GDP-Indexed Bonds: Making It Happen

There has been increasing interest in exploring financial instruments that could limit the cyclical vulnerabilities of developing countries and reduce the likelihood of defaults and debt crises. GDP indexed bonds fall into this category and may also generate a wider range of benefits for issuer countries, investors and the global financial system. The authors also examine the concerns and obstacles relating to the introduction of this instrument, suggesting that some may be exaggerated while others could be overcome. The paper calls for international public action to help develop markets for GDP-linked bonds and proposes a number of actions, some of which would require collaboration between Governments, multilateral development banks and the private sector.