Undisclosed Debt Sustainability

27 Pages Posted: 7 Oct 2019 Last revised: 29 Jun 2023

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Fabio Kanczuk

University of São Paulo (USP)

Date Written: October 2019

Abstract

Over the past decade, non–Paris Club creditors, notably China, have become an important source of financing for low- and middle-income countries. In contrast with typical sovereign debt, these lending arrangements are not public, and other creditors have no information about their magnitude. We transform the traditional sovereign debt and default model to quantitatively study incomplete information arrangements and find they greatly reduce traditional/Paris Club creditors’ debt sustainability. Disclosure of nontraditional debt would imply significant welfare gains for the recipient countries but would reduce its sustainability. We discuss the implications of nontraditional lending on standard assumptions of sovereign debt models in particular defaulting costs.

Suggested Citation

Alfaro, Laura and Kanczuk, Fabio, Undisclosed Debt Sustainability (October 2019). NBER Working Paper No. w26347, Available at SSRN: https://ssrn.com/abstract=3465364

Laura Alfaro (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States

Fabio Kanczuk

University of São Paulo (USP) ( email )

Rua Luciano Gualberto, 315
São Paulo, São Paulo 14800-901
Brazil

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