Beyond Conventional Sovereign Debt Instruments: Issuance of GDP-linked Bonds in OECD Countries?


  • Sebastian Schich Organisation for Economic Co-Operation and Development (OECD)



Debt-to-GDP measures in major OECD countries are at historical highs and a considerable part of sovereign debt needs to be refinanced soon, while projections of real GDP growth are fairly weak and uncertain and assessed sovereign credit quality has declined. Against this, the OECD Committee on Financial Markets discussed proposals for sovereign debt managers to consider issuing GDP-linked sovereign bonds. The Committee considered proposals timely and the idea conceptually attractive, as additional insurance against economic downturns over the medium term would be available. It identified however also a number of issues that would complicate issuance in practise. Questions arise in particular as regards investor demand for such instruments and how an additional novelty, liquidity and indexation premium would compare to a potentially reduced default premium on more traditional debt. Debt management offices confirm and stress such practical difficulties and remain sceptical, quoting a lack of sustainable demand for such bonds. As a result, issuance of such bonds would be too costly. It is not clear however whether debt management offices take into account the full macroeconomic and financial stability risk-return trade-off that a broader perspective would take into account. Proposals for issuance of sovereign GDP-linked bonds among advanced economies, which had received increased attention after the German G20-presidency included the topic in the G20 finance track, may have lost some momentum, but there continues to be considerable support from both academics and practitioners.



Sovereign debt, GDP linked bonds, Public debt management, Borrowing instruments


[1] Barro, Robert J.. “Optimal Debt Management”, NBER Working Paper No. 5327, 1995,

[2] OECD, OECD Sovereign Borrowing Outlook 2018, OECD Publishing, Paris,

[3] Maravalle, Alessandro and Lukasz Rawdanowicz, “To Shorten or to Lengthen? Public Debt Management in the Low Interest Rate Environment”, OECD Economics Department Working Papers, No.

[4] , 2018, OECD Publishing, Paris,

[5] Ervin, Carolyn and Sebastian Schich, “Asset Allocation Challenges for Pension Funds: Implications for Bond Markets”, Financial Market

[6] Trends, 2007,1,

[7] Borensztein, Eduardo and Paolo Mauro, “The Case for GDP-indexed Bonds”, Economic Policy, 2004: 165-216.

[8] Benford, James, Thomas Best and Mark Joy, Bank of England, with contributions from Mark Kruger, Bank of Canada, and the Research Department, Central Bank of Argentina Bank of England,

[9] “Sovereign GDP-linked Bonds”, Financial Stability Paper No. 39, 2016,

[10] IMF, “State-Contingent Debt Instruments for Sovereigns”, IMF Policy Paper, 2017.

[11] OECD, OECD Sovereign Borrowing Outlook 2016, OECD Publishing, Paris,

[12] Hilscher, Jens and Yves Nosbusch, “Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt”, Review of Finance, 2010, 14: 235–262; DOI: 10.1093/rof/rfq005.

[13] Merton, R.C., "An Analytic Derivation of the Cost of Deposit Insurance and Loan Guarantee," Journal of Banking and Finance, 1977,1: 3-11.

[14] Schich, Sebastian, “An Option-Pricing Approach to the Costs of Export Credit Insurance”, The Geneva Papers on Risk and Insurance Theory 22, 1997: 43-58, .

[15] Brooke, Martin and Rhys Mendes, Alex Pienkowski, and Eric Santor, “Sovereign Default and Statecontingent Debt”, Financial Stability Paper No. 27, 2013,

[16] financialstability/Pages/fpc/fspapers/fs_paper27.

[17] aspx.

[18] IMF. “Analyzing and Managing Fiscal Risks – Best Practises”, IMF Policy Paper, 2016, .

[19] Abbas, S. Ali, “GDP-linked securities”, Presentation given at the Banque de France Workshop on GDPlinked Securities, 2017.

[20] Carnot, Nicolas and Stéphanie Pamies Sumner, “GDP-linked Bonds: Some Simulations on EU Countries”, European Commission Discussion Paper

[21] , 2017, .

[22] OECD, OECD Sovereign Borrowing Outlook 2017, OECD Publishing, Paris,

[23] Shiller, Robert, Jonathan D. Ostry, and James Benford; “Sovereign GDP-linked Bonds: Rationale and Design, Book, CEPR Policy Portal,

[24] ,

[25] Cabrillac, Bruno, Ludovic Gauvin and Jean-Baptiste Gossé, "GDP-indexed bonds: what are the benefits for issuing countries, investors and international financial stability?”, Quarterly Selection of Articles Banque de France No. 44, 2017,

[26] Fournier, Jean-Marc and Jakob Lehr, “Issuing GDPlinked Bonds: Demand and Supply Can Match”, OECD Economics Department Working Papers 1500, OECD Publishing, 2018, .

[27] Acalin, Julien, “Gowth-indexed Bonds and Debt Distribution: Theoretical Benefits and Practical Limits”, Presentation given at the EC/OECD workshop on GDP-linked government bonds, 2018,


[29] Benford, James and Fernando Eguren-Martin, “Sovereign GDP-linked Bonds: Pros and Cons”, Chapter 2 in Shiller, Ostry and Benford, 2018.

[30] Goldfajn, Ilan, “Public Debt Indexation and Denomination: The Case of Brazil”, IMF Working Paper WP/98/18, 1998, .

[31] S&P Global Ratings, “Sovereign Postcard: GDPlinked Bonds”, RatingsDirect, 2018.



Article Type