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Digging into the composition of government debt in CESEE: a risk evaluation

Author

Listed:
  • Markus Eller

    (Oesterreichische Nationalbank, Foreign Research Division)

  • Johannes Holler

    (Oesterreichische Nationalbank, Economic Analysis Division)

Abstract

This paper reviews the composition of government debt in Central, Eastern and Southeastern Europe (CESEE) with a particular focus on the related risk implications, using a unique dataset compiled from various sources. The comparatively strong increase in government debt Levels recorded in CESEE since the global financial crisis (GFC), together with an increased role of foreign portfolio investors with a typically short-term orientation, has accentuated refinancing risks. Nevertheless, on the aggregate level, refinancing and interest rate risks have been reduced in CESEE as governments increasingly have been able to issue longer-term debt instruments. At the same time, however, risks are not distributed equally across CESEE: there are still a few countries that record sizeable short-term debt (partially denominated in foreign currency) and/or are likely to face pronounced repayment spikes in the period up to 2025. The combination of an increased debt stock and a dominant share of foreign currency-denominated government debt also implies substantial exposure to exchange rate risks in a few CESEE countries. Historical default episodes underline the riskiness of the large shares of foreign currency-denominated government debt that are often observed for countries with less developed capital markets. The issuance of debt instruments which are exposed to high refinancing and rollover risk is only partially driven by debt management strategies; it is also a direct consequence of domestic financial market conditions. Therefore, special emphasis should be placed on fostering CESEE capital markets to strengthen government borrowing at home and in the local currencies and to further develop derivative products to hedge interest and exchange rate risk.

Suggested Citation

  • Markus Eller & Johannes Holler, 2018. "Digging into the composition of government debt in CESEE: a risk evaluation," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q2-18, pages 56-80.
  • Handle: RePEc:onb:oenbfi:y:2018:i:q2-18:b:1
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    References listed on IDEAS

    as
    1. Sebastian Beer, 2018. "A cost-risk analysis of sovereign debt composition in CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1-18, pages 6-25.
    2. Johannes Holler, 2013. "Funding Strategies of Sovereign Debt Management: A Risk Focus," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 51-74.
    3. Markus Eller & Jarmila Urvová, 2012. "How Sustainable Are Public Debt Levels in Emerging Europe?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 48-79.
    4. Mr. Udaibir S Das & Miss Yinqiu Lu & Mr. Michael G. Papaioannou & Iva Petrova, 2012. "Sovereign Risk and Asset and Liability Management: Conceptual Issues," IMF Working Papers 2012/241, International Monetary Fund.
    5. Miss Gabriela Dobrescu & Iva Petrova & Nazim Belhocine & Mr. Emanuele Baldacci, 2011. "Assessing Fiscal Stress," IMF Working Papers 2011/100, International Monetary Fund.
    6. International Monetary Fund, 2011. "Government Debt Issuance in the Euro Area: The Impact of the Financial Crisis," IMF Working Papers 2011/021, International Monetary Fund.
    7. Mr. Udaibir S Das & Jay Surti & Mr. Faisal Ahmed & Mr. Michael G. Papaioannou & Mr. Guilherme Pedras, 2010. "Managing Public Debt and Its Financial Stability Implications," IMF Working Papers 2010/280, International Monetary Fund.
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    More about this item

    Keywords

    government debt structure; public debt management; sovereign risk; Central; Eastern;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • P35 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance

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