Hidden Debt Revelations

Sebastian Andreas Horn, David Mihalyi, Philipp Nickol and Cesar Sosa-Padilla

No 10907, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Date: 2024-09-16
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Related works:
Working Paper: Hidden Debt Revelations (2024)
Working Paper: Hidden Debt Revelations (2024)
Working Paper: Hidden debt revelations (2024)
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