Sovereign default

Definition

The term sovereign debt is generally taken to refer to the failure of a government to comply with its interest payment or debt repayment obligations. That is not a working definition, however, because it is necessary for practical purposes to ignore trivial defaults such as briefly delayed payments, and to make a choice among a range of options such as whether to include the agreed rescheduling of debt, or international bail-outs of sovereign debtors. Practice varies, and some researchers extend the interpretation of the term to include private sector as well as public sector debt, but it is customary to confine the application of the term to debt held by overseas creditors. Losses suffered by creditors because of inflation or exchange rate changes are not normally included.