Sovereign Default

Sovereign default occurs when a government fails to meet its debt obligations, either by missing interest or principal payments. It often leads to economic crises, loss of investor confidence, and difficulty in accessing international credit markets. Sovereign defaults can result from poor economic management, political instability, or external factors such as global recessions, and can severely affect a country’s economy and its ability to borrow in the future.

Example

Argentina experienced a sovereign default in 2001 when it was unable to meet its foreign debt obligations, triggering a financial crisis and a prolonged economic downturn.