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Long-Term Debt Sustainability in Emerging Market Economies: A Counterfactual Analysis

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  • Ugo Panizza

    (The Graduate Institute Geneva, Switzerland
    Centre for Economic Policy Research, London, United Kingdom)

Abstract

The 2015 Addis Ababa Action Agenda recognized the need for policies aimed at maintaining long-term debt sustainability. This paper describes a set of commonly used definitions of debt sustainability and shows that none of them focuses on long-term debt sustainability. It then discusses several practical and conceptual difficulties linked to assessing solvency in developing and emerging countries. Next, the paper asks whether countries default because they borrow too much or because investors think they will default, and this expectation becomes self-fulfilling. To answer this question, the paper uses a sample of 17 emerging market countries over 1970–2020 to build counterfactual debt levels under the assumption that these countries had continuous access to the international capital market without paying any premium over U.S. Treasuries. The exercise shows that most debt crises are not driven by solvency issues.

Suggested Citation

  • Ugo Panizza, 2025. "Long-Term Debt Sustainability in Emerging Market Economies: A Counterfactual Analysis," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 15(1), pages 1-19.
    • Handle: RePEc:afj:journ3:v:15:y:2025:i:1:p:1-19
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-rdfin_v15_n1_a1
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    References listed on IDEAS

    as
    1. Ugo PANIZZA, 2015. "Debt Sustainability in Low-Income Countries - The Grants versus Loans Debate in a World without Crystal Balls," Working Papers P120, FERDI.
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    4. Josefin Meyer & Carmen M Reinhart & Christoph Trebesch, 2022. "Sovereign Bonds Since Waterloo," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(3), pages 1615-1680.
    5. Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2013. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," Economic Journal, Royal Economic Society, vol. 0, pages 4-30, February.
    6. Lang, Valentin F. & Presbitero, Andrea F., 2018. "Room for discretion? Biased decision-making in international financial institutions," Journal of Development Economics, Elsevier, vol. 130(C), pages 1-16.
    7. Anna Gelpern & Ugo Panizza, 2022. "Enough Potential Repudiation: Economic and Legal Aspects of Sovereign Debt in the Pandemic Era," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 545-570, August.
    8. Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 949-963.
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    Cited by:

    1. Anna Gelpern & Ugo Panizza, 2022. "Enough Potential Repudiation: Economic and Legal Aspects of Sovereign Debt in the Pandemic Era," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 545-570, August.

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    More about this item

    Keywords

    Public debt; Default; Liquidity crises;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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