Evaluating external debt sustainability across the globe: evidence from wavelet-based tests

Mumtaz Ahmed (), Zulekha Qadeer (), Muhammad Azam Khan () and Toqeer Ahmed ()
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Mumtaz Ahmed: COMSATS University Islamabad
Zulekha Qadeer: COMSATS University Islamabad
Muhammad Azam Khan: Abdul Wali Khan University Mardan
Toqeer Ahmed: COMSATS University Islamabad

Quality & Quantity: International Journal of Methodology, 2025, vol. 59, issue 2, No 13, 1045-1079

Abstract: Abstract This study aims to evaluate the sustainability of external debt in various global regions using wavelet-based unit root tests, which can account for structural breaks in the data. An important advantage of these wavelet-based unit root tests over the tests used by existing studies is that they provide complete picture of the behavior of time series considering both frequency as well as time domain which is ignored by existing studies available using econometric techniques based on time domain only. The empirical analysis covers six regions: South Asia, East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, the Middle East, North Africa, and Sub-Saharan Africa. The study utilizes annual time series data from 1970 to 2020 and employs state-of-the-art wavelet Augmented Dickey–Fuller (WADF) and Fourier WADF (FWADF) tests. To gain a deeper understanding of the data, two common debt series are considered: (i) total external debt stock and (ii) external debt stock as a percentage of gross national income (GNI). The selection of countries and time span is based solely on the availability of data for the chosen series. It is observed that for some of the countries, the results are data dependent. The results indicate that out of 117 countries, 41 have sustainable debt based on total external debt stock, and 61 have sustainable debt based on external debt stock as a percentage of GNI. The study also presents region-specific findings and policy recommendations.

Keywords: Structural break; Spectral methods; Unit root tests; Non-linearity (search for similar items in EconPapers)
JEL-codes: B23 C12 C82 C87 H63 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11135-025-02053-6

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