Beyond the First Bond

Abstract

We examine market entry and post-entry debt dynamics in Frontier Economies by grouping countries based on durability of market access using a two-step framework combining first Eurobond issuance with the reliance on private external creditors, validated through an unsupervised K-mean clustering. A discrete-time event LOGIT model finds that favorable global liquidity conditions and investor appetite open issuance windows for countries, but domestic pull factors—income, institutions, growth, and reserve buffers—ultimately determine success of market entry. Post-entry, Frontier Economies shift rapidly toward market borrowing, with looser fiscal stance as new financing source is unlocked. Along increased exposure to rollover and global financial cycle risks, debt decomposition exercise shows a worsening interest–growth differential and rising debt, driven mainly by primary deficits and higher interest burdens. Results underscore the need for credible medium-term fiscal frameworks, stronger debt management, and reserve buffers to manage the transition to market financing.