Lost and Found : Market Access and Public Debt Dynamics

Author/Editor:

Carlo Cottarelli ; Andrea Presbitero ; Antonio Bassanetti

Publication Date:

December 23, 2016

Electronic Access:

Free Full Text (PDF file size is 1388 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The empirical literature on sovereign debt crises identifies the level of public debt (measured as a share of GDP) as a key variable to predict debt defaults and to determine sovereign market access. This evidence has led to the widespread use of (country-specific) debt thresholds to assess debt sustainability. We argue that the level of the debt-to-GDP ratio, whose use is justified on a theoretical and empirical ground, should not be the only fiscal metric to assess the complex relationship between public debt and debt defaults/market access. In particular, we show that, in a large panel of emerging markets, the dynamics of the debt ratio plays a critical role for market access. In particular, given a certain level of debt, a steadily declining debt ratio is associated with a lower probability of debt distress/market loss and with a higher likelihood of market re-access once access had been lost.

Series:

Working Paper No. 16/253

Subject:

English

Publication Date:

December 23, 2016

ISBN/ISSN:

9781475563207/1018-5941

Stock No:

WPIEA2016253

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

34

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