Lost and Found: Market Access and Public Debt Dynamics

By Carlo Cottarelli, Andrea F Presbitero, Antonio Bassanetti

December 23, 2016

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Carlo Cottarelli, Andrea F Presbitero, and Antonio Bassanetti. Lost and Found: Market Access and Public Debt Dynamics, (USA: International Monetary Fund, 2016) accessed December 21, 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

The empirical literature on sovereign debt crises identifies the level of public debt (measured as a share of GDP) as a key variable to predict debt defaults and to determine sovereign market access. This evidence has led to the widespread use of (country-specific) debt thresholds to assess debt sustainability. We argue that the level of the debt-to-GDP ratio, whose use is justified on a theoretical and empirical ground, should not be the only fiscal metric to assess the complex relationship between public debt and debt defaults/market access. In particular, we show that, in a large panel of emerging markets, the dynamics of the debt ratio plays a critical role for market access. In particular, given a certain level of debt, a steadily declining debt ratio is associated with a lower probability of debt distress/market loss and with a higher likelihood of market re-access once access had been lost.

Subject: Debt default, Debt sustainability, Debt sustainability analysis, External debt, Fiscal policy, Fiscal stance, Public debt

Keywords: Debt default, Debt distress, Debt dynamics, Debt ratio, Debt Sustainability, Debt sustainability analysis, Default, Distress episode, Fiscal Crises, Fiscal stance, Global, International Capital Markets, Market, Market access, Market loss, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/253
Stock No:

WPIEA2016253
ISBN:

9781475563207
ISSN:

1018-5941

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