Debt Dynamics in Emerging and Developing Economies: Is R - G a Red Herring?
Journal of Globalization and Development
; 2022.
Article
in English
| Scopus | ID: covidwho-2197343
ABSTRACT
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. © 2022 Walter de Gruyter GmbH, Berlin/Boston 2022.
Full text:
Available
Collection:
Databases of international organizations
Database:
Scopus
Language:
English
Journal:
Journal of Globalization and Development
Year:
2022
Document Type:
Article
Similar
MEDLINE
...
LILACS
LIS