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<p>We build a stochastic model of excusable sovereign default which incorporates a simple debt recovery rule. It depends on a single parameter that allows for partial debt recovery. We show that the maximum debt-to-GDP ratio that a country can sustain without defaulting is increasing, nonlinear, and sensitive to the debt-recovery parameter. We study the dynamics of public debt when the default premium is taken into account and offer new definitions of public debt unsustainability. A higher debt recovery parameter increases the fiscal space but worsens the financial position of a borrowing country after a default episode. We show that the estimated debt-recovery parameter is lower for emerging countries than for developed countries.</p>

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Sovereign Defaults and Debt Sustainability: A Joint Analysis

  • 期刊论文

  • 出版模式：

    开放获取

  • 发表日期：

    2025年5月27日

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  • Ibrahima Diarra,
  • Michel Guillard,
  • Hubert Kempf

摘要

We build a stochastic model of excusable sovereign default which incorporates a simple debt recovery rule. It depends on a single parameter that allows for partial debt recovery. We show that the maximum debt-to-GDP ratio that a country can sustain without defaulting is increasing, nonlinear, and sensitive to the debt-recovery parameter. We study the dynamics of public debt when the default premium is taken into account and offer new definitions of public debt unsustainability. A higher debt recovery parameter increases the fiscal space but worsens the financial position of a borrowing country after a default episode. We show that the estimated debt-recovery parameter is lower for emerging countries than for developed countries.