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Hidden Debt Revelations

Author

Listed:
  • Sebastián Horn

    (Banco Mundial)

  • David Mihaly

    (Banco Mundial)

  • Philipp Nickol

    (UDE-RGS)

  • César Sosa-Padilla

    (University of Notre Dame)

Abstract

How reliable are public debt statistics? This paper quantifies the magnitude, characteristics, and timing of hidden debt by tracking ex post data revisions across a comprehensive new database of more than 50 vintages of World Bank debt statistics. In a sample of debt data covering 146 countries and 53 years, we establish three new stylized facts: (i) debt statistics are systematically under-reported; (ii) hidden debt accumulates in boom years and tends to be revealed in bad times, often during IMF programs and sovereign defaults; and (iii) in debt restructurings, higher hidden debt is associated with larger creditor losses. We use our novel data to numerically discipline a quantitative sovereign debt model with hidden debt accumulation and an endogenous monitoring decision that triggers revelations. Our model simulations show that hidden debt has adverse effects on default risk, debt-carrying capacity and asset prices. While overall welfare costs of hidden debt are large, only countries in comparatively strong financial positions benefit from greater debt transparency.

Suggested Citation

  • Sebastián Horn & David Mihaly & Philipp Nickol & César Sosa-Padilla, 2024. "Hidden Debt Revelations," Working Papers 338, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:338
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/338.pdf
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    Cited by:

    1. Liu, Yishuang & Dong, Hanmin & Wang, Yueyang, 2025. "In the same boat: Climate risk and hidden debt in the supply chain," Journal of International Money and Finance, Elsevier, vol. 153(C).
    2. Guler, Bulent & Önder, Yasin Kürşat & Taskin, Temel, 2025. "Sovereign Debt Disclosure," Journal of International Economics, Elsevier, vol. 157(C).
    3. Horn, Sebastian & Reinhart, Carmen M. & Trebesch, Christoph, 2025. "China's lending to developing countries: From boom to bust," Kiel Working Papers 2304, Kiel Institute for the World Economy.

    More about this item

    Keywords

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    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • G01 - Financial Economics - - General - - - Financial Crises

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