This paper extends the well-known costly state verification (CSV) approach to financial contracting to a setting without enforcement. Specifically, the paper presents a model of sovereign borrowing and lending where information is asymmetric, audits are costly, and there is no court to enforce the sovereign’s repayment promises. In this setting, I show that the sovereign borrower optimally issues a contract that specifies a fixed repayment in high income states, and a default in low income states where the sovereign’s willingness-to-pay is low. Sovereign default equals a debt renegotiation in which the sovereign repays an amount that depends on creditors’ bargaining power. If the debt renegotiation breaks down, the sovereign repudiates (i.e. repays nothing). The main result explains why sovereign borrowers issue debt instruments instead of more contingent contracts. Simple comparative statics show that if the costs of repudiation, economic or political, can be increased, the interest rate on sovereign debt is lowered through a commitment effect: higher costs of repudiation commit the sovereign to repay the debt at face value in more states of the world; thus, reducing sovereign risk.