Does Gross or Net Debt Matter More for Emerging Market Spreads?

38 Pages Posted: 7 Mar 2017

See all articles by Metodij Hadzi-Vaskov

Metodij Hadzi-Vaskov

International Monetary Fund (IMF)

Luca A. Ricci

International Monetary Fund (IMF) - Research Department

Date Written: December 2016


Does gross or net debt matter for long-term sovereign spreads in emerging markets? The topic is important for understanding the borrowing cost implications of public asset liability management decisions (e.g. using assets to lower debt). We investigate this question using data on emerging market economies (EMEs) over the period 1998-2014. We find that both gross debt and assets have a significant impact on long-term sovereign bond spreads in emerging markets, with effects roughly offsetting each other (coefficients of opposite sign and similar magnitude). Hence, net debt seems more appropriate than gross debt when evaluating the impact of indebtedness on spreads. The empirical results suggest that an increase in net debt by 10 percentage points of GDP implies an increase in the spread by 100-120 basis points, and the effect is larger during periods of domestic distress. The key results from this empirical study are quite robust to alternative specifications and subgroups of EMEs.

Keywords: Sovereign debt, Bonds, Interest rates, Emerging markets, Developed countries, Time series, Government debt, Net debt, Sovereign bond spreads, Emerging markets

JEL Classification: E43, G15, H63

Suggested Citation

Hadzi-Vaskov, Metodij and Ricci, Luca Antonio, Does Gross or Net Debt Matter More for Emerging Market Spreads? (December 2016). IMF Working Paper No. 16/246, Available at SSRN:

Metodij Hadzi-Vaskov (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Luca Antonio Ricci

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6007 (Phone)
202-623-4072 (Fax)

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