Using pooled information and bootstrap methods to assess debt sustainability in low income countries

Conventional assessments of debt sustainability in low income countries are hampered by poor data and weaknesses in methodology. In particular, the standard International Monetary Fund-World bank debt sustainability framework relies on questionable empirical assumptions: its baseline projections ignore statistical uncertainty, and its stress tests, which are performed as robustness checks, lack a clear economic interpretation and ignore the interdependence between the relevant macroeconomic variables. This paper proposes to alleviate these problems by pooling data from many countries and estimating the shocks and macroeconomic interdependence faced by a generic, low income country. The paper estimates a panel vector autoregression to trace the evolution of the determinants of debt, and performs simulations to calculate statistics on external debt for individual countries. The methodology allows for the value of the determinants of debt to differ across countries in the long run, and for additional heterogeneity through country-specific exogenous variables. Results in this paper suggest that ignoring the uncertainty and interdependence of macroeconomic variables leads to biases in projected debt trajectories, and consequently, the assessment of debt sustainability.

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Bibliographic Details
Main Author: Hevia, Constantino
Language:English
Published: 2012-02-01
Subjects:ADVANCED COUNTRIES, AMOUNT OF DEBT, AUTOREGRESSION, BANK DEBT, CHECKS, COMMODITY, COMMODITY PRICES, CONSTANT MATURITY, CURRENT ACCOUNT, CURRENT ACCOUNT BALANCE, DEBT, DEBT ACCUMULATION, DEBT BURDEN, DEBT BURDENS, DEBT LEVEL, DEBT RELIEF, DEBT SERVICE, DEBT SERVICE RELIEF, DEBT SUSTAINABILITY, DEBT SUSTAINABILITY ANALYSES, DEBT SUSTAINABILITY ANALYSIS, DEBT THRESHOLDS, DEPENDENT, DERIVATIVES, DEVELOPING COUNTRIES, DEVELOPMENT POLICY, DOLLAR VALUE, DUMMY VARIABLE, DUMMY VARIABLES, ECONOMETRICS, ECONOMIC OUTLOOK, EMERGING MARKET, EMERGING MARKET COUNTRIES, EMERGING MARKET ECONOMIES, ENDOGENOUS VARIABLES, EVOLUTION OF DEBT, EXCHANGE RATE REGIMES, EXOGENOUS VARIABLES, EXPORTS, EXTERNAL DEBT, EXTERNAL DEBT STOCK, FEDERAL RESERVE, FEDERAL RESERVE SYSTEM, FORECASTS, FOREIGN DEBT, FOREIGN DIRECT INVESTMENT, FUTURE DEBT, GDP, GDP DEFLATOR, GROSS DOMESTIC PRODUCT, GROWTH RATE, GROWTH RATES, IMPLICIT INTEREST, INCOME, INDEBTED, INDEBTED POOR COUNTRIES, INTEREST PAYMENTS, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL ECONOMICS, INTERNATIONAL INVESTMENT, INTERNATIONAL RESERVES, LARGE DEBT, LEVEL OF DEBT, LEVELS OF DEBT, LOCAL CURRENCY, LOW-INCOME COUNTRIES, LOWER DEBT, MACROECONOMIC VARIABLES, MACROECONOMICS, MONETARY FUND, NATURAL DISASTERS, NEGATIVE SHOCK, NEGATIVE SHOCKS, NUMBER OF DEBT, OIL PRICE, OIL PRICES, PARTICULAR COUNTRY, PENALTY, PORTFOLIO, PORTFOLIO EQUITY, PORTFOLIO INVESTMENT, PUBLIC DEBT, PUBLIC POLICY, REAL EXCHANGE RATE, REAL GDP, REGRESSION ANALYSIS, RESERVES, RISK MANAGEMENT, RISK OF DEBT, SOVEREIGN DEBT, STOCKS, TOTAL DEBT, TOTAL DEBT STOCK, TOTAL EXTERNAL DEBT, TREASURY, TREASURY RATE, TREASURY SECURITIES, UNDERESTIMATES, VALUATION, VALUATION CHANGES, VALUE OF ASSETS, VALUE OF DEBT, VOLATILITY, WORLD DEVELOPMENT INDICATORS, WORLD MARKETS,
Online Access:http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120227111354
https://hdl.handle.net/10986/3264
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