Sovereign default and the structure of private external debt

Abstract

While the literature on determinants of sovereign default is voluminous, the links between private indebtedness and the probability of public bankruptcy have not been studied extensively. In this paper we aim to fill this gap and to shed more light on the influence of the size and structure of private debt on sovereign default probability. We focus on developing and emerging market economies over the years 1970–2012. The main conclusions are that both the size and the structure of private borrowings affect the probability of a sovereign default.

Construction and Empirical Research on the Dynamic Provisioning Model of China’s Banking Sector under the Macro-Prudential Framework

“…At the same time, the increase in the volume of foreign debt requires a country to have sufficient foreign exchange reserves as a guarantee, which weakens the country's ability to use foreign reserves to maintain exchange rate stability, and exchange rate fluctuations will increase the default risk of sovereign debt. Gorzelak et al2019 [35] used panel data regression to analyze developed and developing countries from 1970 to 2012 and found that the default risk of sovereign debt has a significant non-linear positive correlation with the default risk of the private sector. Therefore, when the default risk of foreign debt rises, it will trigger a "spiral rise" in the default probability of sovereign debt and the default probability of the private sector, which will eventually cause the systemic risk to increase sharply, the credit quality of commercial banks to generally deteriorate, and banks default risks to generally increase.…”