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Sovereign state-contingent instruments (SCDIs) have been suggested as complements or alternatives to traditional sovereign debt instruments for a long time, but with little uptake. Markets for SCDIs have suffered from low liquidity and issues around measurement. This article argues that the escalating climate and ecological crises provide a strong rationale to reconsider the use of sovereign SCDIs as the physical and transition impacts of climate change and environmental degradation are increasingly altering the risk profile of sovereigns. The use of risk-linked sovereign instruments such as cat bonds or resilience bonds and embedding disaster risk clauses in sovereign debt contracts would be an important way for governments, especially in highly climate-vulnerable countries, to mitigate climate risks and scale up investment in resilience. Moreover, instruments such as sustainability-linked bonds that incentivise sustainability-oriented policies and investments could help to bring about better sustainability outcomes and contribute to greater debt sustainability. SCDIs can also play an important role in facilitating debt restructurings. The international community, supported by key institutions like the IMF and the major multilateral development banks, should make a concerted effort to promote the widespread adoption of sovereign SCDIs to support better public debt management, the climate-proofing of public finances, and the achievement of more ambitious sustainability outcomes.

State-contingent government debt has been proposed as a way to reduce costly debt crisis. However, markets for this type of debt remain very limited, for reasons that are not yet fully understood. This paper describes a new database covering state-contingent government debt issued between 1863 and 2020. Based on these data, this paper shows stylized facts regarding the main design features, and market performance, of state-contingent government debt. It also provides a brief history of state-contingent government borrowing, which is contextualized with a simple theoretical model of state-contingent debt. The results show that there have been several small, heterogeneous, issuances of state-contingent debt, which resemble pilot runs in this new asset class. The paper concludes with some common challenges associated to state-contingent government debt.

To compensate for the inflexibility due to fixed exchange rates, the eurozone needs flexibility through a system of orderly debt restructuring. With virtually no room for macroeconomic manoeuvring since the crisis onset, fiscal austerity has been the main instrument for achieving reduction of public debt levels; but because austerity also weakens growth, public debt ratios have barely budged. Austerity has also implied continued high private debt ratios, and these debt burdens have perpetuated economic stasis. Economic theory, history, and the recent experience all call for a principled debt restructuring mechanism as an integral element of the Eurozone design. Sovereign debt should be recognized as equity (a residual claim on the sovereign), operationalized by the automatic lowering the debt burden upon the breach of contractually specified thresholds. Making debt more equity-like is also the way forward for speedy private deleveraging. This debt—equity swap principle is a needed shock absorber for the future but will also serve as the principle to deal with the overhang of 'legacy' debt.

Especially in resource rich countries with weak institutions of governance, the interests of governments often diverge from those of their citizens and creditors. Sovereign bond contracts can potentially help align these interests, to the benefit of all parties, by indexing payment obligations to improvements in the health and education of the issuer’s citizenry. To that end, this Article proposes a Human Development Bond (HDB) with a variable coupon schedule that both insures issuers against recessions and incentivizes them to encourage investment in human capital when economic growth is strong. The potential benefits of such an instrument can only be realized, however, with significant support from the international community. Moreover, further empirical research is needed to calibrate the HDB’s coupon schedule to provide well-timed and appropriately sized debt relief.

This paper provides a tractable framework to assess how the structure of debt instruments – specifically by currency denomination and indexation to GDP – can raise the debt limit of a sovereign. By calibrating the model to different country fundamentals, it is clear that there is no 'one-size-fits-all' approach to optimal instrument design. For instance, low income countries may find benefit in issuing local currency debt; while in advanced economies, debt tolerance can be substantially enhanced through issuing GDP-linked bonds. By looking at the marginal impact of these instruments, the paper also provides insight into the optimal portfolio composition.

We analyze the internal consistency of using the market price of a firm's equity to trigger a contractual change in the firm's capital structure, given that the value of the equity itself depends on the firm's capital structure. Of particular interest is the case of contingent capital for banks, in the form of debt that converts to equity, when conversion is triggered by a decline in the bank's stock price. We analyze the problem of existence and uniqueness of equilibrium values for a firm's liabilities in this context, meaning values consistent with a market-price trigger. Discrete-time dynamics allow multiple equilibria. In contrast, we show that the possibility of multiple equilibria can largely be ruled out in continuous time, where the price of the triggering security adjusts in anticipation of breaching the trigger. Our main condition for existence of an equilibrium requires that the consequences of triggering a conversion be consistent with the direction in which the trigger is crossed. For the design of contingent capital with a stock price trigger, this condition may be interpreted to mean that conversion should be disadvantageous to shareholders, and it is satisfied by setting the trigger sufficiently high. Uniqueness follows provided the trigger is sufficiently accessible by all candidate equilibria. We illustrate precise formulations of these conditions with a variety of applications.

Steadily growing debt ratios indicate that current sovereign debt policy lacks important incentives for governments and politicians to fulfill it in a long-term sustainable way. To implement proper incentives, we propose the concept of performance-sensitive government bonds (PSGB) where coupon payments are closely linked to debt policy, giving strong incentives to limit debt levels and to timely restructure the economy. In addition, we show that the current mechanisms used to solve sovereign debt problems within the EMU are not only missing the right incentives but also setting the wrong ones. Performance-sensitive Staatsanleihen Derzeit haben Regierungen und Politiker nur wenige Anreize, die Staatsschuldenpolitik in einer langfristig nachhaltigen Weise auszuüben. Der Einsatz von performance-sensitiven Staatsanleihen, welche wir in diesem Aufsatz vorschlagen, schafft wichtige Anreize, die Verschuldung zu reduzieren und notwendige Reformen frühzeitig durchzuführen. Dieser Artikel diskutiert die Anreizwirkungen sowie die Ausgestaltung solcher Anleihen, welche sich durch Kuponzahlungen auszeichnen, die an die Schuldenpolitik des Landes gekoppelt sind. Zusätzlich wird dargelegt, dass die gegenwärtigen Instrumente zur Bewältigung der europäischen Staatsschuldenkrise zu wenige bzw. die falschen Anreize setzen.

The private health sector was officially recognized in the Republic of Congo over 20 years ago June 6, 1988, establishing the conditions for the independent practice of medicine and the medical-related and pharmaceutical professions. The Congolese government recently expressed its commitment to working with the private health sector in order to strengthen the health system, improve the health of the population and preserve the basic human right to a healthy life through the National Health Care Policy, which it adopted in 2003, the 2007-2011 National Health Development Plan and the 2010 Health Care Services Development Program. Throughout these various documents there is an acknowledgement that the lack of coordination with the private health sector is a weakness of the health system. Nevertheless, the scarcity of information about the private sector in policy and planning documents suggests that the government's engagement with the private health sector is limited. There is no official government policy on the private health sector, or strategies or working plans to encourage cooperation between the public and private sectors. The objective of this assessment was to better determine the role, position, and importance of the private sector within the health system, in order to identify the limitations to its development as well as ways it can be integrated into the efforts to meet the objectives of the Plan national de developpement sanitaire (PNDS) [National Health Development Plan]. The World Bank Group contracted with the Results for Development Institute (R4D, United States) and Health Research for Action (HERA, Belgium) as well as with a team of local consultants, to conduct a 'study of the private health sector in the Republic of Congo.' This study was conducted in close collaboration with the Ministry of Health and Population (MSP), which arranged and oversaw a steering committee consisting of actors from the public and private sectors to facilitate and guide the study. The goal of the study and the workshops was a concrete plan of action for the health sector that could be used by the Congolese government, the private sector in the Republic of Congo, and international development partners. Certain aspects of the action plan should be included in the work programs of the Programme de developpement des services de sante (PDSS) [Health System Development Project] for the years 2011-2013.

This report addresses the large flood exposures of Central Europe and proposes efficient financial and risk transfer mechanisms to mitigate fiscal losses from natural catastrophes. In particular, the Visegrad countries (V-4) of Central Europe, namely, Poland, the Czech Republic, Hungary, and the Slovak Republic, have such tremendous potential flood damages that reliance on budgetary appropriations or even European Union (EU) funds in such circumstances becomes ineffective and does not provide needed cash funds for the quick response and recovery needed to minimize economic disruptions. The report is primarily addressed to the governments of the region, which should build into their fiscal planning the necessary contingent funding mechanisms, based on their exposures. The report is addressed to finance ministries and also to the insurance and securities regulators and the private insurance and capital markets, which may all play a role in the proposed mechanisms. An arrangement using a multi-country pool with a hazard-triggered insurance payout mechanism complemented by contingent financing is proposed, to better manage these risks and avoid major fiscal volatility and disruption.