Inter-American Development Bank

Banco Interamericano de Desarrollo (BID)

Research Department
Departamento de Investigacin
Working Paper #554

The Unexplained Part of Public Debt

by

Camila F.S. Campos*

Dany Jaimovich**
Ugo Panizza**

*Yale University
**Inter-American Development Bank, Washington, D.C.

March 2006

Cataloging-in-Publication data provided by the

Inter-American Development Bank
Felipe Herrera Library
Campos, Camila F.S.

The unexplained part of public debt / by Camila F.S. Campos, Dany Jaimovich, Ugo
Panizza.

p. cm.
(Research Department working paper series ; 554)
Includes bibliographical references.
1. Debts, Public. 2. Budget deficits. 3. Financial statements. I. Jaimovich, Dany. II.
Panizza, Ugo. III. Inter-American Development Bank. Research Dept. IV. Title. V. Series.
336.34 C448 --------dc22

2006
Inter-American Development Bank
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The views and interpretations in this document are those of the authors and should not be
attributed to the Inter-American Development Bank, or to any individual acting on its behalf.
This paper may be freely reproduced provided credit is given to the Research Department, InterAmerican Development Bank.
The Research Department (RES) produces a quarterly newsletter, IDEA (Ideas for Development
in the Americas), as well as working papers and books on diverse economic issues. To obtain a
complete list of RES publications, and read or download them please visit our web site at:
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Abstract1
This paper shows that budget deficits account for a relatively small fraction of
debt growth and that stock-flow reconciliation, which is often considered a
residual entity, is one of the key determinants of debt dynamics. After having
explained the importance of the stock-flow reconciliation, the paper shows that
this residual entity can be partly explained by contingent liabilities and balancesheet effects.
Keywords: Public Debt, Deficit, Balance-Sheet Effects
JEL Codes: H63, F34, C82

The views expressed in this paper are the authors and do not necessarily reflect those of the Inter-American
Development Bank. The usual caveats apply. Camila Campos: camila.campos@yale.edu, Dany Jaimovich:
danyj@contractual.iadb.org, Ugo Panizza: ugop@iadb.org.

1. Introduction
How do countries get into debt? The answer to this question may seem trivial. Countries
accumulate debt whenever they run a budget deficit (i.e., whenever public expenditure is higher
than revenues). In fact, the standard Economics 101 debt accumulation equation states that the
change in the stock of debt is equal to the budget deficit:
DEBTt DEBTt 1 = DEFICITt

(1)
t

and that the stock of debt is equal to the sum of past budget deficits: DEBTt = DEFICITt i .
i =0

Whoever has worked with actual debt and deficit data knows that Equation (1) rarely holds and
that debt accumulation can be better described as:

DEBTt DEBTt 1 = DEFICITt + SFt

(2)

where SFt is what is usually called stock-flow reconciliation. Clearly, Equation (1) is a good
approximation of debt accumulation only if one assumes that SFt is not very large. The purpose
of this paper is to describe some of SFt s main characteristics. The paper shows that, contrary to
what is usually assumed, the budget deficit accounts for a small fraction of the within-country
variance of the change in debt over GDP and that stock-flow reconciliation plays an important
role in explaining debt dynamics. The paper also shows that, on average, SFt tends to be positive
and that there are large cross-country differences in the magnitude of this residual entity. This
suggests that the magnitude of stock-flow reconciliation is not likely to be purely due to random
measurement error. In particular, the paper shows that the problem is especially serious in
developing countries and, among this group of countries, the difference between debt and deficit
is particularly large in Latin America and Sub-Saharan Africa.
The paper also runs a set of regressions aimed at explaining the main determinants of the
magnitude of the stock-flow reconciliation and finds that balance-sheet effects due to real
depreciations and contingent liabilities that arise at time of banking crises are strongly correlated
with the difference between deficit and change in debt. However, the paper also shows that the
regressions can only explain 20 percent of the within-country variance of the stock-flow

reconciliation and that there is still much that we do not understand about one of the main
determinants of debt accumulation.
While we are not the first to show that stock-flow reconciliation is an important part of
debt dynamic (see, among others IMF, 2003; Martner and Tromben, 2004; European
Commission, 2005; Budina and Fiess, 2005), we are not aware of any other paper that
systematically describes the main characteristics of this residual, but extremely important,
determinant of debt accumulation.
The rest of the paper is organized as follows. Section 2 describes our main sources of
data and presents some basic facts on public debt and deficit. Section 3 focuses on a detailed
description of the stock-flow reconciliation. Section 4 runs a set of regressions aimed at
explaining the main determinants of the stock flow reconciliation. Section 5 concludes.

2. Data
The purpose of this section is to describe our data on fiscal deficit and public debt. In this
context, it is worth mentioning that obtaining reliable and comparable data on the stock public
debt is a rather difficult exercise. In fact, the IMF International Financial Statistics (IFS) and
IMF Government Finance Statistics (GFS), which are the most common sources of cross-country
data on government statistics, report data for a rather limited set of countries. This is even the
case for industrial countries; these sources do not report recent data on public debt for Japan and
Italy, for example. Furthermore, most cross-country datasets do not make an effort to make the
data comparable across countries (for a discussion of these issues, see IMF, 2003).2
Although there are now some papers that attempt to build comparable cross-country datasets on public debt (Cowan et al., 2005; Jeanne and Guscina, 2006; IMF, 2003; Budina and
Fiess, 2005), some of these data sets are not publicly available and all of them have a limited
country and time coverage. As a consequence, we do not rely on these new data and only use
publicly available sources (hence, the caveats mentioned above should be kept in mind). In
particular, we start with IFS and GFS and supplement them with data collected from national
sources (mostly from the websites or publications of the various Ministries of Finance), the UN
Economic Commission for Latin America and Caribbean (ECLAC, see Martner and Tromben,
2004), and the Organization for Economic Cooperation and Development (OECD).
2

The most important problems include the treatment of sub-national governments and the use of gross versus net
debt (for a methodological note, see Cowan et al., 2005).

Using these various sources, we assemble an unbalanced panel covering 117 countries
and consisting of approximately 1,900 observations. Table A1 in the Appendix lists all the
countries included in our dataset, the time coverage for each country, and summary statistics for
debt and deficit ratios. Our sample includes 24 high-income countries, 59 middle-income
countries and 34 low-income countries. The regions with the largest number of countries are
Sub-Saharan Africa (27 countries) and Latin America (25 countries). South Asia and East Asia
are the regions with the smallest number of countries (five and eight countries, respectively).
While long time series are available for some countries (e.g., Bahamas, Burundi, Costa Rica,
Iceland, Norway and the US have more than 30 years of data), for others there are very few
observations (Albania, Algeria, Gabon, Sudan, Togo, and Yemen are among the countries with
less than five years of data).
Table 1 shows that the sample mean of the deficit to GDP ratio is 4.04 percent and that
average deficit tends to decrease with the level of income. The region with the highest average
deficit is South Asia (6.5 percent), followed by the Middle East (5.6 percent), and Sub-Saharan
Africa (4.2 percent). Latin American countries tend to have fairly low levels of average deficit
(just below the cross-country average) but the region is far from being homogeneous and is
characterized by the largest variance in the sample.
Table 2 reports summary statistics for the debt-to-GDP ratio and shows that the crosscountry average is close to 56 percent. South Asia and Sub-Saharan Africa are the regions with
the highest levels of debt (67 and 60 percent, respectively) and East Asia and Eastern Europe and
Central Asia are the regions with the lowest level of debt (35 and 37 percent, respectively). Latin
America has a level of debt that is just below the sample average and is not much higher than
that of the industrial countries included in our sample. Again, we find that Latin America is one
of the most heterogeneous regions in our sample (in this case, second only to Sub-Saharan
Africa). As one may expect, we find that most of the variance in debt-to-GDP is due to
differences across countries (this is the between standard deviation). However, there is also
substantial variance within countries. In fact, the within standard deviation (not reported in the
table) is often close to 50 percent of the between standard deviation.

Table 3 focuses on the change in debt divided by GDP ( d i ,t ).3 If Equation (1) were to
hold, the change in debt should be equal to the budget deficit. By comparing Table 2 with Table
3, we find that the value of d i ,t is almost five percentage points higher than average deficit over
GDP, indicating that more than 50 percent of the average change in debt is not explained by
deficit.4 The Table also shows that while the difference between d i ,t and the deficit is fairly small
in industrial countries (about 0.3 percentage points), this difference is extremely large in Latin
America and Sub-Saharan Africa, where the average deficit is about one-third the average
change in debt.
We can now describe the characteristics of the stock-flow reconciliation by defining the
following measure of the difference between change in debt and deficit for country i at time t.

i ,t =

(DEBT

i ,t

DEBTi ,t 1 ) DEFICITi ,t
Yi ,t

100

(3)

Clearly, i,t is just the stock-flow reconciliation of Equation (1) expressed in terms of
GDP ( i , t =

SF i , t
Y i, t

). Table 4 describes i,t and shows that the change in debt is nearly five

percentage points higher than the deficit (with the highest values in Latin America and SubSaharan Africa). However, the Table also shows that there are several countries with extremely
large values of i,t (in some cases well above 200 percent). In Latin America, for instance, the
difference between the change in debt and deficit has a range of 350 percentage points (from 73

It is important to note that we do not use the change in the debt-over-GDP ratio (i.e.,

i ,t = t t 1 100 )
Yt Yt 1

t 1
100 ). As nominal GDP
but the change in debt divided by GDP at time t (i.e., d i ,t = t
(
1
Y
Y
+ g )
t 1
t

growth (g) tends to be positive, d i ,t is usually larger than

i,t . We use this measure, rather than the standard i,t

because we want to isolate changes in debt from changes in the level of GDP.
4
Using a different methodology and a shorter sample, IMF (2003) also finds similar but less drastic results. In
particular, it finds that more than 25 percent of the increase in the debt-to-GDP ratio of a sample of emerging market
countries over the 1997-2003 period is due to off balance-sheet factors. In a sample of 21 market-access countries,
Budina and Fiess (2005) find that debt over GDP increased by 22.8 percentage points from 1994 to 2002, while real
GDP grew by 9.3 percent, yielding a change in debt of approximately 37 percent. The deficit (primary plus interest
rate bill) explained about one-third of this change while other factors (including the real exchange rate) explained
the remaining two-thirds.

to 281). The industrial countries have the smallest range, but even in this case the range is close
to 30 percentage points. These extreme values are due either to exceptional events or
measurement error. In the second column of Table 5, the average value of i,t is computed by
dropping the top and bottom 2 percent of the distribution. After dropping these outliers, we find
that i,t has an average value of 3 percent and that the average values of i,t for Latin America
and the Middle East drop from 7 percent to 4 and 2 percent, respectively.
It is also interesting to see which countries tend to have large values of i,t . Table 5
summarizes all the episodes for which i ,t > 10 (a full list of episodes is reported in Tables A2

and A3 in the appendix). There are 238 country-years (corresponding to 13 percent of

observations) for which i ,t > 10 , and 50 country-years (3 percent of observations) for

which i ,t < 10 . The industrial countries, East Asia, and South Asia are the regions with the
lowest number of episodes (and very few episodes where i ,t < 10 ). Sub Saharan Africa, the
Middle East and North Africa, and Latin America are the regions with the largest number of
episodes.
While this paper focuses on change in debt, we obtain the same results if we use the
standard decomposition of the change in debt over GDP ().5 Figure 1 shows that in most regions
the stock flow adjustment is the main determinant of debt growth and inflation is the main
determinant of debt reduction

3. Debt and Deficit

The previous section showed that simple comparisons of average values of deficit over GDP and
change in debt indicate that Equation (1) is far from being a good approximation of the main
determinants of debt accumulation and that what is usually considered a residual entity (the
5

The standard decomposition takes the following form:

DEBTt 1
SF
DEBTt 1
DEBTt DEBTt 1 PDt

=
+i
( gr + )
+ t
Yt 1 (1 + g ) Yt
Yt 1 (1 + g )
Yt
Yt 1
Yt
where the first term on the RHS of the equation is the contribution of the primary deficit, the second term is the
interest bill, the third term is the contribution of nominal growth (which can be split into real growth and inflation)
and the last term is the stock-flow adjustment.

stock-flow reconciliation) is a key determinant of debt accumulation. In this section, we use

different strategies to provide more evidence in this direction.
3.1 Regressions Analysis

One way to assess the importance of SFt is to divide debt and deficit by current GDP and use
our large panel to estimate the following fixed effects regression:
d t ,i = i + * def t ,i + t ,i

(4)

where i is a country fixed effect (the country fixed effects control for the fact that the data
come from different sources, countries have different levels of debt, and they use different
methodologies for computing debt and deficit) and def t ,i is deficit over GDP. If Equation (1)
holds, we expect a high R2 (the regressions R2 should be 1 if Equation 1 holds exactly), i =0,
and =1. Hence, the regressions coefficients and R2 can be used to asses the relative
(un)importance of the deficit in explaining changes in debt. Table 6 reports the results of the
estimation of Equation (4) for different sub-samples of countries. Column 1 describes the basic
pattern. First of all, we find that is greater than 1 (but not significantly different from 1)
indicating that a 1 percent increase in the deficit to GDP ratio tends to translate into a 1.3 percent
increase of the debt to GDP ratio. More interestingly, the regressions R2 shows that, in our
sample of countries, deficits explain less than 8 percent of the within country variance of d t ,i and
that SFt explains more than 90 percent of the variance.6
As the low R2 could be due to the presence of outliers, in Column 2 we drop 47 outliers
(defined as observations that have residuals with an absolute value greater than 2.5 standard
deviations). After dropping these outliers, drops to 1.18, but we still find that our model can
only explain 23 percent of the variance of d t ,i . Figure 2 plots the fit of the regression reported in
Column 2 and illustrates that the low R2 is not due to a few episodes with a particularly low fit,
but that most countries have observations that are far away from the regressions line. Column 3
6

We also ran separate regressions for the 58 countries for which there are at least 15 years of data. We found that

had average and median values of approximately 1 and ranged between 1.8 (Zaire) and 5.9 (Rwanda). The
regressions R2 had an average value of 0.32, a median value of 0.25, and ranged between 0.007 (Egypt) and 0.87
(Italy). There are only four countries (all industrial) that have an R2 above 0.8, 16 countries (11 of them industrial)
for which the R2 is higher than 0.5, and 18 countries for which the R2 is less than 0.1.

of Table 4 addresses the outlier issues by running the same regression as in Column 1 using a
median quantile regression with bootstrapped standard errors (STATAs BSQREG) and shows
that in this case, the coefficient of the deficit variable drops to 0.87 and the R2 goes to 0.24.
The remaining columns run separate regressions for different regions of the world.
Column 4 focuses on 29 countries located in Sub-Saharan Africa and finds that the deficit
explains only 3 percent of the variance of d t ,i . Columns 5 and 6 show that in Latin America and
the Caribbean (25 countries) and South Asia (5 countries), the deficit explains between 5 and 6
percent of the variance of d t ,i . Columns 7 and 8 focus on East Asia (8 countries) and the Middle
East and North Africa (11 countries) and show that the deficit explains between 14 and 20
percent of the within country variance of d t ,i . The developing region with the best fit is East
Europe and Central Asia (Column 9, 15 countries). In this case, the deficit explains 23 percent of
the variance of d t ,i . Only in the sub-group of industrial countries (Column 10, 24 countries) does
the deficit explain more than one-quarter of the within country variation of d t ,i but even in this
case, the regression can only explain half of the variance of the dependent variable.
3.2 Theoretical R2

As an alternative way to describe the pattern documented above, we build a measure aimed at
determining which countries have the largest deviation from the theoretical identity d = def .
Clearly, such a measure cannot be the country average of i,t described in Table 5 because
negative and positive values of i,t would compensate each other. One possibility would be to
adopt a strategy similar to the one of the previous section and run country-by-country regressions
of DEBT over DEFICIT and use the fit of these regressions (their R2) as a measure of how
much a country deviates from d = def . One problem with this strategy is that it would not help
to differentiate countries that have a good fit in which d = def holds, from countries that have a
good fit but where the relationship between debt and deficit can be better described with an
equation of the type: d t = + * def t + t with 0 and 1 . An index that addresses these

problems and relates to a regressions R2 can be defined as:

10

 ( )
T

i =

i ,t

t =1

(d
T

t =1

i ,t

di

(5)

Note that i is always non-negative and naturally relates to the R2 of a regression of

d i ,t over def. In fact, if we write d t = + * def t + t and, if instead of estimating the

regressions parameter, we force = 0 and = 1 , the R2 of the model would be 1- i . Hence, if
the true parameters describing the relationship between debt and deficit were = 0 and = 1 ,

i would be equal to 0. Thus, higher values of i indicate larger deviations of the true
parameters from = 0 and = 1 . Figure 3 illustrates the theoretical distribution of i for
different values of under the assumptions that = 0 , = 10 , and = 10 . The figure shows
that when = 0 the distribution is asymmetrical with i rapidly going towards infinite when
tends to 0, and i converging to around 1.5 when goes to infinite, the figure also shows that

i is equal to 0 when =1. When = 10 , the distribution becomes monotone but still going to
infinite when goes to 0 and converging to approximately 1.5 when goes to infinite. When

= 10 the distribution reaches a minimum when is around 4 and then starts increasing and,
again, converges at around 1.5.
Figure 4 shows the values of i for our sample of countries. Few countries have a value
of i close to 0 and most countries are concentrated in the 0.5-1.5 range. In particular, 15 percent
of countries have values of i that are below 0.5 (the lowest value, 0.009, is for Finland), 30
percent of countries have values that range between 0.5 and 1, 35 percent of countries have
values that range between 1 and 1.5, and the remaining 20 percent have higher values. Table 7
shows that the mean and median of the distribution of i is approximately 1 and that, as
expected, the industrial countries have the lowest value of i and Latin America and the Middle
East have the highest values of i .7
7

It may seem surprising that while the theoretical distribution is highly skewed, the data of Table 7 indicate that the
mean is identical to the median. This is due to the fact that Table 7 does not include four countries that have values
of greater than 4 (these countries are Estonia, Seychelles, Luxembourg, and Sudan). If we include these countries,
the median goes to 1.05, but the average jumps to 2.7.

11

3.3 Debt Explosions

So far, we documented that there are a large differences between deficit and change in debt. Now
we explore whether the difference between these two variables is positively correlated with debt
growth. Figure 5 plots the relationship between the growth rate of debt over GDP (defined as

i ,t = (Di ,t Yi ,t Di ,t 1 Yi ,t 1 ) 100 ) and the ratio between deficit and change in debt (defined as
i ,t = def i ,t d i ,t ).8 It shows that at relatively low levels of debt growth (below 5 percent per
year), the deficit explains approximately 80 percent of the change of debt. However, when debt
starts growing at a faster rate, the share of debt explained by deficit drops dramatically. In
particular, the figure shows that when annual debt growth reaches 10 percent of GDP, the deficit
explains less than 40 percent of debt growth. Table 8 regresses i,t over i,t (controlling for
country fixed effects) and confirms that there is a negative and statistically significant
relationship between these two variables. While the fit of the regression is rather poor, the table
shows that the fit improves if extreme values of i,t are not considered (compare, for instance,
Column 1 with Column 3 where episodes in which i,t >50 are dropped). The table also shows
that the relationship between i,t over i,t does not vary much across groups of countries.
As a last exercise, we look at debt explosions (defined as episodes in which i,t >10);
Table 9 summarizes the data and Table A4 lists all the episodes. The first panel of Table 9 shows
that in the 172 episodes for which i,t >10 (9 percent of the country-years for which we have
data), the average increase in debt over GDP was close to 28 percentage points, the average
change in debt was around 46 percentage points (the difference between these two values is
nominal GDP growth which, in presence of high inflation, can be very high), and the average
ratio between these two variables was 70 percent. The fourth column of the table shows that in
our sample of debt explosions, average deficit was close to 10 percent of GDP and the ratio
between deficit and change in debt was about 27 percent. This is close to one-third of the same
ratio during normal times (when 10> i,t >0 the ratio between deficit and change in debt is 75
percent). The table also shows that the regions with the highest occurrence of debt explosions are
Latin America and Sub-Saharan Africa (41 and 66 episodes, respectively) and that East Europe

We smooth the curve with a bandwidth of 25.

12

and Sub-Saharan Africa are the regions with the lowest average ratio between deficit and change
in debt (18 and 13 percent, respectively).
Since the average values discussed above may be driven by extreme values of i,t , we
restrict the sample in the second panel of Table 9 to 104 episodes for which i,t ranges between
10 and 20 percent. In this case, we find that the average increase of the debt-to-GDP ratio is
approximately 14 percent, the average change in debt is 24 percent and the average ratio between
these two variables is 68 percent (basically identical to the top panel of the table). The fourth
column of the table shows that the average deficit is 7 percent and that the ratio between average
deficit and change in debt is 29 percent, which again is close to the top panel of the table. As
before, we find that Latin America and Sub-Saharan Africa have the highest occurrence of debt
explosions (18 and 36, respectively), but now we find that the Middle East and the industrial
countries have a number of episodes that are not much lower than those of Latin America. In
fact, we now find that Latin America has the second lowest (after the industrial countries)
relative share of debt explosions. This confirms that debt explosions in Latin America tend to be
very large. In fact, Latin America is the only region in the world where there are more episodes
in which debt grows by more than 20 percent of GDP than episodes in which debt grows
between 10 and 20 percent of GDP.

4. What Drives the Difference?

After having documented that there are large differences between deficits and change in debt, we
now run a set of regressions aimed at exploring the determinants of these differences. We start
by estimating the following model:

i ,t = i + X i ,t + i ,t + i ,t

(6)

where i is a set of country fixed effects, X i ,t a set of country-year specific variables that can
explain the difference between deficit and change in debt, and i,t is a measure of inflation
(defined as ln(1+INF)). Although we do not have a clear theory of how inflation should affect

i,t , we include this variable because the various components of i,t are nominal variables
measured in different periods of time (a stock at time t, a stock at time t-1 and two flow variables
measured between t-1 and t). Hence, whenever the deficit is different from the change in debt,

13

the value of i,t should be positively correlated with nominal GDP growth, which is heavily
influenced by inflation.
One reason why the change in debt could be higher than the recorded deficit is the
valuation effects due to currency depreciations in the presence of foreign currency debt. To
explore this possibility, we start by focusing on developing countries (industrial countries do not
have large stocks of foreign currency debt) and use data from the World Banks Global
Development Finance (GDF) to create three dummy variables that classify all developing
countries into three groups of equal size.9 The three dummies are defined as follows: (i) LOW
takes a value of 1 for all country-years where the external debt-to-GDP ratio is below 38 percent;
(ii) MEDIUM takes a value of 1 for all country-years where the external debt-to-GDP ratio
ranges between 38 and 64 percent; (iii) HIGH takes a value of 1 for all country-years where the
external debt-to-GDP ratio is above 64 percent. Next, we interact the three dummies with the
change in the real exchange rate (DRER, an increase in DRER corresponds to a real
depreciation).
Column 1 of Table 10 reports the results of our baseline estimation. As expected, we find
that inflation has a positive and statistically significant coefficient. Furthermore, we find that
currency depreciations are positively and significantly correlated with , a finding that provides
evidence of the presence of balance-sheet effects. More interestingly, we find that the effect of
currency depreciations is particularly large in countries with high levels of external debt.
Consider, for instance, a real depreciation of 30 percent (not an uncommon event in some of the
countries included in our sample). In countries characterized by low or medium levels of external
debt, such a depreciation is associated with an increase of of approximately three to four
percentage points, but in countries with high levels of debt, a similar depreciation would instead
cause to increase by more than 10 percentage points. At the bottom of the table we show that
the difference between coefficients is also statistically significant (this is not the case for the
difference between the coefficients associated with low and medium external debt).
Next, we include industrial countries and assume that this set of countries has no foreign
currency denominated external debt. Therefore, the regression coefficients should be interpreted
9

Since the GDF data have information for total external debt, we are implicitly assuming that most external debt is
public (or generates contingent liabilities of the public sector). We checked the validity of this assumption by
computing the correlation between GDF data on total external debt and IFS data on public external debt and found
that this correlation is 0.91.

14

as follows: DRER measures the effect of real depreciations in industrial countries;

DRER+DRER*LOW measures the effect of a real depreciation in developing countries with low
levels of external debt; DRER+DRER*MEDIUM measures the effect of a real depreciation in
developing countries with average levels of external debt; and DRER+DRER*HIGH measures
the effect of a real depreciation in developing countries with high levels of external debt. Column
2 shows that the coefficient of DRER is low and not statistically significant, indicating that there
are no balance-sheet effects in industrial countries. As before, we find that balance-sheet effects
are important in developing countries and that the effect of a real depreciation in all three groups
of developing countries is significantly different (both in economic and statistical terms) from
the effect of a depreciation in industrial countries. Finally, we still find that balance-sheet effects
tend to be particularly important in countries with high levels of debt.
Column 3 explores the role of default, w expect defaults to be associated with debt
reduction and hence negatively correlated with . To capture the effect of default, we use data
from Standard and Poors and build a dummy variable that takes a value of 1 around the last year
of a default episode (in particular, it takes a value of 1 in the last year of the episode and in the
year before and the year after the last year of the episode). Next, we build a default dummy that
takes a value of 1 in the last year of a Paris club rescheduling and then another dummy that takes
a value of 1 whenever the GDF reports that a country has rescheduled its debt. Finally, we build
a dummy called DEFAULT that takes a value of 1 whenever one of the previously described
dummies takes a value of 1. Column 3 shows that the default dummy has the expected negative
sign but that the coefficient is small and not statistically significant (we obtain similar results if
we use the three dummies separately).
Column 4 uses data from Caprio and Klingebiel (2003) to explore the role of banking
crises. These are important events because they generate a series of contingent liabilities and
other off-balance sheet activities that can translate into debt explosions. As expected, we find
that the coefficient of the banking crisis dummy is positive and statistically significant. The
coefficient is also quantitatively important, indicating that the average banking crisis is
associated with an increase of three percentage points in .
Column 5 jointly includes all the variables discussed above. We find that the results are
qualitatively similar to previous ones, but that the coefficient of DRER*MEDIUM is no longer
statistically significant (however, DRER+ DRER*MEDIUM remains significant) and that the

15

same is true for banking crisis. In the last column of the table, we control for year fixed effects
(which implicitly control for global shocks) and show that their inclusion does not affect our
basic results.
It is interesting to note that the set of controls included in the regressions of Table 10
explains about 20 percent of the variance of and that the country fixed effects explain about
30 percent of the variance of (see last row of Table 10). This indicates that country specific
factors explain most of the variance of and corroborates the findings of Table 4, which
showed that there are large cross-country differences in the average value of . There are two
possible explanations for this finding. The first has to do with the fact that measurement errors
that lead to an underestimation of the deficit are more important in some countries than in others,
which is probably related to the fact that poorer countries have less sophisticated accounting and
budgeting systems. The other has to do with the fact that the importance of contingent liabilities
that lead to debt explosions vary across countries and that our set of controls does not capture all
these contingent liabilities.10
Table 11 includes GDP growth in the analysis. The first column shows that debt tends to
grow more than deficit during periods of slow GDP growth. Column 2 substitutes GDP growth
with two dummies variables that take a value of 1 during periods of high growth (GOOD
TIMES) and periods of slow growth (BAD TIMES).11 Also in this case, we find that debt tends
to grow faster than the deficit during bad times and slower than the deficit during good times.
Column 3 augments the regression in Column 1 with the set of controls in Table 10. We find that
the sign of GDP growth remains negative but the coefficient drops by one-third and is no longer
statistically significant. Column 4 uses the set of controls in Table 10 and the GOOD TIMES and
BAD TIMES dummies. In this case, we still find that the two dummies have the opposite sign
and are both statistically significant.
In Table 12 we estimate a set of regressions similar to those in Table 10 but now
substitute with d and include def in the set of controls. This is equivalent to estimating the
model of Table 10 by relaxing the restriction that the coefficient of def is 1. We find that the def
coefficient is always smaller than 1 but that that this coefficient is never significantly different
10

Another key difference is in the size of the regional government, which is often not well captured by our data.
GOOD TIMES takes a value of 1 when growth is one standard deviation above the country average, BAD TIMES
takes a value of 1 when growth is one standard deviation below the country average. REGULAR TIMES is the
excluded dummy.

11

16

from 1. All our other results are unchanged (this was expected because Table 6 already indicated
that the deficit by itself explains an extremely small share of the within-country variance of the
change in debt).
One problem with the regressions of Tables 10, 11 and 12 is that they assume a linear
relationship between the dependent variable and the set of independent variables. Therefore, the
estimated results might be driven by extreme values of . To address this issue, we relax the
linearity assumption and run two sets of Probit regressions. In the first set of Probits, the
dependent variable is a dummy that takes a value of 1 for all country years in the top decile of
the distribution of . In the second set of Probits, we repeat the experiment using the bottom
decile of the distribution of . 12
Table 13 reports the results for events in the top decile (in this group of events, ranges
between 12.7 and 282 and has an average value of 44.5). We find that most of the results are
similar to those in Table 10. In particular, Column 1 shows that the relationship between real
depreciations and the probability of observing an extreme event of increases with the level of
external debt. Column 2 shows that in industrial countries, real depreciations have a negative
(but not statistically significant) correlation with the probability of observing an extreme event of

. This column also shows that in countries with high levels of external debt, depreciations are
highly correlated with the probability of observing an extreme event. One puzzling result of
Table 13 is that the coefficient of the DEFAULT dummy is large, significant, and positive
(Column 3). This is exactly the opposite of what we expected, and may have to do with the fact
that defaulted debt is not immediately subtracted from the stock of public debt. The coefficient of
the BANKING CRISIS dummy variable instead has the expected positive sign. Besides being
statistically significant, the impact of this variable is also economically important. In particular,
the point estimates indicate that a banking crisis is associated with a 10 percent increase in the
probability of observing an extreme event of .
Table 14 focuses on events in the bottom decile of (in this group of events, ranges
between -116 and 3.4 and has an average value of -10.9). As expected, we find that
depreciations are negatively correlated with these types of events but the coefficients are rarely
significant. In general, we find that our model does a very poor job of explaining these events.

12

The results do not change if we define the dummies using the ||>10 threshold.

17

5. Conclusions
The purpose of this paper was to document the fact that what is often considered a residual entity
is indeed one of the key determinants of debt dynamic. After demonstrating the importance of
the stock-flow reconciliation, this paper shows that this residual entity can be partly explained by
contingent liabilities and balance-sheet effects. These results suggest that building a safer debt
structure and implementing policies aimed at avoiding the creation of contingent liabilities are
key to avoiding debt explosions (for contrasting views on how this can be achieved, see
Goldstein and Turner, 2004 and Eichengreen, Hausmann and Panizza, 2003). However, this
paper also shows that a large fraction of the variance of the stock-flow reconciliation cannot be
explained by balance-sheet effects and our simple regressions.13

13

One variable that is likely to be important but that we do not control for is the effect of court decisions that force
the government to make payments (to public sector workers, for instance) that were not budgeted. We would like to
thank Vito Tanzi for pointing this out.

18

References
Budina, N. and N. Fiess. 2005. Public Debt and its Determinants in Market Access Countries.
Washington, D.C.: The World Bank.
Caprio, G., and D. Klingebiel. 2003. Episodes of Systematic and Borderline Financial Crises.
Washington,

DC,

United

States:

World

Bank.

Mimeographed

document.

http://econ.worldbank.org/view.php?type=18&id=23456
Cowan, K., E. Levy-Yeyati, U. Panizza and F. Sturzenegger. 2006. Public Debt in the
Americas. (In progress).
Eichengreen, B., R. Hausmann and U. Panizza. 2003. Currency Mismatches, Debt Intolerance
and Original Sin: Why Are Not the Same and Why It Matters. NBER Working Paper
10036. Cambridge, United States: National Bureau of Economic Research.
European Commission. 2005. General Government Data. General Government Expenditure,
Balances and Gross Debt. Brussels, Belgium: European Commission.
Goldstein, M., and P. Turner. 2004. Controlling Currency Mismatches in Emerging Markets.
Washington D.C.: Institute for International Economics.
International Monetary Fund. 2003. Public Debt in Emerging Markets: Is it Too High? World

Economic Outlook, Chapter 3. Washington, DC, United States: International Monetary

Fund.
Jeanne, O. and A. Guscina. 2006. Government Debt in Emerging Market Countries. A New
Dataset. Mimeo, IMF
Levy-Yeyati, E., and F. Sturzenegger. 2005. Methodological Note on the Construction of the
Debt Database. Buenos Aires: Universidad Torcuato Di Tella.
Martner, R., and V. Tromben. 2004. Public Debt Indicators in Latin American Countries:
Snowball Effect, Currency Mismatch and the Original Sin. In: Public Debt. Perugia,
Italy: Banca dItalia.
Reinhart, C., K. Rogoff and M. Savastano. 2003. Debt Intolerance. Brookings Papers on

Economic Activity 1: 1-74.

19

Table 1. Deficit over GDP

Country Group

(%)

(%)

Overall

Between

All Countries

4.04

5.27

3.62

EAP
ECA
IND
LAC
MNA
SAS
SSA

2.65
3.38
3.29
3.93
5.57
6.53
4.24

3.08
3.51
3.78
7.38
6.24
3.16
4.77

2.86
2.89
2.92
4.56
6.02
1.75
2.74

Low
Medium
High

4.67
4.13
3.29

4.40
6.18
3.78

Min
(%)

Max
(%)

N. of
countries

N. of
observations

-18.26

66.05

117

1872

-2.35
-10.02
-6.89
-5.27
-9.92
-1.73
-18.26

17.87
19.64
20.79
66.05
26.78
18.28
45.15

8
15
24
25
11
5
29

126
142
485
417
201
119
382

45.15
66.05
20.79

34
59
24

440
947
485

Min
(%)

Max
(%)

N. of
countries

N. of
observations

By Region

By Income Groups
2.76
4.28
2.92

-18.26
-10.02
-6.89

The income group and regional classifications are those used by the World Bank

Table 2. Debt over GDP

Country Group

(%)

(%)
Overall

Between

All Countries

55.80

58.05

46.92

0.00

637.52

117

1872

EAP
ECA
IND
LAC*
MNA**
SAS
SSA

35.28
37.19
43.91
48.36
46.81
60.27
66.86

19.58
21.85
26.75
41.62
40.84
21.97
53.97

By Region
19.96
22.41
27.08
41.97
40.09
16.04
46.42

1.49
2.49
1.47
1.63
0.00
5.92
1.98

98.02
88.70
121.53
304.50
210.76
116.48
299.73

8
15
24
24
10
5
29

126
142
485
391
172
119
382

Low
Medium

72.21
54.27

56.50
67.94

49.57
48.02

1.49
0.00

304.50
637.52

34
59

440
947

High

43.91

26.75

27.08

1.47

121.53

24

485

By Income Groups

The income group and regional classifications are those used by the World Bank.
* Excludes Guyana ** Excludes Israel

20

Table 3. Change in Debt over GDP

Country Group

(%)

(%)
All Countries
EAP
ECA
IND
LAC
MNA
SAS
SSA

Overall
23.42

8.97
5.11
6.74
4.05
11.45
12.59
7.98
13.00

Between
14.66
By Region
6.42
5.74
3.16
16.37
17.25
3.18
22.13

9.08
9.34
4.52
31.31
34.05
8.12
29.02

Min
(%)

Max
(%)

-118.17

303.57

117

1872

-7.05
-5.71
-10.77
-72.38
-31.86
-35.33
-118.17

51.81
74.38
22.49
303.57
300.14
42.19
233.42

8
15
24
25
11
5
29

126
142
485
417
201
119
382

N. of
N. of
countries observations

By Income Groups
Low
Medium

14.30
9.00

31.28
24.39

22.25
11.54

-118.17
-61.52

243.68
303.57

34
59

440
947

High

4.05

4.52

3.16

-10.77

22.49

24

485

The income group and regional classifications are those used by the World Bank

Table 4. Change in Debt Minus Deficit ()

(%)

Country
Group
All Countries

(%)

All

Without
Outliers*

Overall

4.93

3.15

21.84

Min
(%)

Max
(%)

N. of
N. of
countries observations

-116.61

281.93

117

1872

Between
13.29
By Region

EAP
ECA
IND

2.46
3.35
0.77

2.46
2.86
0.79

7.99
8.37
2.83

4.28
4.91
1.07

-10.00
-11.03
-12.16

51.14
72.56
14.07

8
15
24

126
142
485

LAC
MNA
SAS
SSA

7.52
7.02
1.45
8.76

4.32
2.44
2.14
6.11

28.82
31.39
7.55
28.12

13.68
14.62
1.86
21.22

-73.29
-39.15
-38.58
-116.61

281.93
273.36
37.41
226.90

25
11
5
29

417
201
119
382

By Income Groups
Low
Medium

9.63
4.87

6.09
3.09

30.85
21.88

21.57
8.87

-116.61
-64.66

247.90
281.93

34
59

440
947

High

0.77

0.79

2.83

1.07

-12.16

14.07

24

485

The income group and regional classifications are those used by the World Bank.
*Outliers are the top and bottom 2 percent of the distribution.

21

Table 5. Episodes with i ,t > 10

Episodes with >5

Episodes with <-5

Number

Share of total

Number

Share of total

EAP
ECA
IND
LAC
MNA
SAS
SSA

12
18
6
71
35
7
89

9.52
12.68
1.24
17.03
17.41
5.88
23.3

1
1
1
12
13
3
19

0.79
0.7
0.21
2.88
6.47
2.52
4.97

All Countries

238

12.71

50

2.67

Table 6. Change in Debt over GDP and Deficit

(regressions with country fixed effects)
(1)
(2)
1.316
1.189
(0.226)***
(0.052)***
N. Obs
1872
1825
Nr. Cty
117
117
R2
0.074
0.23
Sample
All
No
Countries
Outliers
(6)
(7)
Deficit
0.706
1.346
(0.295)**
(0.361)***
N. Obs
119
126
Nr. Cty
5
8
R2
0.065
0.135
Sample
SAS
EAP
Robust standard errors in parenthesis.

(3)
0.872
(0.066)***
1872
117
0.246
Quantile
Regression
(8)
2.486
(0.840)***
201
11
0.199
MNA

Deficit

22

(4)
1.102
(0.430)**
382
29
0.032
SSA

(5)
1.101
(0.354)***
417
25
0.051
LAC

(9)
1.426
(0.346)***
142
15
0.228
ECA

(10)
0.914
(0.056)***
485
24
0.514
IND

Table 7. Index
(%)

(%)

Median
(%)

Max
(%)

Min
(%)

N. of
countries

All Countries

1.03

0.50

1.03

2.46

0.13

110

EAP

0.98

0.32

ECA
IND
LAC
MNA
SAS
SSA

0.98
0.60
1.21
1.35
1.01
1.15

0.62
0.36
0.51
0.47
0.12
0.42

Low
Medium
High

1.15
1.13
0.60

Country Group

By Region
0.95
1.00
0.55
1.23
1.29
1.04
1.15

1.56

0.58

2.06
1.37
2.41
2.46
1.11
2.13

0.15
0.13
0.15
0.89
0.81
0.19

14
23
25
10
5
25

2.13
2.46
1.37

0.19
0.15
0.13

31
56
23

By Income Groups
0.43
0.50
0.36

1.15
1.14
0.55

Table 8. Change in Debt and (controlling for country fixed effects)

Constant
Observations
Number of Countries
R-squared
Sample

Constant
Observations
Number of Countries
R-squared
Sample

(1)
-0.007
(0.002)***
0.718
(0.030)***
1061
110
0.01

(2)
-0.011
(0.003)***
0.746
(0.033)***
1055
110
0.01

(3)
-0.020
(0.005)***
0.788
(0.036)***
1039
110
0.02

(6)
-0.019
(0.012)
0.817
(0.049)***
285
24
0.01
IND, >0

(7)
-0.003
(0.004)
0.593
(0.061)***
235
24
0.00
LAC, >0

(8)
-0.024
(0.006)***
0.877
(0.044)***
67
5
0.22
SAS, >0

>0

0<<100

23

0<<50

(4)
-0.018
(0.013)
0.837
(0.121)***
64
8
0.03
EAP, >0
(9)
-0.008
(0.003)**
0.576
(0.068)***
223
25
0.03
SSA, >0

(5)
-0.006
(0.008)
0.640
(0.079)***
77
14
0.01
ECA, >0
(10)
-0.005
(0.008)
1.053
(0.179)***
110
10
0.00
MNA, >0

Table 9. Debt Explosions

ALL
EAP
ECA
IND
LAC
MNA
SAS
SSA

27.45
18.82
20.90
12.59
34.08
30.22
19.87
28.63

46.34
26.98
27.23
15.25
58.92
63.75
26.71
47.08

ALL
EAP
ECA
IND
LAC
MNA
SAS
SSA

13.45
13.45
13.33
12.59
14.40
13.07
11.97
13.65

24.39
21.20
19.60
15.25
22.21
40.93
20.49
24.33

/d

def
All Episodes with >10
69.25%
9.42
74.47%
6.11
72.50%
5.07
82.78%
9.11
74.43%
14.63
60.28%
13.37
69.79%
7.57
64.95%
6.35
All Episodes with 10<<20
67.88%
6.93
73.66%
4.79
69.10%
3.81
82.78%
9.11
72.73%
7.76
62.40%
11.05
59.21%
8.74
61.56%
5.13

24

def/d

Share

27.40%
24.40%
18.65%
60.79%
35.27%
41.48%
32.61%
12.58%

172
12
11
13
41
23
6
66

9.19%
9.52%
7.75%
2.68%
9.83%
11.44%
5.04%
9.52%

29.42%
24.38%
18.04%
60.79%
31.71%
48.67%
42.15%
11.64%

104
9
9
13
18
15
4
36

5.56%
7.14%
6.34%
2.68%
4.32%
7.46%
3.36%
9.42%

Table 10: The Determinants of

INFLATION
DRER*LOW
DRER*MEDIUM
DRER*HIGH
DRER
DEFAULT

(1)
(2)
(3)
(4)
(5)
(6)
25.526
24.869
25.428
25.136
25.223
25.885
(11.454)** (11.199)** (11.285)** (10.775)** (11.346)** (11.581)**
14.034
11.496
11.331
5.288
(6.522)**
(6.732)*
(6.787)*
-6.794
11.358
9.218
8.315
1.996
(5.059)**
(5.171)*
-5.323
-6.22
32.987
30.835
32.229
25.802
(10.423)*** (10.469)***
(10.588)*** (10.738)**
2.22
1.95
8.676
(1.513)
(1.589)
(3.715)**
-0.077
-1.754
-2.471
(2.015)
(1.981)
(1.963)

BANKING CRISIS
0.218
1065
78
Developing
Countries

0.224
1529
102
All
Countries

0.19
1529
102
All
Countries

3.204
(1.918)*
0.199
1529
102
All
Countries

Fixed Effects

Country

Country

Country

Country

Country

Ctry.-Year

DRER*LOW=DRER*MED
DRER*HIGH=DRER*MED
R-squared with country FE

0.7654
0.0612
0.4783

0.7392
0.0524
0.4825

0.4584

0.6757
0.0396
0.4852

0.6536
0.0359
0.5025

R-squared (within)
Observations
Nr. of Countries
Sample

0.4559

2.812
(1.908)
0.234
1529
102
All
Countries

2.182
(1.909)
0.244
1529
102
All
Countries

Robust standard errors in parentheses. * Significant at 10 percent; ** significant at 5 percent;

*** significant at 1 percent.

25

Table 11. The Determinants of

INFLATION

(1)

(2)

(3)

(4)

24.443
(11.130)**

24.541
(10.838)**

26.064
(12.533)**
15.872

24.646
(11.305)**
15.998

(7.496)**

(6.276)**

4.183
(5.526)
35.377
(11.147)***
-0.493
(1.814)
2.091
(2.062)
-2.902
(2.519)
-0.198
(0.130)

4.376
(5.874)
35.300
(10.440)***
-0.240
(1.828)
2.338
(1.860)
-2.921
(1.979)

DRER*LOW
DRER*MEDIUM
DRER*HIGH
DRER
DEFAULT
BANKING CRISIS
GDP GROWTH

-0.324
(0.118)***

GOOD TIMES DUMMY

-1.822
(0.857)**
3.772
(1.241)***

BAD TIMES DUMMY

Observations
Nr. of Countries
R-squared (within)
Fixed Effects
Sample

-1.582
(0.847)*
2.933
(1.200)**

1528
102
0.1064
Country

1529
102
0.1104
Country

1238
92
0.1670
Country

1529
102
0.1550
Country

All Countries

All Countries

All Countries

All Countries

26

Table 12. The Determinants of d

DEFICIT/GDP
INFLATION
DRER*LOW
DRER*MEDIUM
DRER*HIGH
DRER

(3)
(1)
(2)
(4)
(5)
(6)
0.982
0.943
0.994
0.982
0.933
0.955
(0.185)*** (0.143)*** (0.148)*** (0.149)*** (0.144)*** (0.153)***
25.536
24.917
25.433
25.152
25.274
25.89
(11.486)** (11.213)** (11.342)** (10.824)** (11.343)** (11.559)**
14.017
11.251
11.036
5.145
(6.461)**
(6.505)*
(6.558)*
-6.673
11.377
9.074
8.134
1.93
(5.040)**
(5.190)*
-5.339
-6.237
33.033
30.782
32.17
25.84
(10.378)*** (10.497)***
(10.615)*** (10.724)**
2.421
2.181
8.746
(1.545)

DEFAULT

-0.076
(2.011)

BANKING CRISIS
0.1914
1065
78
Developing
Countries

0.1983
1529
102
All
Countries

0.2419
1529
102
All
Countries

3.214
(1.927)*
0.2503
1529
102
All
Countries

Fixed Effects
DRER: LOW=MED

Country
0.7114

Country

Country

DRER: HIGH=MED
R-squared with country FE

0.053
0.5074

Country
0.7447
0.0514
0.5188

0.4939

0.4962

R-squared (within)
Observations
Nr. of Countries
Sample

(1.613)
-1.75
(1.977)
2.85
(1.914)
0.2026
1529
102
All
Countries

(3.729)**
-2.485
(1.966)
2.222
(1.917)
0.229
1529
102
All
Countries

Country
0.681
0.0386
0.5213

Ctry.-Year
0.6571
0.0349
0.5373

Robust standard errors in parentheses. * Significant at 10 percent; ** significant at 5 percent;

*** significant at 1 percent.

27

Table 13. Probit Regressions for Episodes in Top Decile

INFLATION
DRER*LOW
DRER*MEDIUM
DRER*HIGH

(1)

(2)

(3)

(4)

(5)

(6)

0.251
(0.084)***
0.098
(0.169)
0.190
(0.115)*
0.567
(0.136)***

0.225
(0.072)***
0.134
(0.159)
0.249
(0.122)**
0.550
(0.136)***
-0.067
(0.075)

0.160
(0.060)***

0.224
(0.077)***

0.132
(0.055)**
0.140
(0.158)
0.241
(0.120)**
0.402
(0.129)***
-0.078
(0.080)
0.072
(0.028)***
0.187
(0.032)***

0.151
(0.064)**
0.060
(0.179)
0.197
(0.128)
0.314
(0.147)**
0.005
(0.099)
0.050
(0.026)*
0.191
(0.033)***

1529
102
All
Countries
NO

1389
102
All
Countries
YEAR

DRER
BANK CRISIS

0.099
(0.029)***

DEFAULT
Observations
Nr. of Countries
Sample
FE

0.222
(0.032)***
1066
78
Developing
Countries
NO

1529
102
All
Countries
NO

1529
102
All
Countries
NO

1529
102
All
Countries
NO

Standard errors in parentheses. * Significant at 10 percent; ** significant at 5 percent; *** significant at 1 percent.

28

Table 14. Probit Regressions for Episodes in Bottom Decile

INFLATION
DRER*LOW
DRER*MEDIUM
DRER*HIGH

(1)

(2)

(3)

(4)

(5)

(6)

-0.005
(0.035)
-0.161
(0.184)
-0.320
(0.168)*
-0.055
(0.130)

0.014
(0.030)
-0.163
(0.210)
-0.277
(0.201)
-0.024
(0.169)
-0.003
(0.120)

0.002
(0.029)

0.011
(0.028)

-0.014
(0.032)
-0.180
(0.216)
-0.293
(0.204)
-0.063
(0.165)
-0.002
(0.125)
0.040
(0.026)
0.051
(0.026)*

-0.017
(0.032)
-0.193
(0.211)
-0.336
(0.210)
-0.141
(0.187)
0.049
(0.147)
0.058
(0.028)**
0.054
(0.026)**

1529
102
All
Countries
NO

1529
102
All
Countries
YEAR

DRER
BANK CRISIS

0.039
(0.026)

DEFAULT
Observations
Nr. of Countries
Sample
FE

0.051
(0.026)**
1066
78
Developing
Countries
NO

1529
102
All
Countries
NO

1529
102
All
Countries
NO

1529
102
All
Countries
NO

Standard errors in parentheses. * Significant at 10 percent; ** significant at 5 percent; *** significant at 1 percent.

29

Table A1. Countries Included in the Sample

Country
FIJI*
INDONESIA
KOREA
MALAYSIA
MONGOLIA
PAPUA NEW GUINEA
SOLOMON ISLANDS*
THAILAND
ALBANIA
BELARUS
CROATIA
CYPRUS
CZECH REPUBLIC
ESTONIA
GEORGIA
HUNGARY
LATVIA
LITHUANIA
POLAND
RUSSIA
SLOVAK REPUBLIC
TAJIKISTAN
TURKEY*
AUSTRALIA
AUSTRIA
BELGIUM
CANADA
DENMARK
FINLAND
FRANCE
GERMANY
GREECE
ICELAND
IRELAND
ITALY
JAPAN
LUXEMBOURG*
MALTA*
NETHERLANDS
NEW ZEALAND
NORWAY
PORTUGAL
SPAIN
SWEDEN
SWITZERLAND
UNITED KINGDOM
UNITED STATES
ARGENTINA
BAHAMAS, THE
BARBADOS
BOLIVIA
BRAZIL*
CHILE
COLOMBIA
COSTA RICA
ECUADOR
EL SALVADOR
GRENADA
GUATEMALA
GUYANA

Code Region Initial year Final year Debt/GDP Deficit/GDP

FJI
IDN
KOR
MYS
MNG
PNG
SLB
THA
ALB
BLR
HRV
CYP
CZE
EST
GEO
HUN
LVA
LTU
POL
RUS
SVK
TJK
TUR
AUS
AUT
BEL
CAN
DNK
FIN
FRA
DEU
GRC
ISL
IRL
ITA
JPN
LUX
MLT
NLD
NZL
NOR
PRT
ESP
SWE
CHE
GBR
USA
ARG
BHS
BRB
BOL
BRA
CHL
COL
CRI
ECU
SLV
GRD
GTM
GUY

EAP
EAP
EAP
EAP
EAP
EAP
EAP
EAP
ECA
ECA
ECA
ECA
ECA
ECA
ECA
ECA
ECA
ECA
ECA
ECA
ECA
ECA
ECA
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
IND
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC

1972
1973
1981
1991
1993
1976
1976
1997
1996
1993
1996
1977
1994
1997
1997
1992
1996
1999
1994
1994
1996
2001
1972
1979
1972
1972
1975
1981
1991
1993
1976
1994
1973
1982
1981
1981
1991
1972
1981
1993
1972
1981
1972
1972
1987
1972
1972
1994
1972
1978
1991
1992
1989
1991
1972
1991
1972
1994
1991
1972

30

1998
1999
1997
1999
2001
2002
1984
2003
1998
1998
2002
2003
2003
2001
2003
2003
2003
2002
2001
2003
2003
2001
2001
2002
1994
1998
2001
2000
1998
1997
1999
1999
2003
1999
1999
1993
1997
1998
1998
2001
2003
1998
1999
1999
2003
1999
2003
2003
2003
2003
2003
1998
2001
2003
2002
2003
2001
1995
2003
1997

30.69
34.77
13.96
47.02
73.08
45.79
15.00
20.26
48.78
23.65
42.75
48.77
12.69
3.72
61.53
67.49
12.54
27.65
44.71
55.76
27.07
80.87
21.80
12.25
31.85
84.55
41.40
66.78
52.11
41.12
19.23
117.34
31.74
84.11
93.88
48.65
2.89
25.61
52.97
43.07
26.19
56.47
31.84
46.97
21.00
45.46
35.71
59.87
25.55
54.32
65.45
26.98
25.41
25.81
30.01
63.52
34.26
39.28
16.02
324.91

4.24
1.32
0.59
0.15
8.94
2.45
4.41
1.72
11.07
2.05
1.48
4.68
1.38
-0.95
2.78
5.46
1.37
2.43
1.63
2.60
1.38
-0.06
5.12
0.80
3.99
6.47
3.43
1.02
8.00
5.25
1.62
10.15
2.22
4.01
9.56
3.45
-0.06
2.30
3.56
-1.40
0.61
6.17
3.45
4.40
0.50
3.25
2.45
1.56
2.29
3.74
4.37
6.86
-1.20
3.79
2.86
-0.30
1.72
-0.57
1.19
22.46

-0.93 0.88
4.34 1.15
1.59 0.82
0.41 0.65
11.99 1.15
2.66 1.56
-1.72 0.58
2.30 1.02
0.00 0.76
13.32 1.26
4.98 2.06
1.14 0.83
0.18 0.27
0.88 6.46
5.52 1.31
3.54 1.16
0.04 0.41
-0.23 0.15
2.49 1.18
13.06 1.49
2.88 2.04
-5.65 0.28
2.93 0.57
-0.35 0.77
-0.35 0.41
0.53 0.27
-0.21 0.32
3.65 0.78
0.03 0.13
-0.89 0.81
0.29 1.03
2.14 0.73
2.87 1.21
1.21 0.24
0.65 0.13
0.52 0.98
0.45 81.77
0.56 0.86
0.10 0.14
-0.14 0.54
1.39 1.37
2.17 0.59
0.68 0.37
0.47 0.49
0.83 0.99
0.51 0.55
0.00 0.17
11.56 1.22
-0.08 0.60
0.58 0.64
3.53 1.24
7.67 1.31
2.78 2.03
1.96 0.71
2.54 1.38
0.79 1.01
2.70 1.21
-2.75 0.15
0.69 1.25
44.22 1.23

HAITI
HONDURAS*
JAMAICA*
MEXICO*
NICARAGUA
PANAMA
PARAGUAY
PERU
ST. VINCENT & GRENS.
SURINAME*
URUGUAY
VENEZUELA, REP. BOL.
ALGERIA
BAHRAIN, KINGDOM OF
ISRAEL
JORDAN
LEBANON
MOROCCO*
OMAN
SAUDI ARABIA
TUNISIA
UNITED ARAB EMIRATES*
YEMEN, REPUBLIC OF
INDIA
MALDIVES
NEPAL*
PAKISTAN
SRI LANKA
BURUNDI
CAMEROON*
CHAD
CONGO, DEM. REP. OF*
CONGO, REPUBLIC OF
COTE D IVOIRE*
ETHIOPIA
GABON
GAMBIA, THE
GHANA*
GUINEA*
KENYA
LESOTHO*
MALAWI*
MALI
MAURITIUS
NAMIBIA
NIGERIA
RWANDA
SENEGAL*
SEYCHELLES
SIERRA LEONE
SOUTH AFRICA
SUDAN
SWAZILAND
TOGO
UGANDA
ZAMBIA*
ZIMBABWE

HTI
HND
JAM
MEX
NIC
PAN
PRY
PER
VCT
SUR
URY
VEN
DZA
BHR
ISR
JOR
LBN
MAR
OMN
SAU
TUN
ARE
YEM
IND
MDV
NPL
PAK
LKA
BDI
CMR
TCD
ZAR
COG
CIV
ETH
GAB
GMB
GHA
GIN
KEN
LSO
MWI
MLI
MUS
NAM
NGA
RWA
SEN
SYC
SLE
ZAF
SDN
SWZ
TGO
UGA
ZMB
ZWE

LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
MNA
MNA
MNA
MNA
MNA
MNA
MNA
MNA
MNA
MNA
MNA
SAS
SAS
SAS
SAS
SAS
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA

1997
1972
1981
1972
1991
1972
1991
1991
1987
1972
1993
1972
2000
1982
1973
1972
1993
1972
1972
1996
1972
1981
1996
1975
1982
1975
1972
1974
1972
1991
1991
1972
2000
1995
1983
1991
1974
1972
1991
1998
1988
1972
1983
1979
1990
1972
1978
1983
1973
1975
1981
1998
1979
1984
1992
1978
1977

2003
2003
2001
2003
2003
2000
2001
2001
2001
1986
2001
1985
2001
2001
2001
2001
1999
2003
2001
2000
2000
1999
1999
2001
2003
2003
1993
2001
2003
1999
2001
1997
2000
2001
1999
1991
1982
1998
1999
2003
2003
1987
1983
2003
2000
1998
2003
2001
1977
2003
2003
1999
2003
1986
2003
1998
1997

*Break in the series

31

46.26
58.45
117.41
32.28
216.01
55.53
19.26
53.56
47.48
35.67
26.48
11.39
0.06
16.62
183.28
86.11
92.82
64.11
22.51
104.01
47.49
1.63
7.18
46.15
49.53
51.04
65.37
84.91
85.08
95.99
58.26
88.63
160.76
135.29
75.28
53.53
27.66
22.64
93.75
64.98
79.17
69.11
67.77
46.54
18.59
57.88
54.48
78.44
5.09
105.52
34.98
203.80
26.70
89.77
67.66
176.77
49.49

2.03
4.12
6.79
3.84
1.57
3.29
0.63
0.97
2.34
7.12
2.18
-0.07
-6.98
3.29
9.81
4.50
17.41
5.94
7.23
4.08
3.70
0.05
2.39
5.85
5.38
4.51
7.26
8.97
1.68
2.01
7.40
4.57
-1.16
0.69
5.93
1.66
6.50
3.75
3.33
1.28
3.61
7.40
7.01
3.55
3.50
2.56
3.85
3.66
0.56
7.63
3.64
0.65
0.72
2.94
3.53
10.98
6.83

5.04 1.80
4.95 1.10
12.70 1.13
4.68 0.71
56.61 1.56
1.60 0.97
3.76 1.43
12.08 1.37
2.13 1.60
-3.07 0.38
4.14 1.74
2.43 2.41
6.98
-1.40 2.46
47.95 1.36
4.27 0.96
6.81 1.53
-0.87 0.89
-5.08 1.51
-1.90 1.10
1.64 0.90
-0.23 1.22
0.35 1.54
0.28 1.04
-1.20 1.01
2.45 0.81
2.03 1.11
3.49 1.07
11.81 1.52
16.75 1.29
-1.27 1.09
46.20 1.39
-68.32
1.38 0.97
4.30 0.98
12.15 1.69
-0.62 0.19
0.79 1.03
5.46 1.18
2.95 2.13
4.70 1.09
5.00 0.62
-5.22
2.22 0.53
-0.61 1.19
9.69 1.15
0.95 0.94
4.58 0.66
0.11 17.06
18.21 1.56
0.74 0.93
62.55 90.39
2.27 1.42
-4.78 1.61
1.17 1.29
42.30 1.48
1.46 0.84

Table A2. Episodes with >10

Country
INDONESIA
INDONESIA
INDONESIA
INDONESIA
KOREA
MONGOLIA
MONGOLIA
MONGOLIA
MONGOLIA
PAPUA NEW GUINEA
PAPUA NEW GUINEA
PAPUA NEW GUINEA
ALBANIA
BELARUS
BELARUS
CROATIA
CROATIA
GEORGIA
GEORGIA
GEORGIA
HUNGARY
RUSSIA
RUSSIA
RUSSIA
RUSSIA
RUSSIA
SLOVAK REPUBLIC
SLOVAK REPUBLIC
TURKEY
TURKEY
DENMARK
DENMARK
ICELAND
IRELAND
NORWAY
SWEDEN
ARGENTINA
ARGENTINA
BOLIVIA
BOLIVIA
BRAZIL
BRAZIL
COSTA RICA
COSTA RICA
COSTA RICA
ECUADOR
ECUADOR
ECUADOR
ECUADOR
EL SALVADOR
EL SALVADOR
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
GUYANA
HAITI
HONDURAS
HONDURAS
HONDURAS
HONDURAS
HONDURAS
HONDURAS
JAMAICA
JAMAICA
JAMAICA
JAMAICA
JAMAICA
JAMAICA
JAMAICA

Year Code Region

1986
1997
1982
1978
1981
1998
1993
1996
1994
1994
2001
1997
1997
1994
1998
1998
1999
1998
1999
1997
1993
1998
1996
1995
1994
1999
2002
2001
1981
2001
1993
1983
1984
1983
1986
1980
2002
2003
1995
1993
1993
1992
1991
1998
1978
1998
1993
1999
1992
1987
1986
1995
1987
1989
1986
1994
1988
1980
1976
1982
1979
1991
1985
1975
1992
1990
2002
1998
1992
1996
1993
1994
1990
1997
1984
1994
1998
1985
1983
1993

Country

IDN

EAP

JAMAICA

IDN

EAP

JAMAICA

IDN

EAP

MEXICO

IDN

EAP

MEXICO

KOR

EAP

MEXICO

MNG

EAP

MEXICO

MNG

EAP

MEXICO

MNG

EAP

MEXICO

MNG

EAP

NICARAGUA

PNG

EAP

NICARAGUA

PNG

EAP

NICARAGUA

PNG

EAP

NICARAGUA

ALB

ECA

NICARAGUA

BLR

ECA

NICARAGUA

BLR

ECA

NICARAGUA

HRV

ECA

NICARAGUA

HRV

ECA

NICARAGUA

GEO

ECA

NICARAGUA

GEO

ECA

NICARAGUA

GEO

ECA

PANAMA

HUN

ECA

PANAMA

RUS

ECA

PARAGUAY

RUS

ECA

PERU

RUS

ECA

PERU

RUS

ECA

PERU

RUS

ECA

PERU

SVK

ECA

ST. VINCENT & GRENS.

SVK

ECA

BAHRAIN, KINGDOM OF

TUR

ECA

ISRAEL

TUR

ECA

ISRAEL

DNK

IND

ISRAEL

DNK

IND

ISRAEL

ISL

IND

ISRAEL

IRL

IND

ISRAEL

NOR

IND

ISRAEL

SWE

IND

ISRAEL

ARG

LAC

ISRAEL

ARG

LAC

ISRAEL

BOL

LAC

ISRAEL

BOL

LAC

ISRAEL

BRA

LAC

ISRAEL

BRA

LAC

ISRAEL

CRI

LAC

ISRAEL

CRI

LAC

ISRAEL

CRI

LAC

ISRAEL

ECU

LAC

ISRAEL

ECU

LAC

ISRAEL

ECU

LAC

ISRAEL

ECU

LAC

ISRAEL

SLV

LAC

ISRAEL

SLV

LAC

JORDAN

GUY

LAC

JORDAN

GUY

LAC

JORDAN

GUY

LAC

LEBANON

GUY

LAC

LEBANON

GUY

LAC

LEBANON

GUY

LAC

LEBANON

GUY

LAC

MOROCCO

GUY

LAC

MOROCCO

GUY

LAC

MOROCCO

GUY

LAC

SAUDI ARABIA

GUY

LAC

SAUDI ARABIA

GUY

LAC

MALDIVES

GUY

LAC

MALDIVES

GUY

LAC

NEPAL

GUY

LAC

PAKISTAN

HTI

LAC

SRI LANKA

HND

LAC

SRI LANKA

HND

LAC

SRI LANKA

HND

LAC

BURUNDI

HND

LAC

BURUNDI

HND

LAC

BURUNDI

HND

LAC

BURUNDI

JAM

LAC

BURUNDI

JAM

LAC

BURUNDI

JAM

LAC

BURUNDI

JAM

LAC

BURUNDI

JAM

LAC

BURUNDI

JAM

LAC

BURUNDI

JAM

LAC

BURUNDI

Year Code Region

2001
1999
1987
1986
1994
1982
1989
1985
1991
2001
2000
1995
1998
1993
1992
1997
1999
2002
1994
1993
1996
2001
1991
1998
1992
1993
1999
1988
1996
1977
1979
1988
1993
1998
1975
1985
1989
1981
1973
1974
1978
1984
1980
1986
1990
1976
1992
1987
1983
1982
1988
1972
1990
1996
1994
1999
1993
1983
1997
1992
1996
1998
1985
1982
1991
1972
1991
1977
1985
1996
1999
1998
1987
2001
1988
1993
1986
1991
1995
2002

32

Country

JAM

LAC

BURUNDI

JAM

LAC

BURUNDI

MEX

LAC

BURUNDI

MEX

LAC

BURUNDI

MEX

LAC

CAMEROON

MEX

LAC

CHAD

MEX

LAC

CHAD

MEX

LAC

CONGO, DEM. REP. OF

NIC

LAC

CONGO, DEM. REP. OF

NIC

LAC

CONGO, DEM. REP. OF

NIC

LAC

CONGO, DEM. REP. OF

NIC

LAC

CONGO, DEM. REP. OF

NIC

LAC

CONGO, DEM. REP. OF

NIC

LAC

CONGO, DEM. REP. OF

NIC

LAC

CONGO, DEM. REP. OF

NIC

LAC

CONGO, DEM. REP. OF

NIC

LAC

CONGO, DEM. REP. OF

NIC

LAC

COTE D IVOIRE

NIC

LAC

ETHIOPIA

PAN

LAC

ETHIOPIA

PAN

LAC

GABON

PRY

LAC

GHANA

PER

LAC

GUINEA

PER

LAC

KENYA

PER

LAC

LESOTHO

PER

LAC

LESOTHO

VCT

LAC

LESOTHO

BHR

MNA

LESOTHO

ISR

MNA

MALAWI

ISR

MNA

NIGERIA

ISR

MNA

NIGERIA

ISR

MNA

NIGERIA

ISR

MNA

NIGERIA

ISR

MNA

NIGERIA

ISR

MNA

NIGERIA

ISR

MNA

NIGERIA

ISR

MNA

NIGERIA

ISR

MNA

NIGERIA

ISR

MNA

NIGERIA

ISR

MNA

RWANDA

ISR

MNA

RWANDA

ISR

MNA

RWANDA

ISR

MNA

RWANDA

ISR

MNA

RWANDA

ISR

MNA

RWANDA

ISR

MNA

SENEGAL

ISR

MNA

SIERRA LEONE

ISR

MNA

SIERRA LEONE

ISR

MNA

SIERRA LEONE

ISR

MNA

SIERRA LEONE

JOR

MNA

SIERRA LEONE

JOR

MNA

SIERRA LEONE

JOR

MNA

SIERRA LEONE

LBN

MNA

SIERRA LEONE

LBN

MNA

SIERRA LEONE

LBN

MNA

SIERRA LEONE

LBN

MNA

SIERRA LEONE

MAR

MNA

SIERRA LEONE

MAR

MNA

SIERRA LEONE

MAR

MNA

SIERRA LEONE

SAU

MNA

SIERRA LEONE

SAU

MNA

SUDAN

MDV

SAS

SUDAN

MDV

SAS

SWAZILAND

NPL

SAS

UGANDA

PAK

SAS

UGANDA

LKA

SAS

ZAMBIA

LKA

SAS

ZAMBIA

LKA

SAS

ZAMBIA

BDI

SSA

ZAMBIA

BDI

SSA

ZAMBIA

BDI

SSA

ZAMBIA

BDI

SSA

ZAMBIA

BDI

SSA

ZAMBIA

BDI

SSA

ZAMBIA

BDI

SSA

ZAMBIA

BDI

SSA

ZAMBIA

BDI

SSA

ZIMBABWE

BDI

SSA

BDI

SSA

Year Code Region

1983
2003
1992
1989
1994
1999
1995
1989
1990
1997
1981
1993
1992
1996
1994
1995
1980
1995
1994
1993
1991
1996
1998
2000
1996
2000
1998
2001
1986
1989
1988
1987
1978
1983
1990
1981
1980
1993
1986
1998
1994
2002
2003
1990
1996
1983
2003
1986
1992
1985
1990
1988
1995
1999
1993
1989
1987
1996
1998
1997
2001
1999
1998
1984
2001
2002
1993
1982
1990
1991
1995
1994
1996
1986
1998
1984
1985
1995

BDI

SSA

BDI

SSA

BDI

SSA

BDI

SSA

CMR

SSA

TCD

SSA

TCD

SSA

ZAR

SSA

ZAR

SSA

ZAR

SSA

ZAR

SSA

ZAR

SSA

ZAR

SSA

ZAR

SSA

ZAR

SSA

ZAR

SSA

ZAR

SSA

CIV

SSA

ETH

SSA

ETH

SSA

GAB

SSA

GHA

SSA

GIN

SSA

KEN

SSA

LSO

SSA

LSO

SSA

LSO

SSA

LSO

SSA

MWI

SSA

NGA

SSA

NGA

SSA

NGA

SSA

NGA

SSA

NGA

SSA

NGA

SSA

NGA

SSA

NGA

SSA

NGA

SSA

NGA

SSA

RWA

SSA

RWA

SSA

RWA

SSA

RWA

SSA

RWA

SSA

RWA

SSA

SEN

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SLE

SSA

SDN

SSA

SDN

SSA

SWZ

SSA

UGA

SSA

UGA

SSA

ZMB

SSA

ZMB

SSA

ZMB

SSA

ZMB

SSA

ZMB

SSA

ZMB

SSA

ZMB

SSA

ZMB

SSA

ZMB

SSA

ZMB

SSA

ZMB

SSA

ZWE

SSA

Table A3. Episodes with <-10

Country
INDONESIA
ALBANIA
AUSTRALIA
ECUADOR
ECUADOR
GUYANA
GUYANA
GUYANA
HONDURAS
JAMAICA
NICARAGUA
PANAMA
PANAMA
ST. VINCENT & GRENS.
SURINAME
BAHRAIN, KINGDOM OF
BAHRAIN, KINGDOM OF
JORDAN
JORDAN
LEBANON
MOROCCO
OMAN
OMAN
OMAN
OMAN
OMAN
OMAN

Year

Code

Region

1998
1998
1980
2001
2000
1984
1996
1978
1991
1992
1996
1989
1990
1997
1975
1990
1987
1992
1989
1997
1991
1992
1993
1987
1999
1995
1989

IDN
ALB
AUS
ECU
ECU
GUY
GUY
GUY
HND
JAM
NIC
PAN
PAN
VCT
SUR
BHR
BHR
JOR
JOR
LBN
MAR
OMN
OMN
OMN
OMN
OMN
OMN

EAP
ECA
IND
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
MNA
MNA
MNA
MNA
MNA
MNA
MNA
MNA
MNA
MNA
MNA
MNA

Country
SAUDI ARABIA
MALDIVES
MALDIVES
PAKISTAN
CHAD
CHAD
CHAD
CONGO, DEM. REP. OF
CONGO, REPUBLIC OF
COTE D IVOIRE
ETHIOPIA
GUINEA
LESOTHO
LESOTHO
NIGERIA
RWANDA
SIERRA LEONE
SWAZILAND
TOGO
UGANDA
UGANDA
ZAMBIA
ZIMBABWE

33

Year
1999
1984
1983
1973
1994
1991
1998
1991
2000
1998
1995
1991
2003
2002
1995
1995
2000
1985
1985
1999
1992
1987
1996

Code Region
SAU
MDV
MDV
PAK
TCD
TCD
TCD
ZAR
COG
CIV
ETH
GIN
LSO
LSO
NGA
RWA
SLE
SWZ
TGO
UGA
UGA
ZMB
ZWE

MNA
SAS
SAS
SAS
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA

Table A4. Debt Explosions

Code

Reg

Year

deficit

Code

Reg

Year

deficit

ALB
ARG
BDI
BDI
BDI
BDI
BDI
BDI
BDI
BDI
BDI
BDI
BDI
BEL
BEL
BEL
BLR
BOL
CMR
CMR
CMR
CRI
DNK
DNK
DNK
DNK
ECU
ESP
ETH
ETH
ETH
FIN
FIN
GEO
GEO
GHA
GHA
GIN
GMB
GUY
GUY
GUY
GUY
GUY
GUY
GUY
GUY
GUY
GUY
GUY
GUY
GUY
GUY
GUY
HND
HRV
HRV
HTI
HUN
IDN
IDN
IDN
IDN
ISR
ISR
ISR
ISR
ISR
ISR
ISR
JAM
JAM
JAM
JAM
JOR
JOR
JOR
KOR
LBN
LBN
LBN
LBN
LKA
LKA
LKA

ECA
LAC
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
IND
IND
IND
ECA
LAC
SSA
SSA
SSA
LAC
IND
IND
IND
IND
LAC
IND
SSA
SSA
SSA
IND
IND
ECA
ECA
SSA
SSA
SSA
SSA
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
LAC
ECA
ECA
LAC
ECA
EAP
EAP
EAP
EAP
MNA
MNA
MNA
MNA
MNA
MNA
MNA
LAC
LAC
LAC
LAC
MNA
MNA
MNA
EAP
MNA
MNA
MNA
MNA
SAS
SAS
SAS

1997
2002
1995
1987
2003
1986
1992
1993
1983
1998
1988
1999
2002
1981
1983
1982
1994
1993
1993
1991
1994
1978
1981
1993
1983
1982
1999
1993
1990
1994
1993
1992
1993
1998
1999
1993
1996
1998
1978
1975
1985
1979
1977
1973
1987
1984
1976
1986
1990
1991
1989
1983
1982
1980
1990
1999
1998
2002
1993
1978
1982
1986
1997
1984
1981
1976
1979
1977
1980
1983
1998
1999
1997
1983
1987
1990
1988
1981
1998
1994
1996
1999
1977
1985
1988

12 75
1.11
2.66
1.02
5.10
-2.54
8.91
5.47
0.91
4.93
-0.73
6.66
1.08
11.96
12.06
10.70
1.83
4.74
1.73
5.24
2.90
4.36
5.85
2.44
6.61
7.78
0.59
5.88
9.77
9.95
5.49
14.43
13.07
3.49
2.27
2.51
2.97
4.34
10.01
6.51
37.97
17.47
11.91
16.23
40.94
45.55
27.46
60.20
21.65
24.38
6.98
40.30
66.05
29.15
6.84
1.78
-0.91
2.71
5.72
3.14
1.90
3.52
0.67
18.84
21.97
18.39
15.12
19.43
16.17
26.78
6.70
4.54
6.35
19.88
8.97
3.54
9.05
3.25
16.00
17.20
20.58
16.18
4.59
9.68
12.70

24 88
89.12
13.49
12.11
18.45
21.24
22.55
21.71
17.30
40.26
18.35
50.18
70.60
14.63
15.91
13.99
74.38
18.38
9.29
11.42
82.55
19.34
12.94
13.74
18.70
16.79
27.56
13.70
14.45
48.11
44.03
16.21
16.99
16.83
20.09
12.09
15.18
19.31
17.01
29.64
62.90
30.43
15.29
24.87
72.42
33.35
44.75
107.29
303.58
226.70
136.35
35.07
92.02
107.47
58.52
14.55
15.50
17.93
21.09
14.19
13.61
22.13
51.81
223.12
142.39
59.67
89.61
69.90
130.39
300.14
20.53
26.63
34.74
66.10
14.97
21.61
141.95
15.71
21.66
31.06
31.31
29.38
17.31
25.05
21.03

14 86
92.20
10.47
13.05
13.68
14.24
15.31
15.45
15.94
16.30
16.72
29.65
47.65
10.38
10.46
11.03
70.74
12.00
11.91
13.17
83.45
13.93
10.39
11.44
11.81
13.05
28.30
11.05
11.81
27.42
40.80
17.06
17.83
10.34
14.99
11.55
11.97
14.04
14.22
11.86
16.28
16.37
20.06
22.16
24.92
27.91
31.24
45.37
47.99
53.53
66.95
71.22
78.18
101.19
52.09
10.81
12.30
14.10
10.27
10.74
11.07
19.86
48.55
10.49
15.02
20.77
24.64
36.42
45.36
189.53
12.41
19.23
23.35
57.16
11.26
12.89
140.37
15.04
11.03
18.71
20.32
21.78
10.56
12.00
13.36

LSO
LSO
LSO
MAR
MAR
MAR
MAR
MDV
MEX
MEX
MNG
MNG
MNG
MNG
MNG
MUS
MWI
NGA
NGA
NGA
NGA
NIC
NIC
NIC
NIC
NIC
NPL
OMN
OMN
PAK
PAN
PAN
PER
PNG
PNG
RUS
RUS
RWA
RWA
RWA
RWA
SAU
SAU
SDN
SLE
SLE
SLE
SLE
SLE
SLE
SLE
SLE
SLE
SLE
SLV
SUR
SUR
SVK
SWE
SWE
SWE
SWZ
TCD
TCD
TCD
TCD
TCD
TUN
TUR
UGA
VCT
ZAR
ZAR
ZAR
ZAR
ZAR
ZMB
ZMB
ZMB
ZMB
ZMB
ZMB
ZMB
ZWE
ZWE

SSA
SSA
SSA
MNA
MNA
MNA
MNA
SAS
LAC
LAC
EAP
EAP
EAP
EAP
EAP
SSA
SSA
SSA
SSA
SSA
SSA
LAC
LAC
LAC
LAC
LAC
SAS
MNA
MNA
SAS
LAC
LAC
LAC
EAP
EAP
ECA
ECA
SSA
SSA
SSA
SSA
MNA
MNA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
LAC
LAC
LAC
ECA
IND
IND
IND
SSA
SSA
SSA
SSA
SSA
SSA
MNA
ECA
SSA
LAC
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA
SSA

1998
2000
2001
1984
1981
1992
1983
1982
1982
1986
1996
1994
1999
1998
1993
1982
1986
1990
1983
1987
1986
2002
1993
1994
1997
1991
1991
1972
1986
1972
1978
1996
1998
1994
2001
1999
1998
2002
2003
1990
1994
1998
1996
1999
1986
1980
1995
1996
2003
1990
1992
2001
1999
1998
1981
1985
1986
2001
1992
1993
1980
1984
1994
1992
2000
1993
1999
1986
2001
2001
1999
1996
1975
1995
1994
1990
1998
1996
1991
1982
1985
1990
1986
1984
1995

3 84
3.44
0.64
6.04
13.36
1.39
7.75
5.70
11.92
13.05
7.68
8.96
10.79
11.62
17.87
12.51
9.90
8.47
9.44
5.40
11.29
1.34
0.04
0.02
0.76
-4.22
8.00
12.13
25.01
4.77
6.49
0.65
0.19
2.54
1.33
1.18
4.83
2.17
3.48
5.68
1.92
3.29
3.13
0.89
2.33
12.78
5.67
5.76
7.04
2.45
4.85
11.10
8.46
4.55
6.39
19.95
25.04
3.17
4.84
15.03
7.84
0.50
12.55
12.79
4.80
5.54
5.96
7.14
19.64
2.19
2.96
0.32
5.85
-0.02
1.77
6.53
5.48
2.44
45.15
18.56
15.17
8.65
15.03
8.10
9.40

21 99
23.97
25.91
15.49
18.02
20.09
22.99
36.10
24.34
35.13
31.12
47.47
13.56
33.99
47.19
18.87
35.97
51.07
24.67
31.50
40.27
26.98
68.50
79.53
84.65
243.68
18.57
10.15
16.95
42.19
14.07
18.83
14.91
16.29
16.70
23.25
25.62
17.06
23.72
23.45
47.73
19.12
21.46
69.81
36.94
21.92
34.68
34.51
46.65
51.44
72.50
64.84
94.09
63.99
16.29
17.60
29.45
14.60
14.84
11.87
18.00
20.26
-2.27
13.12
5.95
12.60
24.08
14.82
48.71
24.62
17.64
158.19
12.95
207.28
141.87
233.42
45.41
62.53
135.08
44.08
74.69
127.72
158.14
16.58
33.82

14 95
16.43
20.34
11.05
11.71
11.93
14.84
31.96
19.67
22.33
12.53
13.57
15.19
21.65
34.63
11.08
26.55
10.76
23.90
30.59
33.10
14.50
26.10
39.60
65.80
111.50
11.97
10.08
14.85
39.40
11.52
17.70
11.00
10.74
12.28
15.60
18.40
12.09
16.93
21.71
45.35
14.67
16.43
22.12
12.07
15.54
16.56
19.21
27.35
27.90
38.11
49.34
58.89
68.81
15.57
18.74
28.69
12.39
11.66
11.87
15.63
18.26
10.09
10.13
12.55
15.21
17.14
11.03
39.23
20.96
14.42
10.11
10.89
63.39
65.80
192.21
10.98
23.82
32.77
33.11
55.22
59.23
107.10
10.69
21.72

34

Figure 1. Decomposition of Debt Growth

15

10

INFLATION
GDP GROWTH
SF ADJUSTMENT
INTEREST EXPENDITURE
PRIMARY DEFICIT

-5

-10

-15
IND

SAS

CAR

EAP

ECA

MNA

LAC

SSA

-50

e( DDEBT | X )
0
50

100

Figure 2. Deficit and Change in Debt

-20

20
e( DEFICIT | X )

co ef = 1.189265, se = .05195547, t = 22.89

35

40

Figure 3. Distribution of under Different Assumption for and

4

3.5

=10
2.5

1.5

=0
1

=10
0.5

0
0

0.5

1.5

2.5

3.5

36

4.5

5.5

6.5

7.5

Figure 4. Values of for Different Countries

2

1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

37

Figure 5: Changes in Debt over GDP () and Ratio between Deficit and Change in Debt ()

1
0.9
0.8

0.7
0.6
0.5
0.4
0.3
0

38

10

11

12

13

14

15