Sustainability of External Debt, Current Account Balance and Budget Balance in Developing Countries: A Cross Country Analysis

Abstract

In this study; sustainability of external debt, current account balance and budget balance in 25 in developing countries are analyzed via Kapetanios unit root test with multiple structural breaks. According to results of the analysis; external deficits in Columbia, Peru and Thailand are unsustainable. While it is weakly sustainable in Bangladesh, Brazil, India, Indonesia, Malaysia, Mexico, Pakistan, Philippines, South Africa and Turkey, it is strongly sustainable in China and Egypt. Additionally, current account balance in Columbia, Czech Republic, Egypt, Greece, India, Malaysia, Pakistan, Philippines and Poland are unsustainable. While it is weakly sustainable in Bangladesh and Turkey, it is strongly sustainable in other countries. Finally, it is determined that budget balance in China, Colombia, India, Indonesia, Pakistan, and Turkey are unsustainable. While it is weakly sustainable in the Czech Republic and Greece, it is strongly sustainable in other countries.