{
  "title": "Debt Dynamics in Emerging and Developing Economies: Is R-G a Red Herring?",
  "publication": "IMF Working Papers, September 7, 2021",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2021/09/07/debt-dynamics-in-emerging-and-developing-economies-is-r-g-a-red-herring-465345",
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  "summary": "In the wake of the COVID-19 pandemic, debt levels in emerging and developing economies have surged raising concerns about fiscal sustainability. Historically, negative interest-growth differentials in these countries have played a debt-stabilizing role.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Context: In the wake of the COVID-19 pandemic, debt levels in emerging and developing economies have surged, raising concerns about fiscal sustainability.\n- Research scope: Sample of 150 emerging and developing economies going back to the 1970s.\n- Central question: Have historically negative interest-growth differentials (r - g) been sufficient to prevent countries from falling into debt distress?"
    },
    {
      "heading": "Key findings",
      "content": "- Interest-growth differentials have remained relatively low, dampening debt increases in the run up to a crisis.\n- Persistent primary deficits lead to abrupt rises in debt service—particularly in emerging markets—followed by fiscal crises.\n- A large part of the debt build-up around crises stems from valuation effects associated with external debt and the materialization of contingent liabilities.\n- Conclusion: Low interest-growth differentials are not sufficient to fully offset the deleterious effects of large fiscal deficits, forex exposures, or hidden debts."
    },
    {
      "heading": "Mechanisms and drivers identified",
      "content": "- Debt-stabilizing role of negative interest-growth differentials observed historically.\n- Valuation effects on external debt contribute materially to debt increases around crises.\n- Contingent liabilities (hidden debts) materializing amplify debt buildups and fiscal stress.\n- Forex exposures increase vulnerability despite favorable r - g dynamics."
    },
    {
      "heading": "Policy implications and priorities",
      "content": "- Do not rely solely on negative interest-growth differentials to ensure fiscal sustainability.\n- Manage and reduce persistent primary deficits to prevent abrupt increases in debt service.\n- Strengthen monitoring and disclosure of contingent liabilities to limit hidden-debt risks.\n- Improve management of external debt and foreign-exchange exposures to mitigate valuation-driven debt buildups."
    },
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      "heading": "Publication and metadata",
      "content": "- Authors: Marialuz Moreno Badia, Juliana Gamboa-Arbelaez, Yuan Xiang\n- Date: September 7, 2021\n- Series: IMF Working Papers, Working Paper No. 2021/229\n- Volume: 2021; Issue: 229; Pages: 38\n- DOI: https://doi.org/10.5089/9781513596259.001\n- Stock No: WPIEA2021229\n- ISBN: 9781513596259\n- ISSN: 1018-5941\n\nMarialuz Moreno Badia, Juliana Gamboa-Arbelaez, and Yuan Xiang. \"Debt Dynamics in Emerging and Developing Economies: Is R-G a Red Herring?\", IMF Working Papers 2021, 229 (2021), accessed 9/16/2026, https://doi.org/10.5089/9781513596259.001\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2021/09/07/debt-dynamics-in-emerging-and-developing-economies-is-r-g-a-red-herring-465345"
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    "Authors: Marialuz Moreno Badia, Juliana Gamboa-Arbelaez, Yuan Xiang",
    "Published: September 7, 2021",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513596259.001",
    "Context: In the wake of the COVID-19 pandemic, debt levels in emerging and developing economies have surged, raising concerns about fiscal sustainability.",
    "Research scope: Sample of 150 emerging and developing economies going back to the 1970s.",
    "Central question: Have historically negative interest-growth differentials (r - g) been sufficient to prevent countries from falling into debt distress?",
    "Interest-growth differentials have remained relatively low, dampening debt increases in the run up to a crisis.",
    "Persistent primary deficits lead to abrupt rises in debt service—particularly in emerging markets—followed by fiscal crises.",
    "A large part of the debt build-up around crises stems from valuation effects associated with external debt and the materialization of contingent liabilities.",
    "Conclusion: Low interest-growth differentials are not sufficient to fully offset the deleterious effects of large fiscal deficits, forex exposures, or hidden debts.",
    "Debt-stabilizing role of negative interest-growth differentials observed historically.",
    "Valuation effects on external debt contribute materially to debt increases around crises.",
    "Contingent liabilities (hidden debts) materializing amplify debt buildups and fiscal stress.",
    "Forex exposures increase vulnerability despite favorable r - g dynamics.",
    "Do not rely solely on negative interest-growth differentials to ensure fiscal sustainability.",
    "Manage and reduce persistent primary deficits to prevent abrupt increases in debt service.",
    "Strengthen monitoring and disclosure of contingent liabilities to limit hidden-debt risks.",
    "Improve management of external debt and foreign-exchange exposures to mitigate valuation-driven debt buildups.",
    "Authors: Marialuz Moreno Badia, Juliana Gamboa-Arbelaez, Yuan Xiang",
    "Date: September 7, 2021",
    "Series: IMF Working Papers, Working Paper No. 2021/229",
    "Volume: 2021; Issue: 229; Pages: 38",
    "DOI: https://doi.org/10.5089/9781513596259.001",
    "Stock No: WPIEA2021229",
    "ISBN: 9781513596259",
    "ISSN: 1018-5941",
    "**Working Paper**"
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