An econometric analysis of IBRD creditworthiness
AbstractThe author econometrically ascertains the determinants of default to the International Bank for Reconstruction and Development (IBRD) through panel logit analysis. Creditworthiness with a lag of one period is determined by the extent of arrears to private creditors, the proportion of total debt service that is being paid, the government budget deficit, the extent of military involvement in the government of a country, and by the G7's current account balance. Default to the IBRD falls into a graduated hierarchy, whereby default occurs first to Paris Club and commercial bank creditors, with subsequent default triggered by portfolios with high proportions of IBRD and short-term debt, as well as the factors mentioned above. Default to these other creditor groups can be explained by more traditional country risk variables, although Mckenzie's analysis highlights the importance of political and external factors in explaining default to all creditors studied. He finds sovereign default to be a state-dependent process, whereby the repayment behavior of a country changes once it enters into default. Operationally, the author arrives at a model that can be used to assess short-term creditworthiness, although data imperfections and availability still limit the usefulness of the model for some countries. Longer-term risk assessment proves more difficult, which raises operational questions for the IBRD.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 2822.
Date of creation: 30 Apr 2002
Date of revision:
Environmental Economics&Policies; Payment Systems&Infrastructure; Banks&Banking Reform; Economic Theory&Research; Strategic Debt Management; Strategic Debt Management; Economic Theory&Research; Environmental Economics&Policies; Financial Intermediation; Banks&Banking Reform;
Other versions of this item:
- JEL - Labor and Demographic Economics - - - - -
- Cla - Mathematical and Quantitative Methods - - - - -
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
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