An Econometric Analysis of IBRD Creditworthiness
The author econometrically ascertains the determinants of default to the International Bank for Reconstruction and Development (IBRD) through panel logit analysis. Creditworthiness with a lag of one period is determined by the extent of arrears to...
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| Language: | English en_US |
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World Bank, Washington, D.C.
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2002/04/1769431/econometric-analysis-ibrd-creditworthiness http://hdl.handle.net/10986/14810 |
| Summary: | The author econometrically ascertains
the determinants of default to the International Bank for
Reconstruction and Development (IBRD) through panel logit
analysis. Creditworthiness with a lag of one period is
determined by the extent of arrears to private creditors,
the proportion of total debt service that is being paid, the
government budget deficit, the extent of military
involvement in the government of a country, and by the
G7's current account balance. Default to the IBRD falls
into a graduated hierarchy, whereby default occurs first to
Paris Club and commercial bank creditors, with subsequent
default triggered by portfolios with high proportions of
IBRD and short-term debt, as well as the factors mentioned
above. Default to these other creditor groups can be
explained by more traditional country risk variables,
although Mckenzie's analysis highlights the importance
of political and external factors in explaining default to
all creditors studied. He finds sovereign default to be a
state-dependent process, whereby the repayment behavior of a
country changes once it enters into default. Operationally,
the author arrives at a model that can be used to assess
short-term creditworthiness, although data imperfections and
availability still limit the usefulness of the model for
some countries. Longer-term risk assessment proves more
difficult, which raises operational questions for the IBRD. |
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