From 1990 to 2005, a number of Eastern European countries became an attractive region for investments. This paper looks at 15 of those countries and aims to estimate debt rescheduling probabilities by using a set of macroeconomic, financial and political variables.

Sovereign debt default rates are used by all major international investors and banks to determine country risk exposure as well as to price sovereign bonds and loans. In recent years many developing countries have negotiated new loan repayment schedules with their government and commercial bank lenders. The aim of this study is to specify a model which would allow the prediction of sovereign default/rescheduling rates with a higher accuracy, particularly tailored for investors interested in the Eastern Europe (EE) region.

This research is of particular relevance to policy makers, institutional and private foreign investors to investigate determinants or debt rescheduling probabilities in those countries.

It is shown that in both EU and Non-EU countries reducing government expenditures, attracting foreign direct investment, increasing export revenues and keeping a good repayment record will reduce the rescheduling probabilities and therefore decrease the cost of debt.

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