What Drives Municipalities Default Risk?

Abstract

Municipal credit markets have been slow to develop in emerging markets because municipal lending risks have been difficult to identify. In this paper, we analyze the factors that impact municipalities default risks. Our data set incorporates all the 264 Tunisian Municipalities and spans a period over 7 years (2010-2016). Our methodology is based on logistic regressions ran on 40 independent variables. Our results show that factors driving good debt management could be restricted to 8 factors: Gross Savings Rate, Debt Ratio, Financial Autonomy Ratio, Level of Real Estate Tax, Budgetary Stiffness Rate, Average Debt Ratio, Average Issue Date and Average Interest Rate . The model shows strong efficiency and reliable predictive power.