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External debt sustainability and domestic debt in Heavily Indebted Poor Countries

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Author Info
Presbitero, Andrea F.
Arnone, Marco

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Abstract

In this paper we stress the limits of the current debt sustainability framework used in the IMF-WB HIPC Initiative and the necessity to include domestic public debt into the analysis. The standard sustainability analysis does not take into account the fully-fledged budget constraint and the feedback effects of the fiscal and monetary adjustment required by multilateral programs. The switch from foreign to domestic borrowing, and rising domestic real interest rates are likely to undermine the overall sustainability and the success of debt relief programs. This work focuses on the evaluation of public debt sustainability in a simple accounting framework. We use data on external public debt (multilateral and bilateral) and on domestic public debt to underline how the inclusion of domestic debt into the analysis undermines the sustainability target.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1396.

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Date of creation: May 2006
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Handle: RePEc:pra:mprapa:1396

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Related research
Keywords: HIPC; Domestic debt; Debt sustainability; Debt Relief;

Find related papers by JEL classification:
O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. William Easterly, 2002. "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550423.
  2. Boileau Loko & Philippe Beaugrand & Montfort Mlachila, 2002. "The Choice Between External and Domestic Debt in Financing Budget Deficits: The Case of Central and West African Countries," IMF Working Papers 02/79, International Monetary Fund. [Downloadable!]
  3. Kraay, Aart & Nehru, Vikram, 2004. "When is external debt sustainable?," Policy Research Working Paper Series 3200, The World Bank. [Downloadable!]
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  4. Jakob Christensen, 2004. "Domestic Debt Markets in Sub-Saharan Africa," IMF Working Papers 04/46, International Monetary Fund. [Downloadable!]
  5. John T. Cuddington, 1997. "Analysing the Sustainability of Fiscal Deficits in Developing Countries," International Finance 9706001, EconWPA. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Presbitero, Andrea F., 2008. "Debt Relief Effectiveness and Institution Building," MPRA Paper 12597, University Library of Munich, Germany. [Downloadable!]
    Other versions:
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