When is External Debt Sustainable?

50 Pages Posted: 20 Apr 2016

See all articles by Aart Kraay

Aart Kraay

World Bank - Development Research Group (DECRG)

Vikram Nehru

World Bank - Development Research Group (DECRG)

Date Written: January 28, 2004

Abstract

Kraay and Nehru empirically examine 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.

This paper - a joint product of Investment Climate, Development Research Group, and Heavily Indebted Poor Countries (Africa and Latin America), Poverty Reduction and Economic Management Network - is part of a larger effort in the Bank to study debt sustainability issues.

Suggested Citation

Kraay, Aart and Nehru, Vikram, When is External Debt Sustainable? (January 28, 2004). World Bank Policy Research Working Paper No. 3200. Available at SSRN: https://ssrn.com/abstract=636620

Aart Kraay (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-5756 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/akraay

Vikram Nehru

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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