External debt sustainability in the transition economies of southeast Europe: an application by wavelet-based unit root tests

Abstract

This study aims to examine the external debt sustainability in the transition economies of Southeast Europe, some of which are among the developing countries, by wavelet-based unit root tests. In this framework, the unit root test was applied to the gross foreign debt variable, and the variable consisting of the ratio of the gross foreign debt to the gross domestic product (GDP) of the countries and their stationaries were examined. Each country differs depending on the time dimension in the analysis. However, in general, starting from the 2000s until the second quarter of 2020, the data were taken as a quarter. The data were first tested for linearity and the FWKSS and WKSS unit root tests were applied to the nonlinear data. According to the test results, external debt is sustainable in Romania and Bulgaria for both variables in the analysis. However, it has been observed that foreign debt is unsustainable in North Macedonia and Slovenia for these two variables. In terms of the gross external debt variable, external debt was sustainable in Albania and Croatia. However, in terms of gross external debt/GDP ratio, it has been found that foreign debts are unsustainable in Albania and Croatia.