Lost and Found : Market Access and Public Debt Dynamics

Author/Editor: Carlo Cottarelli ; Andrea Presbitero ; Antonio Bassanetti
Publication Date: December 23, 2016
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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(s): Sovereign debt | International capital markets | Access to capital markets | Public debt | Emerging markets | Debt sustainability | Econometric models

Publication Date: December 23, 2016
ISBN/ISSN: 9781475563207/1018-5941 Format: Paper
Stock No: WPIEA2016253 Pages: 34
US$18.00 (Academic Rate:
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