The 2020-2025 Sovereign Debt Crisis: What have we learnt and what lies ahead?

2025 may be the year when developing nations finally emerge from a series of three major global shocks: the Covid-19 pandemic, the Ukraine/Russia war, and the global monetary tightening. The shocks propelled many fragile economies – notably  ‘frontier market countries’ – into debt distress.

This year may also mark the end of the most recent wave of sovereign debt restructurings, initiated with Argentina and Ecuador in 2020. End of the beginning or beginning of the end?

Lazard's Sovereign Advisory team has been deeply involved in this latest wave of sovereign debt restructurings. Over the past five years, Lazard has acted as the sole financial advisor to most countries facing debt distress – Argentina, Ecuador, Lebanon, Suriname, Zambia, Ethiopia, Ghana and Sri Lanka – contributing to the restructuring of US$ c. 200bn of claims from domestic, foreign private and official creditors.

In this policy brief, Lazard's Sovereign Advisory team reflects on the last five years, explains what they have learnt — and notably the extent to which the international financial system has become more equipped to deal efficiently with over indebtedness — and offers some thoughts about what lies ahead.

They argue that (i) frontier market economies have been overall fragilized, often one shock away from distress; (ii) the collective system to deal with debt restructuring has worked as well as possible, given the circumstances, but remains plagued by old as well as new problems; (iii) future situations of stress will likely bring to the fore issues regarding creditors’ hierarchy of claims, the crystallization of contingent liabilities and the solvency/liquidity boundaries.