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The article empirically examines the determinants of debt distress, defined as periods in which countries resort to any of three forms of exceptional finance: significant arrears on external debt, Paris Club rescheduling, and nonconcessional International Monetary Fund lending. Probit regressions show that three factors explain a substantial fraction of the crosscountry and time-series variation in the incidence of debt distress: the debt burden, the quality of policies and institutions, and shocks. The relative importance of these factors varies with the level of development. These results are robust to a variety of alternative specifications, and the core specifications have substantial out-of-sample predictive power. The quantitative implications of these results are examined for the lending strategies of official creditors.

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We empirically examine the determinants of 'debt distress", which we define as periods in which countries resort to exceptional finance in any of three forms: (i) significant arrears on external debt, (ii) Paris Club resecheduling, and (iii) nonconcessional IMF lending. Using probit regressions, we find that three factors explain a substantial fraction of the cross-country and time-series variation in the incidence of debt distress: the debt burden, the quality of policies and institutions, and shocks. We show that these results are robust to a variety of alternative specifications, and we show that our core specifications have substantial out-of-sample predictive power. We also explore the quantitative implications of these results for the lending strategies of official creditors.