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In the wake of the COVID-19 pandemic, debt levels in emerging and developing economies have surged raising concerns about fiscal sustainability. Historically, negative interest-growth differentials in these countries have played a debt-stabilizing role. But is this enough to prevent countries from falling into debt distress? Drawing from a sample of 150 emerging and developing economies going back to the 1970s, we find that interest-growth differentials have remained relatively low, dampening debt increases in the run up to a crisis. But in the face of persistent primary deficits, debt service tends to rise abruptly—particularly in emerging markets—and a fiscal crisis ensues. There is also evidence that a large part of the debt build-up around crises stems from valuation effects associated with external debt and the materialization of contingent liabilities. These findings underscore that, though not necessarily a red-herring, low interest-growth differentials cannot fully offset the deleterious effects of large fiscal deficits, forex exposures, or hidden debts.

Macroeconomics --- Economics: General --- Exports and Imports --- Public Finance --- Banks and Banking --- Fiscal Policy --- International Lending and Debt Problems --- Debt --- Debt Management --- Sovereign Debt --- Interest Rates: Determination, Term Structure, and Effects --- Public Administration --- Public Sector Accounting and Audits --- Economic & financial crises & disasters --- Economics of specific sectors --- International economics --- Public finance & taxation --- Finance --- Public debt --- Debt sustainability analysis --- External debt --- Real interest rates --- Financial services --- Contingent liabilities --- Public financial management (PFM) --- Currency crises --- Informal sector --- Economics --- Debts, External --- Debts, Public --- Interest rates --- Fiscal policy --- Argentina

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

In the wake of the COVID-19 pandemic, debt levels in emerging and developing economies have surged raising concerns about fiscal sustainability. Historically, negative interest-growth differentials in these countries have played a debt-stabilizing role. But is this enough to prevent countries from falling into debt distress? Drawing from a sample of 150 emerging and developing economies going back to the 1970s, we find that interest-growth differentials have remained relatively low, dampening debt increases in the run up to a crisis. But in the face of persistent primary deficits, debt service tends to rise abruptly—particularly in emerging markets—and a fiscal crisis ensues. There is also evidence that a large part of the debt build-up around crises stems from valuation effects associated with external debt and the materialization of contingent liabilities. These findings underscore that, though not necessarily a red-herring, low interest-growth differentials cannot fully offset the deleterious effects of large fiscal deficits, forex exposures, or hidden debts.

Argentina --- Macroeconomics --- Economics: General --- Exports and Imports --- Public Finance --- Banks and Banking --- Fiscal Policy --- International Lending and Debt Problems --- Debt --- Debt Management --- Sovereign Debt --- Interest Rates: Determination, Term Structure, and Effects --- Public Administration --- Public Sector Accounting and Audits --- Economic & financial crises & disasters --- Economics of specific sectors --- International economics --- Public finance & taxation --- Finance --- Public debt --- Debt sustainability analysis --- External debt --- Real interest rates --- Financial services --- Contingent liabilities --- Public financial management (PFM) --- Currency crises --- Informal sector --- Economics --- Debts, External --- Debts, Public --- Interest rates --- Fiscal policy