Undisclosed Debt Sustainability
AEA Papers and Proceedings
vol. 112,
May 2022
(pp. 521-25)
Abstract
Over the past decade, non-Paris Club creditors, notably China, have become an important source of financing for low- and middle-income countries. In contrast with typical sovereign debt, these lending arrangements are not public, and other creditors have no information about their magnitude. We transform the traditional sovereign debt and default model to quantitatively study incomplete information arrangements and find that they greatly reduce traditional Paris Club creditors' debt sustainability. Disclosure of nontraditional debt would imply significant welfare gains for the recipient countries but would reduce its sustainability. We discuss the implications of nontraditional lending on standard assumptions of sovereign debt models.Citation
Alfaro, Laura, and Fabio Kanczuk. 2022. "Undisclosed Debt Sustainability." AEA Papers and Proceedings, 112: 521-25. DOI: 10.1257/pandp.20221000Additional Materials
JEL Classification
- F34 International Lending and Debt Problems
- H63 National Debt; Debt Management; Sovereign Debt