The Impact Of Debt Sustainability And The Level Of Debt On Emerging Markets Spreads

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The Impact of Debt Sustainability and the Level of Debt on Emerging Markets Spreads

Nazim Belhocine,Mr.Salvatore Dell'Erba
The Impact of Debt Sustainability and the Level of Debt on Emerging Markets Spreads Book PDF

Author : Nazim Belhocine,Mr.Salvatore Dell'Erba
Publisher : International Monetary Fund
Page : 31 pages
File Size : 52,6 Mb
Release : 2013-05-01
Category : Business & Economics
ISBN : 9781484335888

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The Impact of Debt Sustainability and the Level of Debt on Emerging Markets Spreads by Nazim Belhocine,Mr.Salvatore Dell'Erba Pdf

How do financial markets respond to concerns over debt sustainability and the level of public debt in emerging markets? We introduce a measure of debt sustainability – the difference between the debt stabilizing primary balance and the primary balance–in an otherwise standard spread regression model applied to a panel of 26 emerging market economies. We find that debt sustainability is an important determinant of spreads. In addition, using a panel smooth transition regression model, we find that the sensitivity of spreads to debt sustainability doubles as public debt increases above 45 percent of GDP. These results suggest that market interest rates react more to debt sustainability concerns in a country with a high level of debt compared to a country with a low level of debt.

Global Waves of Debt

M. Ayhan Kose,Peter Nagle,Franziska Ohnsorge,Naotaka Sugawara
Global Waves of Debt Book PDF

Author : M. Ayhan Kose,Peter Nagle,Franziska Ohnsorge,Naotaka Sugawara
Publisher : World Bank Publications
Page : 403 pages
File Size : 51,8 Mb
Release : 2021-03-03
Category : Business & Economics
ISBN : 9781464815454

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Global Waves of Debt by M. Ayhan Kose,Peter Nagle,Franziska Ohnsorge,Naotaka Sugawara Pdf

The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Primary Surpluses and sustainable Debt Levels in Emerging Market Countries

Mr.Abdul Abiad,Mr.Jonathan David Ostry
Primary Surpluses and sustainable Debt Levels in Emerging Market Countries Book PDF

Author : Mr.Abdul Abiad,Mr.Jonathan David Ostry
Publisher : International Monetary Fund
Page : 19 pages
File Size : 41,8 Mb
Release : 2005-10-01
Category : Business & Economics
ISBN : 9781451975703

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Primary Surpluses and sustainable Debt Levels in Emerging Market Countries by Mr.Abdul Abiad,Mr.Jonathan David Ostry Pdf

This paper aims to put some constraints on the way primary surpluses are projected when making assessments of public debt sustainability. Projections should be tied either to the country's historical track record in generating surpluses-if the institutional and other factors accounting for this track record are expected to persist-or to some model that links primary surpluses to their fundamental determinants, either on the basis of constant institutions and policies or a credible reform program. History-based or model-based primary surplus projections provide a useful benchmark for judging the realism of fiscal forecasts underlying debt sustainability calculations. Together with information on future growth and interest rates, the primary surplus projections can be used to generate measures of overborrowing, and the magnitude of adjustment needed to return debt to a sustainable level.

Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods

Doug Hostland,Philippe D Karam
Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods Book PDF

Author : Doug Hostland,Philippe D Karam
Publisher : World Bank Publications
Page : 34 pages
File Size : 50,9 Mb
Release : 2006
Category : Electronic
ISBN : 8210379456XXX

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Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods by Doug Hostland,Philippe D Karam Pdf

This paper applies stochastic simulation methods to assess debt sustainability in emerging market economies and provide probability measures for projections of the external and public debt burden over the medium term. The vulnerability of public debt to adverse shocks is determined by a number of interrelated factors, including the volatility of output, financial fragility, the endogenous response of the risk premium, and sudden stops in private capital flows. The vulnerability of external debt is sensitive to the determination of the exchange rate and to the pricing of traded goods. We show that fiscal policy can act in a preemptive manner to prevent the debt burden from rising significantly over the medium term. This requires flexibility in fiscal planning, which many emerging market economies lack. Emerging market economies therefore face a difficult trade-off between managing the risk of a debt crisis and pursuing other important fiscal policy objectives.

Determinants of Emerging Market Sovereign Bond Spreads

Iva Petrova,Mr.Michael G Papaioannou,Mr.Dimitri Bellas
Determinants of Emerging Market Sovereign Bond Spreads Book PDF

Author : Iva Petrova,Mr.Michael G Papaioannou,Mr.Dimitri Bellas
Publisher : International Monetary Fund
Page : 27 pages
File Size : 53,9 Mb
Release : 2010-12-01
Category : Business & Economics
ISBN : 9781455210886

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Determinants of Emerging Market Sovereign Bond Spreads by Iva Petrova,Mr.Michael G Papaioannou,Mr.Dimitri Bellas Pdf

This paper analyses the determimants of emerging market sovereign bond spreads by examining the short and long-run effects of fundamental (macroeconomic) and temporary (financial market) factors on these spreads. During the current global financial and economic crisis, sovereign bond spreads widened dramatically for both developed and emerging market economies. This deterioration has widely been attributed to rapidly growing public debts and balance sheet risks. Our results indicate that in the long run, fundamentals are significant determinants of emerging market sovereign bond spreads, while in the short run, financial volatility is a more important determinant of sperads than fundamentals indicators.

The Impact of Debt Sustainability and the Level of Debt on Emerging Markets Spreads

Nazim Belhocine,Mr.Salvatore Dell'Erba
The Impact of Debt Sustainability and the Level of Debt on Emerging Markets Spreads Book PDF

Author : Nazim Belhocine,Mr.Salvatore Dell'Erba
Publisher : International Monetary Fund
Page : 31 pages
File Size : 44,9 Mb
Release : 2013-05-01
Category : Business & Economics
ISBN : 9781484382769

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The Impact of Debt Sustainability and the Level of Debt on Emerging Markets Spreads by Nazim Belhocine,Mr.Salvatore Dell'Erba Pdf

How do financial markets respond to concerns over debt sustainability and the level of public debt in emerging markets? We introduce a measure of debt sustainability – the difference between the debt stabilizing primary balance and the primary balance–in an otherwise standard spread regression model applied to a panel of 26 emerging market economies. We find that debt sustainability is an important determinant of spreads. In addition, using a panel smooth transition regression model, we find that the sensitivity of spreads to debt sustainability doubles as public debt increases above 45 percent of GDP. These results suggest that market interest rates react more to debt sustainability concerns in a country with a high level of debt compared to a country with a low level of debt.

Determinants of Sovereign Bond Spreads in Emerging Markets

Mr.Balazs Csonto,Mr.Iryna V. Ivaschenko
Determinants of Sovereign Bond Spreads in Emerging Markets Book PDF

Author : Mr.Balazs Csonto,Mr.Iryna V. Ivaschenko
Publisher : International Monetary Fund
Page : 42 pages
File Size : 44,9 Mb
Release : 2013-07-10
Category : Business & Economics
ISBN : 9781484361481

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Determinants of Sovereign Bond Spreads in Emerging Markets by Mr.Balazs Csonto,Mr.Iryna V. Ivaschenko Pdf

We analyze the relationship between global and country-specific factors and emerging market debt spreads from three different angles. First, we aim to disentangle the effect of global and country-specific developments, and find that while both country-specific and global developments are important in the long-run, global factors are main determinants of spreads in the short-run. Second, we investigate whether and how the strength of fundamentals is related to the sensitivity of spreads to global factors. Countries with stronger fundamentals tend to have lower sensitivity to changes in global risk aversion. Third, we decompose changes in spreads and analyze the behavior of explained and unexplained components over different periods. To do so, we break down fitted changes in spreads into the contribution of country-specific and global factors, as well as decompose changes in the residual into the correction of initial misalignment and an increase/decrease in misalignment. We find that changes in spreads follow periods of tightening/widening, which are well-explained by the model; and the dynamics of the components of the unexplained residual follow all the major developments that impact market sentiment. In particular, we find that in the periods of severe marketstress, such as during the intensive phase of the Eurozone debt crisis, global factors tend to drive changes in the spreads and the misalignment tends to increase in magnitude and its relative share in actual spreads.

Debt Sustainability in Emerging Markets

Yilmaz Akyüz
Debt Sustainability in Emerging Markets Book PDF

Author : Yilmaz Akyüz
Publisher : Unknown
Page : 1 pages
File Size : 43,9 Mb
Release : 2007
Category : Electronic
ISBN : OCLC:1009034584

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Debt Sustainability in Emerging Markets by Yilmaz Akyüz Pdf

This paper critically assesses the standard IMF analytical framework for debt sustainability in emerging markets. It focuses on complementarities and trade-offs between fiscal and external sustainability, and interactions and feedbacks among policy and endogenous variables affecting debt ratios. It examines current fragilities in emerging markets and notes that domestic debt is of concern. Despite favourable conditions, many governments are unable to generate a large enough primary surplus to stabilize public debt ratios. Worsening global financial conditions may create difficulties for budgetary transfers, posing greater challenges to government debt management since restructuring often is more difficult for domestic than external debt.

Review of the Debt Sustainability Framework for Low Income Countries

International Monetary Fund. Strategy, Policy, & Review Department,World Bank
Review of the Debt Sustainability Framework for Low Income Countries Book PDF

Author : International Monetary Fund. Strategy, Policy, & Review Department,World Bank
Publisher : International Monetary Fund
Page : 111 pages
File Size : 51,6 Mb
Release : 2017-02-10
Category : Business & Economics
ISBN : 9781498346351

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Review of the Debt Sustainability Framework for Low Income Countries by International Monetary Fund. Strategy, Policy, & Review Department,World Bank Pdf

The Debt Sustainability Framework for Low-income Countries (LIC DSF) has been the cornerstone of assessments of risks to debt sustainability in LICs. The framework classifies countries based on their assessed debt-carrying capacity, estimates threshold levels for selected debt burden indicators, evaluates baseline projections and stress test scenarios relative to these thresholds, and then combines indicative rules and staff judgment to assign risk ratings of external debt distress. The framework has demonstrated its operational value since the last review was conducted in 2012, but there are areas where new features can be introduced to enhance its performance in assessing risks. Against the backdrop of the evolving nature of risks facing LICs, both staff analysis and stakeholder feedback suggest gaps in the framework to be addressed. Complexity and lack of transparency have also been highlighted as causes for concern. This paper proposes a set of reforms to enhance the value of the LIC DSF for all users. In developing these reforms, staff has been guided by two over-arching principles: a) the core architecture of the DSF—model-based results complemented by judgment—remains appropriate; and b) reforms should ensure that the DSF maintains an appropriate balance by providing countries with early warnings of potential debt distress without unnecessarily constraining their borrowing for development.

A Risk-Based Debt Sustainability Framework

Mr. Dale F. Gray,Elena Loukoianova,Samuel W. Malone,Cheng Hoon Lim
A Risk Based Debt Sustainability Framework Book PDF

Author : Mr. Dale F. Gray,Elena Loukoianova,Samuel W. Malone,Cheng Hoon Lim
Publisher : International Monetary Fund
Page : 28 pages
File Size : 49,9 Mb
Release : 2008-02-01
Category : Business & Economics
ISBN : 9781451913552

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A Risk-Based Debt Sustainability Framework by Mr. Dale F. Gray,Elena Loukoianova,Samuel W. Malone,Cheng Hoon Lim Pdf

This paper proposes a new framework for the analysis of public sector debt sustainability. The framework uses concepts and methods from modern practice of contingent claims to develop a quantitative risk-based model of sovereign credit risk. The motivation in developing this framework is to provide a clear and workable complement to traditional debt sustainability analysis which-although it has many useful applications-suffers from the inability to measure risk exposures, default probabilities and credit spreads. Importantly, this new framework can be adapted for policy analysis, including debt and reserve management.

Review of The Debt Sustainability Framework For Market Access Countries

International Monetary Fund. Strategy, Policy, & Review Department
Review of The Debt Sustainability Framework For Market Access Countries Book PDF

Author : International Monetary Fund. Strategy, Policy, & Review Department
Publisher : International Monetary Fund
Page : 124 pages
File Size : 50,6 Mb
Release : 2021-02-03
Category : Business & Economics
ISBN : 9781513568324

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Review of The Debt Sustainability Framework For Market Access Countries by International Monetary Fund. Strategy, Policy, & Review Department Pdf

A careful review has revealed significant scope to modernize and better align the MAC DSA with its objectives and the IMF’s lending framework. This note proposes replacing the current framework with a new methodology based on risk assessments at three different horizons. Extensive testing has shown that the proposed framework has much better predictive accuracy than the current one. In addition to predicting sovereign stress, the framework can be used to derive statements about debt stabilization under current policies and about debt sustainability.

Sovereign Credit Ratings and Spreads in Emerging Markets

Laura Jaramillo,Ms.Michelle Michelle Tejada
Sovereign Credit Ratings and Spreads in Emerging Markets Book PDF

Author : Laura Jaramillo,Ms.Michelle Michelle Tejada
Publisher : International Monetary Fund
Page : 19 pages
File Size : 47,9 Mb
Release : 2011-03-01
Category : Business & Economics
ISBN : 9781455218981

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Sovereign Credit Ratings and Spreads in Emerging Markets by Laura Jaramillo,Ms.Michelle Michelle Tejada Pdf

Sovereign investment grade status is often associated with lower spreads in international markets. Using a panel framework for 35 emerging markets between 1997 and 2010, thispaper finds that investment grade status reduces spreads by 36 percent, above and beyond what is implied by macroeconomic fundamentals. This compares to a 5-10 percent reduction in spreads following upgrades within the investment grade asset class, and no impact formovements within the speculative grade asset class, ceteris paribus. While global financial conditions play a central role in determining spreads, market sentiment improves with lower external public debt to GDP levels and higher domestic growth rates.

Government Financial Assets and Debt Sustainability

Ms.Camila Henao Arbelaez,Nelson Sobrinho
Government Financial Assets and Debt Sustainability Book PDF

Author : Ms.Camila Henao Arbelaez,Nelson Sobrinho
Publisher : International Monetary Fund
Page : 41 pages
File Size : 40,7 Mb
Release : 2017-07-25
Category : Business & Economics
ISBN : 9781484311059

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Government Financial Assets and Debt Sustainability by Ms.Camila Henao Arbelaez,Nelson Sobrinho Pdf

Do government financial assets help improve public debt sustainability? To answer this question, we assemble a comprehensive dataset on government assets using multiple sources and covering 110 advanced and emerging market economies since the late 1980s. We then use this rich database to estimate the impact of assets on two key dimensions of debt sustainability: borrowing costs and the probability of debt distress. Government financial assets significantly reduce sovereign spreads and the probability of debt crises in emerging economies but not in advanced economies, and the effect varies with asset characteristics, notably liquidity. Government finacial assets also help discriminate countries across the distribution of sovereign spreads, thus signaling information about emerging economies’ creditworthiness.

A Review of Some Aspects of the Low-Income Country Debt Sustainability Framework

International Monetary Fund
A Review of Some Aspects of the Low Income Country Debt Sustainability Framework Book PDF

Author : International Monetary Fund
Publisher : International Monetary Fund
Page : 48 pages
File Size : 44,9 Mb
Release : 2009-05-08
Category : Business & Economics
ISBN : 9781498335713

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A Review of Some Aspects of the Low-Income Country Debt Sustainability Framework by International Monetary Fund Pdf

The Bank-Fund Debt Sustainability Framework (DSF) is a standardized framework for analyzing debt-related vulnerabilities in low-income countries (LICs). It aims to help countries monitor their debt burden and take early preventive action, to provide guidance to creditors in ensuring their lending decisions are consistent with countries’ development goals, and to improve the Bank and Fund’s assessments and policy advice. The DSF was last reviewed in 2006, and a reconsideration of some aspects of the framework is timely.

Is Banks’ Home Bias Good or Bad for Public Debt Sustainability?

Mr.Tamon Asonuma,Mr.Said Bakhache,Mr.Heiko Hesse
Is Banks Home Bias Good or Bad for Public Debt Sustainability Book PDF

Author : Mr.Tamon Asonuma,Mr.Said Bakhache,Mr.Heiko Hesse
Publisher : International Monetary Fund
Page : 37 pages
File Size : 50,7 Mb
Release : 2015-02-27
Category : Business & Economics
ISBN : 9781498323505

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Is Banks’ Home Bias Good or Bad for Public Debt Sustainability? by Mr.Tamon Asonuma,Mr.Said Bakhache,Mr.Heiko Hesse Pdf

Motivated by the recent increase in domestic banks’ holdings of domestic sovereign debt (i.e., home bias) in the European periphery, this paper analyzes implications of banks’ home bias for the sovereign’s debt sustainability. The main findings, based on a sample of advanced (AM) and emerging market (EM) economies, suggest that home bias generally reduces the cost of borrowing for AMs and EMs when debt levels are moderate to high. A worsening of market sentiments appears to dimish the favorable impact of home bias on cost of borrowing particularly for EMs. In addition, for AMs and EMs, higher home bias is associated with higher debt levels, and less responsive fiscal policy. The findings suggest that home bias indeed matters for debt sustainability: Home bias may provide fiscal breathing space, but delays in fiscal consolidation may actually delay problems until debt reaches dangerously high levels.