Sustainability of External Debt in Developing Countries: An Empirical Evidence

The paper attempts to investigate the issue of sustainability of external debt in developing countries for the period of 1980 to 2020. We have used the standard intertemporal approach of current account balance to examine the issue of external debt sustainability. The results of standard panel cointegration models reveal that external debt in developing countries is found to be sustainable for the given period since a strong cointegration between exports and imports is found in these countries. This cointegration between exports and imports necessarily implies that developing countries are satisfying their external constraint or the solvency condition which restricts them from lending or borrowing in international financial markets for indefinite time. Besides, strong cointegration also implies that developing countries are generating enough trade surpluses today which makes them unable to finance their future external debt thereby posing no issue for the sustainability of external debt.