A second warning is the size of foreign-currency (FX) denominated debt (Tomz and Wright (2013)), which exposes countries to currency risk. If countries only issued in domestic currency then a country can implicitly default by inflating debt away; an option not available for FX-denominated debt.

Political institutions matter for repaying debts. As an example, Biglaiser and Staats (2012) show that countries with strong courts are less likely to default. Another factor that could lead to default is the mere issuance of new debt to devalue existing debt - since new issuance increases the likelihood of default. This debt dilution can account for up to 78 percent of default risk and eliminating dilution decreases optimal duration by roughly two years (Hatchondo et al. (2015)).

”Twin-crisis” events occur when the financial and public sector default. Balteanu and Erce (2017) show that balance sheet interconnections (e.g. materializing contingent claims and guarantees), credit dynamics (non-performing loans increase due to higher interest rates that reflect both public and private sector risks) and economic growth (e.g. the link between asset prices, investments, and economic growth) are drivers of banking and public sector crises. This is due to falling capital ratios requiring public sector intervention in the case of a financial crisis. Balteanu and Erce (2017) also argue procyclical fiscal policy along with a lack in competition might make banks vulnerable to shocks. Obstfeld (2011) argues that foreign debt (both public and private), especially short-term liabilities, worsen the credit worthiness of the public sector.

The selected variables for the public debt fundamental index, which are associated with liquidity or solvency risk include: (i) public debt stock; (ii) financing needs (both public and external), (ii) exchange rates, (iii) interest rates, (iv) currency composition of debt, (v) debt service, and (vi) current account balances. Standard variables for liquidity risk are: (i) redemption schedules and (ii) amount of short term debt. Commitment risks include: (i) reserves proxying as buffers to unexpected shocks and (ii) differences between observed primary balances and primary balances required to stabilize debt. Links to the external and financial market include external financing needs, short-term external debt, non-performing loans, and interest rate spreads between loans and deposits. Data are sourced from the World Bank’s WDI indicators, the Macro Poverty Outlook and International Debt Statistics, others are sourced from Bloomberg, the Bank of Canada and the IMF’s WEO. Ideally, one would want to cast a wide net and capture all of these data but they are not all available for every market-access country in this study. Thus, the set of variables will vary across countries in our sample.

A summary of data and their sources used in this study include:

- **Indicators of public debt** : Debt maturity profiles (World Development Indicators (WDI), Bloomberg) and repayment schedules (Bloomberg) to assess liquidity risks; debt service costs (MPO, WDI, WEO) and currency composition (WDI, Bloomberg) to assess exchange rate risks; fiscal space (Macro Poverty Outlook (MPO), WDI, World Economic Outlook (WEO)), gross public financing needs, and required primary balances(MPO, WDI, WEO) to assess scope and ability of policy adjustments; and actual defaults (Bank of Canada, credit ratings (Bloomberg).

- **Indicators of resilience** : Foreign exchange reserves (WDI), exchange rate regime (Ilzetzki et al. 2017), monetary policy regimes, credible institutions (Country Pol-

8