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  • AEA Papers and Proceedings

Undisclosed Debt Sustainability

By: Laura Alfaro and Fabio Kanczuk
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Abstract

Over the past decade, non-Paris Club creditors, notably China, have become an important source of financing for low- and middle-income countries. In contrast with typical sovereign debt, these lending arrangements are not public, and other creditors have no information about their magnitude. We transform the traditional sovereign debt and default model to quantitatively study incomplete information arrangements and find that they greatly reduce traditional Paris Club creditors' debt sustainability. Disclosure of nontraditional debt would imply significant welfare gains for the recipient countries but would reduce its sustainability. We discuss the implications of nontraditional lending on standard assumptions of sovereign debt models.

Keywords

Paris Club; Transparency; Sovereign Finance; Borrowing and Debt; International Finance

Citation

Alfaro, Laura, and Fabio Kanczuk. "Undisclosed Debt Sustainability." AEA Papers and Proceedings 112 (May 2022): 521–525.
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About The Author

Laura Alfaro

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  • Doing Business in Boston, Massachusetts By: Laura Alfaro, Leonard A. Schlesinger and Zeke Gillman
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  • FIELD Immersion 2022: Lawrence, Massachusetts By: Laura Alfaro and Tom Quinn
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