## wpiea2019037

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**Canonical URL:** [wpiea2019037](https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019037.pdf)

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---

### Key findings and overview
- Cross-country average increase in debt-to-GDP ratios of roughly twenty percentage points over the period 2012–17.
- External debt-to-GDP ratio increased from 30.4 percent to 49.4 percent of GDP on average over 2012–17.
- Government debt-to-GDP ratio rose from 31.8 percent to 53.1 percent of GDP on average over 2012–17.
- Concessional financing as a share of external debt dropped from 61 percent in 2000 to 50 percent in 2016.
- Interest payments on external debt rose from 0.5 percent of GDP in 2012 to 1.4 percent of GDP in 2017 (cross-country averages).
- General government debt interest payments increased from 1.1 percent of GDP in 2010 to 2.3 percent of GDP in 2017 (cross-country averages).
- Fiscal balance reached 4.2 percent of GDP in 2015, before narrowing over the last couple of years.
- Major takeaway: Both external and government debt of frontier LIDCs have been growing steadily since 2012, accompanied by higher effective interest rates and a shift away from concessional external financing.

### Debt dynamics and composition in frontier LIDCs
- Both external and general government gross debt started rising since 2012 after declines following the HIPC Initiative.
- External debt increase contributed by both private and official components.
- External debt maturity remains mainly long term, though the share of short-term debt is slightly increasing.
- Effective interest rate increased by 1.1 percentage points for external debt and 0.5 percentage points for public debt over 2012–17.
- Rise in interest burden reflects increases in both debt volumes and effective interest rates.
- Government expenditure in nonfinancial assets (capital spending) increased by 3 percentage points from 2010 to 2014 but narrowed since then by roughly the same amount.
- Sharp external and government debt build-up is mirrored by widening current account and fiscal deficits; these two deficits started narrowing only in 2017.

### Global and country-specific drivers (empirical results)
- Panel regression analysis over 1998–2016 with country fixed effects; subsamples 1998–2011 and 2012–16 also estimated.
- Global factors:
  - Federal Funds rate was at its all-time low from end-2008 to end-2015 and started rising thereafter.
  - Commodity price index: peaked at 198 in 2011, dropped to 117 in 2016, and started rebounding thereafter.
  - Commodity price index: negatively and significantly correlated with debt-to-GDP ratios (full sample and subsamples); correlation larger in magnitude in 2012–16.
  - Federal Funds rate: significantly correlated with external debt-to-GDP ratio over full sample; in 2012–16 the Federal Funds rate is significant and large in absolute value — strongly correlated with rise in debt-to-GDP ratios, especially external debt-to-GDP.
- Country-specific factors:
  - Real GDP growth: negatively and significantly correlated with debt-to-GDP ratio.
  - Primary fiscal balance-to-GDP: negatively and significantly correlated with debt-to-GDP ratio.
  - Lagged debt-to-GDP ratio: positive and significant persistence for both external and government debt.
  - Capital account openness: higher openness positively and significantly correlated with higher external debt-to-GDP ratio in 2012–16.
  - Nominal exchange rate, financial development, openness, and institutional factors: not robustly significant in full sample.
- Policy program dummies:
  - IMF program engagement associated with lower debt-to-GDP ratios (in columns with these added).
  - HIPC debt relief associated with lower government debt-to-GDP ratio in the full sample and in 1998–2011; correlation becomes positive in 2012–16, indicating accumulation of new government debt post-relief.
- Caveats: small sample size (18 frontier LIDCs), annual-frequency data, limited observations in 2012–16 subsample; interpret results with caution.

### Empirical approach, sample, and data limitations
- Sample: 18 countries classified as frontier LIDCs by IMF (2014) or PRGT-eligible countries that issued sovereign bonds over 2014–17; Mongolia excluded due to government debt data limitations.
- Data presented as unweighted cross-country averages at annual frequency; all data sources and definitions described in Appendix 2.
- Distinction made between external debt, government debt, and external government debt; currency denomination not examined due to data limitations.
- Debt data available only at annual frequency; data quality and availability improvements by IMF notwithstanding, severe limitations persist.
- VIX was included in preliminary checks but excluded from baseline regressions due to lack of correlation.

### Model structure and calibration (small open economy model)
- Model: stylized small open economy with one-period non-contingent bonds and exogenous interest rate (Schmitt-Grohé and Uribe (2003) framework).
- Features include convex portfolio adjustment costs, quadratic capital adjustment costs, and AR(1) processes for global interest rate C_t and marginal efficiency of investment μ_t.
- Calibration targets:
  - Debt-to-GDP ratio calibrated to cross-country average of external debt-to-GDP ratio.
  - Investment-to-GDP cross-country average: 27.6 percent over 2012–16; projected to 30.7 percent over 2017–24 (used to calibrate μ_t shock).
  - Persistence of the interest rate shock estimated from AR(1) for Fed Funds rate 1988–2017; persistence of μ_t set equal to that of interest rate shock.
- Calibrated shocks:
  - Tightening of interest rate C_t calibrated to FOMC longer-run projection: 0.8 percentage point increase in Federal Funds rate.
  - Increase in marginal efficiency of investment μ_t calibrated to match a 3-percentage point rise in investment-to-GDP.

### Model simulations — scenarios and quantitative outcomes
- Scenario 1 — Tightening in global financing conditions (0.8 percentage point Fed Funds rate increase):
  - External debt-to-GDP ratio decreases by 1.5 percentage points.
  - Output and investment drop.
  - Mechanism: higher borrowing costs reduce supply of resources; borrowing falls and debt-to-GDP falls despite higher interest rates; domestic absorption falls more than output, improving trade balance-to-GDP and current account-to-GDP.
- Scenario 2 — Increase in investment-to-GDP (3-percentage point rise via μ_t shock):
  - External debt-to-GDP ratio rises by 3 percentage points.
  - Output improves; investment, consumption, hours worked, and all subcomponents increase.
  - Mechanism: higher marginal efficiency of investment increases borrowing to finance investment, raising debt-to-GDP; current account-to-GDP worsens.
- Net calibrated effect:
  - Reduction from expected global rate tightening: -1.5 percentage points.
  - Increase from investment shock: +3 percentage points.
  - Conclusion: the -1.5 percentage points reduction is not enough to offset the +3 percentage points increase.

### Policy implications and recommendations
- Domestic policies matter to slow debt increases despite global factor influences.
- Governments should create fiscal buffers by saving budgetary resources and reducing public debt in good times.
- Countries facing risk of debt distress yet needing substantial public investment should reassess fiscal strategies (IMF, 2018).
- IMF and World Bank emphasize enhancing debt analytics and early warning systems and strengthening capacity on debt/fiscal risk management.
- Model caveats relevant for policy interpretation:
  - One-period external bonds only; longer maturity dynamics not modeled.
  - Non-Ponzi condition imposed; model focuses on sustainable debt paths and does not capture rollover crises.
  - Government not explicitly modeled; direct simulation of fiscal tightening not possible in this framework.

### Data sources, variable definitions, and descriptive patterns (Appendices)
- Key data sources: IMF World Economic Outlook database (primary), World Bank World Development Indicators (concessional external debt), FRED St. Louis Fed (Federal Funds rate, VIX), Chinn-Ito website (KAOPEN), International Country Risk Guide (corruption, political risk).
- Time spans generally 1998–2017; concessional external debt 2000–16.
- Important variable definitions preserved exactly (examples):
  - Effective interest rate: Ratio of interest service at time t over debt level at t-1.
  - Commodity exporter dummy: Equal one if commodity exporter (at least 50 percent of export earnings from fuels and primary commodities).
  - HIPC dummy: Equal to zero before the completion date of the HIPC Initiative and to one for the post-completion period.
  - IMF program dummy: Equal to one in the years when a country is engaged in an IMF program and zero otherwise.
- Descriptive statistics:
  - The mean is above the median for debt-to-GDP ratios.
  - The standard deviation is increasing again from 2012 to 2017; dispersion driven by countries above the sample median.

### Suggestions for future research
- Expand sample size and include other variables correlated with debt.
- Control for countries with no market access to compare impacts against market-access countries.
- Consider broader definitions of market financing for LIDCs (loan syndications on market terms, bilateral access to neighboring country’s market, bilateral loans at floating rates).
- Examine role of remittances in cushioning the debt burden.
- Explicitly introduce the government as an agent to study fiscal policy changes.
- Use more granular data on creditors, maturities, and conditions.

*Source: IMF staff report excerpt (wpiea2019037).*

### References  _______________________________________________________________29

### References

### Key findings and overview
- Cross-country average increase in debt-to-GDP ratios of roughly twenty percentage points over the period 2012–17.
- External debt-to-GDP ratio increased from 30.4 percent to 49.4 percent of GDP on average over 2012–17.
- Government debt-to-GDP ratio rose from 31.8 percent to 53.1 percent of GDP on average over 2012–17.
- Concessional financing as a share of external debt dropped from 61 percent in 2000 to 50 percent in 2016.
- Interest payments on external debt rose from 0.5 percent of GDP in 2012 to 1.4 percent of GDP in 2017 (cross-country averages).
- General government debt interest payments increased from 1.1 percent of GDP in 2010 to 2.3 percent of GDP in 2017 (cross-country averages).

### Debt dynamics and composition in frontier LIDCs
- Both external and general government gross debt started rising since 2012 after declines following the HIPC Initiative.
- External debt increase was contributed to by both private and official components.
- External debt maturity remains mainly long term, though the share of short-term debt is slightly increasing.
- The rise in interest burden reflects increases in both debt volumes and effective interest rates (effective interest rate increased by 1.1 percentage points for external debt and 0.5 percentage points for public debt over 2012–17).

### Global and country-specific drivers
- Panel regression analysis over 1998–2016 shows both global and country-specific factors correlated with debt-to-GDP ratios over the full sample period; global factors become more dominant in 2012–16.
- Global financing conditions:
  - The Federal Funds rate was at its all-time low from end-2008 to end-2015 and started rising thereafter.
  - Commodity price index: peaked at 198 in 2011, dropped to 117 in 2016, and started rebounding thereafter (remained much lower than 2011 peak).
- Financial inflows:
  - Portfolio inflows broadly stable over 2012–17.
  - FDI inflows increased up to 2016, then sharply dropped back to around 2012 levels.
- Current account and fiscal positions:
  - Average current account deficit peaked at 8 percent of GDP in 2015 and contracted over 2015–17.
  - Current account fluctuations mainly driven by the goods and services account; primary and secondary income accounts remained stable.
  - On average, both imports and exports decreased from 2012.

### Empirical approach and data limitations
- Sample: 18 countries classified as frontier LIDCs by IMF (2014) or PRGT-eligible countries that issued sovereign bonds over 2014–17; Mongolia excluded due to government debt data limitations.
- Data presented as unweighted cross-country averages at annual frequency; all data sources and definitions described in Appendix 2.
- Panel regressions use country fixed effects to remove country-specific effects.
- Distinction made between external debt, government debt, and external government debt; currency denomination not examined due to data limitations.
- Data limitations: debt data available only at annual frequency; data quality and availability improvements by IMF notwithstanding, severe limitations persist.

### Model simulations and scenarios
- A stylized small open economy model with one-period non-contingent bonds and an exogenous interest rate is used for counterfactual simulations.
- Simulation of a tightening in the global interest rate calibrated to the Federal Open Market Committee’s longer-run projections shows the debt-to-GDP ratio would drop.
- Simulation of an increase in investment calibrated to the cross-country average of the WEO projections of gross capital formation up to 2024 shows the debt-to-GDP ratio would increase.
- Net effect: projected tightening in global financial conditions would reduce debt-to-GDP ratios by less than the increase associated with the expected rise in investment.
- A tightening that reverses capital flows away from frontier LIDCs would reduce the supply of external financing and contribute to dampening the rise in debt-to-GDP ratios; potential adverse impacts on other sectors (for example, the banking sector) are noted as beyond the paper’s scope.

### Empirical context and relation to literature
- This paper is the first to systematically document the debt build-up of frontier LIDCs over the last six years (through 2017) and to examine its potential drivers.
- Unlike other studies, this paper includes global variables such as the Federal funds rate and the commodity price as explanatory variables for debt aggregates.
- Methodologies in the literature: most cross-country studies use fixed or random effects panel regressions; single-country studies often use autoregressive distributed lag models.
- Prior related work: IMF (2018) and IMF and World Bank (2018) document rising debt vulnerabilities in a broader set of LIDCs; Chiminya, Dunne, and Nikolaidou (2018) analyze Sub-Saharan external debt-to-GDP over 1975–2012 and find both economic and political determinants matter.

*Source: IMF working paper content (References and accompanying sections as provided).*

### 4.2 percent of GDP in 2015, before

### wpiea2019037 - 4.2 percent of GDP in 2015, before

### Major takeaways
- Both external and government debt of frontier LIDCs have been growing steadily since 2012.
- The share of external debt contracted at concessional terms has been shrinking, indicating an ongoing change in debt composition.
- Interest rate payments have risen due to the increase in the stock of debt as well as in the effective interest rate.
- Global financial environment was particularly favorable over the analyzed period, yet the interest rate on debt that these countries face has surged — suggesting the rise is not due to the global financial environment alone.
- The drop in commodity prices may have contributed to further increases in debt for commodity exporters.
- Sharp external and government debt build-up is mirrored by widening current account and fiscal deficits; these two deficits started narrowing only in 2017.
- Government expenditure in nonfinancial assets (capital spending) increased by 3 percentage points from 2010 to 2014 but narrowed since then by roughly the same amount.
- Fiscal balance reached 4.2 percent of GDP in 2015, before narrowing over the last couple of years.

*Source figures referenced: Figure 7 (Frontier LIDCs: Fiscal Position), Figure 8 (Frontier LIDCs: Fiscal Trends). Data source: IMF World Economic Outlook database, as of June 2018.*

### Methodology and estimation
- Panel regression model estimated for debt-to-GDP ratios over 1998–2016 and subsamples 1998–2011 and 2012–16.
- Equation estimated with country fixed effects and standard errors clustered at the country level.
- Debt aggregates analyzed: external debt (including private and official) and general government debt (domestic and external); external debt further disaggregated into private external debt and general government external debt.
- Global explanatory variables:
  - Federal Funds rate (proxy for global financial cycle).
  - Global commodity price index (robust to substitution with a crude oil index).
- Country-specific explanatory variables:
  - Real GDP growth.
  - Broad money growth.
  - Primary fiscal balance-to-GDP.
  - Nominal exchange rate (domestic currency per dollar).
  - Openness: growth rate of terms of trade and capital account openness (Chinn-Ito index).
  - Institutional and political indicators: corruption and political risk indices (subcomponents of ICRG).
  - Lagged debt-to-GDP ratio (persistence).
  - IMF engagement dummy (1 if engaged in IMF program).
  - HIPC dummy (0 before HIPC completion date, 1 post-completion; zero for non-beneficiaries).
- Robustness note: VIX included in preliminary checks but excluded from baseline regressions due to lack of correlation.

### Regression results — full sample (1998–2016)
- Global factors:
  - Commodity price index: negatively and significantly correlated with debt-to-GDP ratios.
  - Federal Funds rate: significantly correlated with external debt-to-GDP ratio over full sample, but not with government debt-to-GDP ratio.
- Country-specific factors:
  - Real GDP growth: negatively and significantly correlated with debt-to-GDP ratio.
  - Primary fiscal balance-to-GDP: negatively and significantly correlated with debt-to-GDP ratio.
  - Debt-to-GDP ratio persistence: positive and significant correlation with its first lag for both external and government debt.
  - Nominal exchange rate: not significantly correlated with debt-to-GDP ratios.
  - Financial development, openness, and institutional factors: not significantly correlated.
- IMF and HIPC dummies (columns with these added):
  - IMF program engagement associated with lower debt-to-GDP ratios.
  - HIPC debt relief associated with lower government debt-to-GDP ratio in full sample.

### Regression results — subsamples (1998–2011 and 2012–16)
- Global factors:
  - Commodity price index: negatively and significantly correlated with external and government debt-to-GDP ratios in both subsamples; correlation larger in magnitude in 2012–16.
  - Federal Funds rate (2012–16): significant and large in absolute value — strongly correlated with rise in debt-to-GDP ratios, especially external debt-to-GDP (largest negative correlation); correlation with government debt-to-GDP is about half the magnitude but still large in absolute value.
  - Breaking external debt into private and government components: negative and significant correlation with Federal Funds rate in 2012–16 holds for both components.
- Country-specific factors:
  - Primary balance and real GDP growth: negative and highly significant correlations with debt-to-GDP ratios in both subsamples.
  - Capital account openness: higher openness positively and significantly correlated with higher external debt-to-GDP ratio in 2012–16.
  - HIPC debt relief: associated with lower government debt-to-GDP ratio in 1998–2011 (period of debt relief); correlation becomes positive in 2012–16, suggesting accumulation of new government debt post-relief.

### Main synthesis and caveats
- Over 1998–2016 both global and country-specific factors correlate with debt-to-GDP ratios, but global factors (commodity price index and Federal Funds rate) dominate during 2012–16.
- External debt-to-GDP ratio shows the strongest (negative) correlation with global factors, consistent with higher sensitivity to global environment.
- Interpretation: global low interest rates triggered higher capital inflows to frontier LIDCs, enabling increased borrowing; opportunity to borrow at cheaper rates outweighed savings from low rates, producing a rise in debt-to-GDP along with an increase in the effective interest rate.
- Robust regressors over full sample: commodity price, GDP growth, primary fiscal balance, and lagged debt-to-GDP ratio.
- HIPC recipients reduced government debt-to-GDP during 1998–2011 but started accumulating new government debt in 2012–16.
- Caveats: small sample size for frontier LIDCs and relatively few observations in subsample 2012–16; results should be interpreted with caution. More robustness tests possible as IMF improves data collection and frequency.

### Policy implications and forward-looking analysis
- Because annual-frequency data limited ability to identify shocks via vector autoregression, authors build a small open economy model with incomplete asset markets (Schmitt-Grohé and Uribe (2003) setup) to simulate forward-looking responses to:
  - A tightening in global financial conditions (global shock).
  - An increase in investment (country-specific shock).
- Model features (as calibrated to frontier LIDCs at annual frequency over 2012–17):
  - Agents issue one-period non-contingent bonds d_t paying exogenous interest rate C_t (global interest rate proxy: average Federal Funds rate).
  - Convex portfolio adjustment costs and quadratic capital adjustment costs included.
  - Capital evolves with marginal efficiency of investment μ_t; both C_t and μ_t follow AR(1) processes.
  - Debt-to-GDP ratio calibrated to cross-country average of external debt-to-GDP ratio.
  - Persistence of the interest rate shock estimated from AR(1) for Fed Funds rate 1988–2017; persistence of μ_t equalized to that of interest rate shock.
  - Investment-to-GDP cross-country average: 27.6 percent over 2012–16; projected to 30.7 percent over 2017–24 (used to calibrate μ_t shock).

### Model simulations — calibrated shocks and outcomes
- Calibration of shocks:
  - Tightening of interest rate C_t calibrated to FOMC longer-run projection: 0.8 percentage point increase in Federal Funds rate.
  - Increase in marginal efficiency of investment μ_t calibrated to match rise in investment-to-GDP with WEO projections up to 2024: a 3-percentage point rise.
- Scenario 1 — Tightening in global financing conditions (0.8 percentage point Fed Funds rate increase):
  - External debt-to-GDP ratio decreases by 1.5 percentage points.
  - Output and investment drop.
  - Mechanism: higher borrowing costs reduce supply of resources and borrowing dominates, pushing debt-to-GDP down despite higher borrowing costs per se; reduced investment lowers capital stock and output; domestic absorption drops more than output, improving trade balance-to-GDP and current account-to-GDP.
- Scenario 2 — Increase in investment-to-GDP (3-percentage point rise via μ_t shock):
  - External debt-to-GDP ratio rises by 3 percentage points.
  - Output improves; investment, consumption, hours worked, and all subcomponents increase.
  - Mechanism: higher marginal efficiency of investment raises attractiveness of investment, agents borrow more to invest, raising debt-to-GDP; current account-to-GDP worsens as debt increases.

*Italic source attribution: IMF staff report excerpt (wpiea2019037), content drawn from specified PDF chapter/section.*

### Appendix 4).

### wpiea2019037 - Appendix 4)

### Model takeaways and caveats
- The model allows policy simulations for frontier LIDCs given the current global and country-specific environment.
- Calibration result:
  - Reduction in the debt-to-GDP ratio associated with the expected tightening in the global interest rate: -1.5 percentage points.
  - Increase in the debt-to-GDP ratio associated with the investment shock: +3 percentage points.
  - Net effect: the -1.5 percentage points reduction is not enough to offset the +3 percentage points increase.
- Caveats of the model:
  - Features one-period external bonds only; longer maturity debt dynamics are not modeled.
  - Agents are subject to a non-Ponzi condition; the model focuses on sustainable debt paths and does not capture rollover crises or ballooning debt.
  - The government is not explicitly modeled; direct simulation of fiscal tightening is not possible within this framework.
  - For detailed fiscal policy analysis in low-income countries, the reader is referred to Shen, Yang, and Zanna (2018).

### Key empirical findings (paper-wide)
- Period documented: 2012–17 saw a stark increase in external and government debt-to-GDP ratios for frontier LIDCs.
- Additional pressures:
  - Frontier LIDCs have faced both a rise in debt-to-GDP ratios and a higher interest rate on their debt, increasing the interest rate burden.
  - Composition shift: a higher share of external debt contracted at non-concessional terms.
- Determinants analysis (1998–2016, and subsamples 1998–2011 and 2012–16):
  - Both global and country-specific factors correlate strongly with external and government debt-to-GDP ratios over the whole sample.
  - Country-specific factors highlighted: commodity prices, real GDP growth, and fiscal policy.
  - Over 2012–16, global factors became dominant; proxying global factors by the commodity price index and the Federal Funds rate shows stronger correlation with the sharp rise in debt-to-GDP ratios.
  - HIPC countries: had lower debt-to-GDP ratios in 1998–2011 during the HIPC debt relief program, but in 2012–16 they began building up more debt than non-HIPC countries.

### Policy implications and calibrated scenario
- Scenario calibration to medium-term projections:
  - Global interest rate tightening would tend to reduce debt-to-GDP ratios (global factor) by reversing yield-seeking inflows toward frontier LIDCs.
  - An increase in investment (country-specific factor) would raise debt-to-GDP ratios.
  - Calibrated shocks show the reduction from expected global rate tightening (-1.5 percentage points) does not offset the investment-driven increase (+3 percentage points).
- Policy recommendations:
  - Domestic policies are important to slow debt increases despite global factor influences.
  - Governments should create fiscal buffers by saving budgetary resources and reducing public debt in good times.
  - Countries facing risk of debt distress yet needing substantial public investment should reassess their fiscal strategies (IMF, 2018).
  - The IMF and the World Bank emphasize enhancing debt analytics and early warning systems and strengthening capacity on debt/fiscal risk management to help countries deal with existing debt.

### Suggestions for future research
- Expand sample size and include other variables correlated with debt.
- Control for countries with no market access to compare impacts of debt determinants against market-access countries.
- Consider broader definitions of market financing for LIDCs beyond bond issuance, e.g.:
  - Loan syndications on market terms with foreign banks.
  - Bilateral access to neighboring country’s market.
  - Bilateral loans at floating rates (could be considered borrowing at market terms).
- Examine the role of remittances in cushioning the debt burden.
- Explicitly introduce the government as an agent in the model to study fiscal policy changes in more detail.
- Use more granular data on creditors, maturities, and conditions to shed further light on recent debt dynamics.

*Source: Appendix 4) of wpiea2019037 (IMF staff calculations and paper conclusions).*

### Appendix 2. Data Sources and Description

### Appendix 2. Data Sources and Description

### Variables, definitions, sources, and time spans
- Broad money
  - Definition: Broad money as defined by the national authorities. Broad money typically comprises the sum of currency outside depository corporations, transferable and nontransferable deposits held by residents other than those of the central government, and in some countries also securities other than shares issued by depository corporations that are very liquid.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Commodity exporter dummy
  - Definition: Equal one if commodity exporter. Countries are defined as commodity exporters when at least 50 percent of their export earnings come from fuels and primary commodities.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Commodity price index
  - Definition: Commodity industrial inputs price index: a combination of agricultural materials and metal price indices. Crude oil index: a simple average of Dated Brent, West Texas Intermediate, and the Dubai Fateh.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Concessional external debt
  - Definition: Defined by the World Bank, International Debt Statistics as loans with an original grant element of 25 percent or more.
  - Source: World Bank, World Development Indicators database
  - Time span: 2000–16

- Corruption
  - Definition: Higher values of corruption index mean better institutional quality.
  - Source: International Country Risk Guide index
  - Time span: 1998–2017

- Current account balance
  - Definition: Includes: a) goods and services account, b) primary income account, and c) secondary income account.
    - a) Goods and services account shows transactions in items that are outcomes of production activities between residents and nonresidents.
    - b) Primary income account shows income flows between residents and nonresidents.
    - c) Secondary income account shows current transfers between residents and nonresidents.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Capital account openness
  - Definition: Chinn-Ito index (KAOPEN) measuring a country's degree of capital account openness. KAOPEN is based on the binary dummy variables that codify the tabulation of restrictions on cross-border financial transactions reported in the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER).
  - Source: http://web.pdx.edu/~ito/Chinn-Ito_website.htm
  - Time span: 1998-2016

- Effective interest rate
  - Definition: Ratio of interest service at time t over debt level at t-1.
  - Source: Authors’ calculations
  - Time span: 1998–2017

- Exchange rate
  - Definition: National currency units per U.S. dollar, period average.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Exports
  - Definition: Exports of goods and services, current prices.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- External debt
  - Definition: Debt is defined as external on the criterion of residency. Namely, gross external debt, at any given time, is the outstanding amount of those actual current, and not contingent, liabilities that require payment(s) of principal and/or interest by the debtor at some point(s) in the future and that are owed to nonresidents by residents of an economy.
    - By type of debtor: Official debt is debt owed by the resident general government and monetary authorities to all foreign (non-resident) sectors, bank debt is debt owed by resident banks to all foreign (non-resident) sectors, while other private debt is owed by non-bank financial corporations, nonfinancial corporations, and households and nonprofit institutions serving the household subsector.
    - By maturity: Long-term debt is defined as debt with an original maturity of more than one year or with no stated maturity. Short-term debt is with an original maturity of less than or equal to one year.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- External government debt
  - Definition: Debt owed by the resident general government and monetary authorities to all foreign (non-resident) sectors.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- FDI inflows
  - Definition: Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Federal Funds rate
  - Definition: Effective Federal Funds rate.
  - Source: FRED St. Louis Fed
  - Time span: 1998–2017

- Fiscal balance
  - Definition: Overall fiscal balance: difference between revenues and grants, and expenditure and net lending. Primary fiscal balance: excludes interest payments from expenditure.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Government debt
  - Definition: General government gross debt consists of all liabilities that require payment or payments of interest and/or principal by the debtor to the creditor at a date or dates in the future. This includes debt liabilities in the form of SDRs, currency and deposits, debt securities, loans, insurance, pensions and standardized guarantee schemes, and other accounts payable.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Government expenditure
  - Definition: Includes: a) total expense, and b) the net acquisition of nonfinancial assets.
    - a) Total expense: Consists of compensation of employees, goods and services used by government, consumption of fixed capital (“depreciation”), interest, subsidies, grants paid/payable, social benefits, and other expense.
    - b) Net acquisition of nonfinancial assets: The acquisitions minus the disposals of nonfinancial assets minus the consumption of fixed capital
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Government revenue
  - Definition: Consists of taxes, social contributions, grants receivable, and other revenue (this includes property income, proceeds from sales of goods and services; and fines, penalties, and forfeits; voluntary transfers other than grants, and miscellaneous other revenues).
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- HIPC dummy
  - Definition: Equal to zero before the completion date of the HIPC Initiative and to one for the post-completion period. The HIPC Initiative was launched in 1996 by the IMF and World Bank, with the aim of ensuring that no poor country faces a debt burden it cannot manage. In 1999, a comprehensive review of the Initiative allowed the Fund to provide faster, deeper, and broader debt relief and strengthened the links between debt relief, poverty reduction, and social policies.
  - Source: Authors’ calculations
  - Time span: 1998–2017

- IMF program dummy
  - Definition: Equal to one in the years when a country is engaged in an IMF program (financial or non-financial) and zero otherwise. The IMF programs considered include arrangements using either existing or previous IMF facilities: (i) the Extended Credit Facility, Standby Credit Facility, Rapid Credit Facility, Policy Support Instrument, Stand-By Arrangement, Extended Fund Facility, and Staff-Monitored Program; and (ii) the Exogenous Shocks Facility, Emergency Post-Conflict Assistance, and Emergency Natural Disaster Assistance.
  - Source: Authors’ calculations
  - Time span: 1998–2017

- Imports
  - Definition: Imports of goods and services, constant prices.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Interest payments
  - Definition: General government interest payments: Expense that the general government unit (the debtor) incurs for the use of the principal outstanding, which is the economic value that has been provided by the creditor in the form of deposits, debt securities, loans, and accounts payable. Interest payment on external debt: Periodic payments of interest costs paid by borrower during the year current.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Political risk
  - Definition: Higher values of the political risk index mean less political instability.
  - Source: International Country Risk Guide index
  - Time span: 1998–2017

- Portfolio inflows
  - Definition: Cross-border transactions and positions involving debt, equity and investment fund shares, other than those included in the categories of direct investment and reserve assets.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Real GDP growth
  - Definition: Gross domestic product, constant prices, National Currency, percent change.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- Terms of trade
  - Definition: Terms of trade, total, US Dollars, percent change.
  - Source: IMF World Economic Outlook database
  - Time span: 1998–2017

- VIX
  - Definition: CBOE Volatility index (VIX): measure of constant, 30-day expected volatility of the U.S. stock market, derived from real-time, mid-quote prices of S&P 500® Index (SPXSM) call and put options.
  - Source: FRED St. Louis Fed
  - Time span: 1998–2017

### Appendix 3 — Debt-to-GDP ratios: descriptive statistics and patterns
- Key descriptive finding:
  - The mean is above the median.
- Dispersion observation:
  - The standard deviation is increasing again from 2012 to 2017.
  - Interpretation: The dispersion of debt-to-GDP ratios is increasing across countries and it is mainly driven by the countries having a debt-to-GDP ratio above the sample median.
- Figures and tables referenced:
  - Figure A3.1. Debt-to-GDP Ratios: Median and Interquartile Range (Source: IMF World Economic Outlook database, as of June 2018).
  - Table A3.1. Debt-to-GDP Ratios: Additional Descriptive Statistics (Source: IMF World Economic Outlook database, as of June 2018).

### Appendix 4 — Additional impulse response functions to shocks
- Figures included:
  - Figure A4.1 Interest Rate Tightening (Source: IMF staff calculations).
  - Figure A4.2 Increase in Marginal Efficiency of Investment (Source: IMF staff calculations).

*Source: wpiea2019037 - Appendix 2. Data Sources and Description, wpiea2019037 - Appendix 3, and Appendix 4 (source PDF content).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2019/wpiea2019037.pdf_