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External Debt Sustainability Analysis for the Medium Term: A Case Study

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    Abstract

    This paper estimates Pakistan’s’ external debt by using Debt Sustainability Assessment (DSA) methodology developed by IMF and World Bank [IDA and IMF (2004, 2007), IMF (2005) and World Bank (2005)]. The main findings of the paper are that in response to small individual shocks to main components of external debt evolution i.e., real GDP growth, non-interest current account balance to GDP ratio and the ratio of net non-debt creating capital inflows to GDP, country’s external debt to GDP ratio will although increase, but would remain within safe limits. Secondly a very large depreciation of the exchange rate has the potential of causing the debt to GDP ratio to breach the debt threshold level indentified for Pakistan. Finally, a large combined shock to real GDP growth, non-interest current account balance to GDP ratio and the ratio of net non-debt creating capital inflows to GDP can also result in a need of another debt rescheduling for the country.

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    Bibliographic Info

    Article provided by Camera di Commercio di Genova in its journal Economia Internatzionale / International Economics.

    Volume (Year): 62 (2009)
    Issue (Month): 3 ()
    Pages: 363-382

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    Handle: RePEc:ris:ecoint:0004

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    Keywords: External Debt; Sustainability; Pakistan;

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    1. Kamau Thugge & Anthony R. Boote, 1997. "Debt Relief for Low-Income Countries and the HIPC Initiative," IMF Working Papers 97/24, International Monetary Fund.
    2. Rizwana Siddiqui & Rehana Siddiqui, 2001. "Determinants of Debt Rescheduling in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 689-704.
    3. Marcio Garcia & Roberto Rigobon, 2004. "A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data," NBER Working Papers 10336, National Bureau of Economic Research, Inc.
    4. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
    5. Hostland, Doug & Karam, Philippe, 2006. "Assessing debt sustainability in emerging market economies using stochastic simulation methods," Policy Research Working Paper Series 3821, The World Bank.
    6. Alfred Greiner & Uwe Koeller & Willi Semmler, 2005. "Testing Sustainability of German Fiscal Policy. Evidence for the Period 1960 – 2003," CESifo Working Paper Series 1386, CESifo Group Munich.
    7. E. H. Gardner & Julian di Giovanni, 2008. "A Simple Stochastic Approach to Debt Sustainability Applied to Lebanon," IMF Working Papers 08/97, International Monetary Fund.
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