IDEAS home Printed from https://ideas.repec.org/p/gii/giihei/heidwp07-2022.html
   My bibliography  Save this paper

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

Author

Abstract

The 2015 Addis Ababa Action Agenda recognized the need for policies aimed at maintaining longterm 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 concept and 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 that 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 US Treasuries. The exercise shows that most debt crises are not driven by solvency issues.

Suggested Citation

  • Ugo Panizza, 2022. "Long-Term Debt Sustainability in Emerging Market Economies: A Counterfactual Analysis," IHEID Working Papers 07-2022, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp07-2022
    as

    Download full text from publisher

    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP07-2022.pdf
    Download Restriction: no
    ---><---

    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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Federico Sturzenegger & Jeromin Zettelmeyer, 2007. "Creditors' Losses Versus Debt Relief: Results from a Decade of Sovereign Debt Crises," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 343-351, 04-05.
    8. Bohn, Henning, 1991. "Budget balance through revenue or spending adjustments? : Some historical evidence for the United States," Journal of Monetary Economics, Elsevier, vol. 27(3), pages 333-359, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lozano-Espitia, Ignacio & Julio-Román, J. Manuel, 2020. "Debt limits and fiscal space for some Latin American economies," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).
    2. Casalin, Fabrizio & Dia, Enzo & Hughes Hallett, Andrew, 2020. "Public debt dynamics with tax revenue constraints," Economic Modelling, Elsevier, vol. 90(C), pages 501-515.
    3. Ignacio Lozano-Espitia & Juan Manuel Julio-Román, 2019. "Límite de la Deuda Pública y Espacio Fiscal: Análisis para Colombia y Otros Mercados Emergentes," Borradores de Economia 1076, Banco de la Republica de Colombia.
    4. Gerardo Manzo & Antonio Picca, 2020. "The Impact of Sovereign Shocks," Management Science, INFORMS, vol. 66(7), pages 3113-3132, July.
    5. D’Erasmo, P. & Mendoza, E.G. & Zhang, J., 2016. "What is a Sustainable Public Debt?," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2493-2597, Elsevier.
    6. António Afonso & José Alves & Oļegs Matvejevs & Oļegs Tkačevs, 2023. "Fiscal Sustainability and the Role of Inflation," CESifo Working Paper Series 10843, CESifo.
    7. Batini, Nicoletta & Melina, Giovanni & Villa, Stefania, 2019. "Fiscal buffers, private debt, and recession: The good, the bad and the ugly," Journal of Macroeconomics, Elsevier, vol. 62(C).
    8. Lankester-Campos, Valerie & Loaiza-Marín, Kerry & Monge-Badilla, Carlos, 2020. "Assessing public debt sustainability for Costa Rica using the fiscal reaction function," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).
    9. Lees, Kirdan, 2013. "Fighting fit? Assessing New Zealand’s fiscal sustainability," NZIER Working Paper 2013/5, New Zealand Institute of Economic Research.
    10. Reinhart, Carmen M. & Reinhart, Vincent & Rogoff, Kenneth, 2015. "Dealing with debt," Journal of International Economics, Elsevier, vol. 96(S1), pages 43-55.
    11. Francesca Di Iorio & Stefano Fachin, 2022. "Fiscal reaction functions for the advanced economies revisited," Empirical Economics, Springer, vol. 62(6), pages 2865-2891, June.
    12. Zhengyang Jiang & Hanno Lustig & Stijn Van Nieuwerburgh & Mindy Z. Xiaolan, 2020. "Manufacturing Risk-free Government Debt," NBER Working Papers 27786, National Bureau of Economic Research, Inc.
    13. Katia Berti & Eugeniu Colesnic & Cyril Desponts & Stephanie Pamies & Etienne Sail, 2016. "Fiscal Reaction Functions for European Union Countries," European Economy - Discussion Papers 028, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    14. Yoshida, Motonori, 2023. "Chronological changes of government sectors’ fiscal policies and fiscal sustainability in Japan," Japan and the World Economy, Elsevier, vol. 66(C).
    15. Hyejin Ko, 2020. "Measuring fiscal sustainability in the welfare state: fiscal space as fiscal sustainability," International Economics and Economic Policy, Springer, vol. 17(2), pages 531-554, May.
    16. Neto, David, 2020. "Tracking fiscal discipline. Looking for a PIIGS on the wing," International Economics, Elsevier, vol. 163(C), pages 147-154.
    17. Panizza, Ugo & Fatás, Antonio & Ghosh, Atish R. & ,, 2019. "The Motives to Borrow," CEPR Discussion Papers 13735, C.E.P.R. Discussion Papers.
    18. Zuzana Mucka, 2019. "The mirror does not lie: Endogenous fiscal limits for Slovakia," Working Papers Working Paper No. 2/2019, Council for Budget Responsibility.
    19. Reinhart, Carmen & Trebesch, Christoph, 2014. "A Distant Mirror of Debt, Default, and Relief," CEPR Discussion Papers 10195, C.E.P.R. Discussion Papers.
    20. Carlo Favero & Francesco Giavazzi & Jacopo Perego, 2011. "Country Heterogeneity and the International Evidence on the Effects of Fiscal Policy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(4), pages 652-682, November.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gii:giihei:heidwp07-2022. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dorina Dobre (email available below). General contact details of provider: https://edirc.repec.org/data/ieheich.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.