• pairwise correlation
• private property rights
• human capital development.
• economic growth and development
• debt distress
• low- and middle-income countries
• debt sustainability
• institutions

This study seeks to understand the effect of institutions on debt sustainability in low- and middle-income countries (LMICs). This is motivated by rising government debt levels due to the COVID-19 pandemic and China’s Debt-Trap Diplomacy which has undermined the sovereignty of many LMICs.
The study proposed a dynamic debt model which relates the ratio of debt-to-GDP as a function of interest rates, exchange rate, primary budget balance, institutions and a vector of controls such as inflation and foreign currency reserves, whereby the ratio of debt-to-GDP measures debt sustainability and the interest rate measures the cost of debt. It also includes the lag of the ratio of debt-to-GDP to capture the debt dynamics in LMICs. To estimate the model, I used an annual data from the WDI from 2005 to 2018 for a total of 135 countries which gives a total of 1890 observations to estimate the effects of institution on debt sustainability in LMICs. To check the robustness of the effects of institutions on debt sustainability in LMICs, I also used institutional data from the WGI.
Moreover, I also make a pre-estimation analysis to understand the nature and distribution of the collected data so as to identify the most appropriate estimation for an accurate and reliable result for statistical inference.
The results show that having institutions is not enough to achieve debt sustainability, these institutions must be active in controlling corruption and improving transparency and accountability in the public sector. In the absence of active and strong institutions to ensure transparency in contracts, debt statistics and allocation, public debt is more likely to be embezzled and use for non-productive programs especially during election cycles.