We present a conceptual framework for analyzing external debt sustainability in heavily indebted poor countries with predominantly concessional debt owed to official creditors. In the absence of a secondary market for official debt, the paper argues for the dynamic present value of debt as a proxy for assessing the real value of debt with below-market interest rates. It also models the current institutional mechanism of debt relief for low-income countries in the form of rescheduling on concessional terms. The analytical approach combines a stock analysis of external debt with a flow analysis of balance of payments in a parsimonious forward-looking framework suitable for projection of alternative scenarios and sensitivity analysis of key policy variables. Illustrative applications in two country cases show how the theory can be applied for policy formulation.
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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number
98-01.
Length: Date of creation: 1998 Date of revision: Handle: RePEc:nya:albaec:98-01
Contact details of provider: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A. Phone: (518) 442-4735 Fax: (518) 442-4736
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