Examination and predictions of risk tolerance levels and thresholds in sovereigns’ external debt defaults

Yaseen Ghulam ()
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Yaseen Ghulam: Al Yamamah University

International Economics and Economic Policy, 2025, vol. 22, issue 2, No 3, 52 pages

Abstract: Abstract We re-examine risk tolerance levels in worldwide external sovereign debt defaults. Individual thresholds are used to predict the hazard of single and multiple defaults across worldwide geographic clusters to observe heterogeneities among different international regions. Subsequently, we build different scenarios to observe combinations of thresholds that would lead to a gradual increase in the predicted probability of single and recurring sovereign debt defaults, reaching almost 100%. The validity of our empirical model is tested using a variety of criteria, all of which lead to the same conclusions in relation to reasonable in-sample and out-sample prediction accuracy. Our study contributes to literature in relation to understanding of sovereign debt defaults as well as the additive role of different economic and financial factors in increasing risk of external debt defaults.

Keywords: Sovereign debt; Default risk; Volatility; Thresholds; F30; F33; F34; G01; G12; H63 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10368-025-00655-x

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