Debt sustainability index: Countries at the highest risk of debt distress

Following the release of our external liquidity scorecard last week, we have developed a debt sustainability index to provide a top-down look at which emerging and frontier markets are at the greatest risk of default. Again, we have sourced our indicators from centralised sources like the IMF and World Bank for availability and comparability across 46 emerging and frontier markets (six more than our external liquidity scorecard) and exclude countries that are already in default.

With 27 variables, we have divided the scorecard into three distinct categories: 1) fiscal policy and debt dynamics; 2) debt stock and flow; and 3) debt composition. For each category, we display the raw data in separate tables below. We then devise a composite debt sustainability index.

We score each variable in terms of standard deviations better (worse) than the sample median and take the simple average across variables to arrive at a composite debt sustainability index, as well as sub-indexes for fiscal policy & debt dynamics, debt stock & flow, and debt composition. The resulting output is a quick and dirty way to quantify debt sustainability risk for each country on a relative basis.

Subscribe to Tellimer Insights Pro for the index, and our view of the investment implications.