Sovereign Debt Defaults and Financing Needs

March 1, 2004

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Format: Chicago

Miguel Messmacher, and Mark Kruger. Sovereign Debt Defaults and Financing Needs, (USA: International Monetary Fund, 2004) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We construct a financial vulnerability indicator that is consistent with the theoretical literature on determinants of defaults. It is based on the amount of new foreign financing that is needed to avoid a default or an import adjustment, expressed as a proportion of the country's sources of foreign currency. As the need for new foreign financing increases, so does a country's financial vulnerability. The indicator has a higher correlation with default episodes than other indicators used in previous studies. In addition, the level at which it leads to a high probability of default is comparable across countries.

Subject: Debt default, Debt service, Exports, External debt, Financial sector policy and analysis, Financial sector risk, International trade, Public debt

Keywords: Current account, Debt burden, Debt default, Debt indicator, Debt service, Debt service increase, Debt sustainability, Debt-restructuring agreement, Default probability, Early warning indicators, Exports, Financial crisis, Financial sector risk, Growth rate, Probability of default, Sovereign debt defaults, Standard deviation, Threshold probability, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/053
Stock No:

WPIEA0532004
ISBN:

9781451847413
ISSN:

1018-5941

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