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The Seniority Structure of Sovereign Debt

Working Paper 759 | Published May 30, 2019

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Matthias Schlegl Osaka University
Christoph Trebesch Kiel Institute, Kiel University and CEPR
Mark L. J. Wright Senior Vice President and Director of Research
The Seniority Structure of Sovereign Debt


Sovereign governments owe debt to many foreign creditors and can choose which creditors to favor when making payments. This paper documents the de facto seniority structure of sovereign debt using new data on defaults (missed payments or arrears) and creditor losses in debt restructuring (haircuts). We overturn conventional wisdom by showing that official bilateral (government-to-government) debt is junior, or at least not senior, to private sovereign debt such as bank loans and bonds. Private creditors are typically paid first and lose less than bilateral official creditors. We confirm that multilateral institutions like the IMF and World Bank are senior creditors.