Debt Dynamics in Emerging and Developing Economies: Is R − G a Red Herring?

Moreno Badia Marialuz, Arbelaez Juliana Gamboa and Xiang Yuan
Additional contact information
Moreno Badia Marialuz: International Monetary Fund, 700 19th St NW, Washington, DC 20431, USA
Arbelaez Juliana Gamboa: University of Minnesota, 3-133 Hanson Hall, 1925 Fourth Street South, Minneapolis, Minnesota 55455, USA
Xiang Yuan: International Monetary Fund, 700 19th St NW, Washington, DC 20431, USA

Journal of Globalization and Development, 2022, vol. 13, issue 2, 269-304

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.

Keywords: debt; interest-growth differential; crisis; fiscal sustainability (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/jgd-2021-0050 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:globdv:v:13:y:2022:i:2:p:269-304:n:5

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/jgd/html

DOI: 10.1515/jgd-2021-0050

Access Statistics for this article

Journal of Globalization and Development is currently edited by Joseph E. Stiglitz, Kevin Gallagher, Jeronim Capaldo, Arjun Jayadev, José Antonio Ocampo and Dani Rodrik

More articles in Journal of Globalization and Development from De Gruyter
Bibliographic data for series maintained by Peter Golla ().