Recent evidence shows an increase in sovereign debt from China to emerging and low-income developing countries. Chinese lending contracts have stringent confidentiality clauses that restrict the borrowers from reporting these contracts. The use of these type of clauses hide the true fiscal and financial conditions of a country. This paper analyzes the debt sustainability and welfare implications of such clauses in the context of a sovereign default model with asymmetric information. I find welfare loses associated with reporting these contracts for countries that have debt with China, and small welfare gains for countries that do not have these commitments. This implies that additional incentives are necessary to encourage countries to embrace transparency initiatives.

Using data from 56 nations over 45 years, we find that nations that are more likely to elect left wing governments face higher (and more volatile) sovereign spreads. To explain these facts, we build a sovereign default model in which two policymakers (left and right) alternate in power. The probability of an incumbent staying in power is increasing in the share of government spending. We parametrize the left policymaker as having a higher marginal political gain from increasing government spending than the right does, a feature found in our data. Model economies in which the left is more frequently in power face worse borrowing terms due to higher default risk, a greater reluctance for fiscal austerity in bad times, and a higher share of government spending on average. These features imply large welfare losses for households.