Publication: When Is External Debt Sustainable?
This paper examines the determinants of "debt distress," which they define as periods in which countries resort to exceptional finance in any of three forms: (1) significant arrears on external debt, (2) Paris Club rescheduling, and (3) nonconcessional International Monetary Fund lending. Using probit regressions, the authors find that three factors explain a substantial fraction of the cross-country and time-series variation in the incidence of debt distress: the debt burden, the quality of policies and institutions, and shocks. They show that these results are robust to a variety of alternative specifications, and that their core specifications have substantial out-of-sample predictive power. The authors also explore the quantitative implications of these results for the lending strategies of official creditors.
“Kraay, Aart; Nehru, Vikram. 2004. When Is External Debt Sustainable?. Policy Research Working Paper;No.3200. © World Bank, Washington, D.C.. http://hdl.handle.net/10986/14314 License: CC BY 3.0 IGO.”
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