IMF Working Papers Volume 2026 Issue 080: Growth-Indexed Bonds and Debt Distribution: Too Little, Too Costly? (2026)

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Growth-Indexed Bonds and Debt Distribution: Too Little, Too Costly?

Author:

Julien Acalin

Julien Acalin
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https://orcid.org/0000-0002-6137-0537

Series:: IMF Working Papers

Volume/Issue:: Volume 2026: Issue 080

Language:: English

Publication Date:: 10 Apr 2026

DOI:: https://doi.org/10.5089/9798229044394.001

ISBN:: 9798229044394

ISSN:: 1018-5941

Pages:: 51

Keywords:: Growth-indexed bonds; Debt sustainability; Monte Carlo simulations; debt-stabilization properties; growth-indexed bond; IMF working papers; debt distribution; sovereign state; Inflation-indexed bonds; Bonds; Fiscal stance; Output gap; Global

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Series:: IMF Working Papers

Volume/Issue:: Volume 2026: Issue 080

Language:: English

Publication Date:: 10 Apr 2026

DOI:: https://doi.org/10.5089/9798229044394.001

ISBN:: 9798229044394

ISSN:: 1018-5941

Pages:: 51

Keywords:: Growth-indexed bonds; Debt sustainability; Monte Carlo simulations; debt-stabilization properties; growth-indexed bond; IMF working papers; debt distribution; sovereign state; Inflation-indexed bonds; Bonds; Fiscal stance; Output gap; Global

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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Sovereign state-contingent bonds have rarely been issued despite their theoretical debt stabilization properties. This paper revisits this puzzle by analyzing when growth-indexed bonds are too limited in scale, and when they are too costly, to materially improve debt sustainability. The results show that the benefits of indexation are highly heterogeneous across countries. Under the realistic assumption that 20 percent of the debt stock is indexed, reductions in the upper tail of the debt distribution are modest. Full indexation yields more substantial improvements, especially when combined with an optimal loading on growth. Yet a sustained premium of 100 basis points would still offset most of the gains for many countries. These findings suggest that the debt-stabilization properties of growth-indexed bonds would be limited, unless a large-scale and coordinated effort achieves both broad adoption and low issuance premia.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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