Proposal for a Governance-Linked Bond in Restructuring Sri Lanka’s Debt

To address the governance risk to debt sustainability and provide incentives for the Government of Sri Lanka to implement governance reforms, this proposal sets out the structure of a novel sovereign debt instrument that can be used for countries with significant country risk in terms of future default, where the risk is likely to be correlated with the trajectory of governance. It is termed a “Governance-Linked Sovereign Bond” (GLSB). This short proposal is derived from a working paper by Verité Research that sets out the technical basis for the GLSB described here.