How reliable are public debt statistics This paper quantifies the magnitude, characteristics, and timing of hidden debt by tracking ex post data revisions across a comprehensive new database of more than 50 vintages of World Bank debt statistics. In a sample of debt data covering 146 countries and 53 years, the paper establishes three new stylized facts: (i) debt statistics are systematically under-reported; (ii) hidden debt accumulates in boom years and tends to be revealed in bad times, often during IMF programs and sovereign defaults; and (iii) in debt restructurings, higher hidden debt is associated with larger creditor losses. The novel data is used to numerically discipline a quantitative sovereign debt model with hidden debt accumulation and an endogenous monitoring decision that triggers revelations. Model simulations show that hidden debt has adverse effects on default risk, debt-carrying capacity and asset prices and is therefore welfare detrimental.
Authors
Horn, Sebastian, Mihalyi, David, Nickol, Philipp, Sosa-Padilla, César
Organizations mentioned
- Citation
- “ Horn, Sebastian ; Mihalyi, David ; Nickol, Philipp ; Sosa-Padilla, César . 2024 . Hidden Debt Revelations . Policy Research Working Paper; 10907 . © Washington, DC: World Bank . http://hdl.handle.net/10986/42162 License: CC BY 3.0 IGO . ”
- Collection(s)
- Policy Research Working Papers
- DOI
- http://dx.doi.org/10.1596/1813-9450-10907
- Identifier externaldocumentum
- 34391658
- Identifier internaldocumentum
- 34391658
- Pages
- 91
- Published in
- United States of America
- RelationisPartofseries
- Policy Research Working Paper; 10907
- Report
- WPS10907
- Rights
- CC BY 3.0 IGO
- Rights Holder
- World Bank
- Rights URI
- https://creativecommons.org/licenses/by/3.0/igo/
- UNIT
- Prosperity-Econ Pol-Gbl Mac&Debt (EMFMD)
- URI
- https://hdl.handle.net/10986/42162
- date disclosure
- 2024-09-18
- region geographical
- World
Files
Table of Contents
- Introduction 4
- Case studies 7
- Mozambique 7
- Zambia 8
- Data, measurement and interpretation 10
- A new database of debt data revisions 10
- Measurement and interpretation 14
- Main empirical findings 16
- Hidden debt is large and common 16
- Hidden debt accumulates in boom years and is revealed during busts 20
- Hidden debt is associated with larger creditor losses and longer default spells 23
- Model 25
- Environment 25
- Foreign lenders 28
- The government's problem 31
- Equilibrium definition 32
- Quantitative analysis 32
- Calibration 33
- Default incentives, monitoring and borrowing opportunities 36
- Revelations and spreads 38
- The costs of hidden debt 41
- Conclusion 43
- Constructing the new database of debt data revisions 51
- Data sources and digitization 51
- Data cleaning 56
- Data coverage, descriptive statistics and key variables of interest 58
- Data sources for control variables 60
- Data validation 61
- Changes in reporting rules 61
- FX data revisions 64
- Treatment and impact of contingent liability realization 64
- Accounting for the possibility of reporting lags 65
- Revisions to the latest debt statistics 68
- Comparison with IMF reporting violations 69
- Additional results and figures 71
- Debt data revisions to total external debt stocks 71
- Hidden debt revelations and political cycles 72
- Additional descriptive statistics 77
- Model Appendix 87
- Details about the lender's expectations 87
- Details about the full-information economy 88
- References for Online Appendix 89