• higher interest arrears from ongoing bond defaults by Venezuela and Puerto Rico2

In contrast, local currency debt in default fell from US$5.9 billion to US$4.2 billion. A jump in Argentina’s restructured debt was more than offset by Barbados’ debt restructuring in 2018, which dropped out of the total. Meanwhile, identified Paris Club loans in default declined, as did loans owed to China and to foreign banks. The values of defaulted debt in other creditor categories changed little.

The other main changes in this update are:  

• additional data for defaults on China’s official loans since 2000
• updated annual data (where available) for each country’s total central government debt
• minor revisions of country and aggregate default data for 1960–2018
• a new section examining the scale of domestic arrears in 2018, with data included in the DOMARS tab at the bottom of the main database spreadsheet.
• updates of two other tabs in the spreadsheet—DATA provides a downloadable format for the global and country default data, and DEBTOTAL provides country data on total government debt stocks

Endnotes