Authors of an International Monetary Fund (IMF) working paper say comparing emerging-market debt with similar countries helps explain sovereign spreads, which are relevant to governments’ borrowing costs.
Carmen L Avila-Yiptong, Georges Hatcherian and Mahamoud Islam examined 83 emerging market countries from 1993 through 2024. They compared each country’s public debt-to-GDP ratio with peer-group medians, defining peers by income, region or commodity-exporter status.
In the authors’ regressions, peer-relative debt-to-GDP measures explained sovereign spreads better than gross debt alone. Comparisons based on income performed best.
Higher debt relative to peers was associated with wider spreads. That relationship implies higher borrowing costs for affected governments, although the paper does not identify specific countries that gain or bear those costs. The authors say the analysis reflects their views and may not represent the IMF’s position.
In an Oct. 29 post, Klement on Investing author Joachim Klement linked the study to concerns that higher long-term yields since 2025 may reflect doubts about governments’ ability to repay, citing the United States and Japan; those concerns were his interpretation. The paper used the U.S. 10-year Treasury yield as a global financing variable but did not analyze the post-2025 rise in yields or assess U.S. or Japanese solvency.
In Klement’s summary of the chart, he said inflation ranked first and peer-relative debt came next, ahead of both VIX-based uncertainty and real GDP growth.
