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Abstract

This study analyzes potential driving factors of fiscal stress for a panel of emerging countries from 2000 to 2020. It considers various factors that affect fiscal stress, such as contingent liabilities, macroeconomic shocks, fiscal shocks, non-fiscal vulnerabilities, political risk, and other factors. The study develops indices for institutional quality and fiscal and financial stress by applying principal component analysis. The authors use several static and dynamic panel data techniques to ensure the robustness of the results. The findings underscore the vital role of fiscal fundamentals in determining fiscal stress. Moreover, unsustainable public debt significantly intensifies fiscal stress. In addition, a high level of political risk and contractual contingent liabilities exert upward pressure on rollover risk in these countries. The authors propose more effective management of public debt, particularly external debt, and advocate for fiscal discipline as a critical strategy to mitigate fiscal stress. Policy coordination may serve as a potential means to reduce the impact of financial crises on escalating rollover risk. The fourth-generation theoretical models of crises inspire the extension of the fiscal monitoring framework.