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Debt Sustainability in Emerging Markets: A Critical Appraisal

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Author Info
Yilmaz Akyüz
Abstract

This paper critically assesses the standard IMF analytical framework for debt sustainability in emerging markets. It focuses on complementarities and trade-offs between fiscal and external sustainability, and interactions and feedbacks among policy and endogenous variables affecting debt ratios. It examines current fragilities in emerging markets and notes that domestic debt is of concern. Despite favourable conditions, many governments are unable to generate a large enough primary surplus to stabilize public debt ratios. Worsening global financial conditions may create difficulties for budgetary transfers, posing greater challenges to government debt management since restructuring often is more difficult for domestic than external debt.

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Paper provided by United Nations, Department of Economics and Social Affairs in its series Working Papers with number 61.

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Length: 26 pages
Date of creation: Nov 2007
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Handle: RePEc:une:wpaper:61

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Related research
Keywords: debt sustainability; emerging markets; crisis;

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Find related papers by JEL classification:
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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  1. David Hauner & Manmohan S. Kumar, 2005. "Financial Globalization and Fiscal Perfomance in Emerging Markets," IMF Working Papers 05/212, International Monetary Fund. [Downloadable!]
  2. Bert Hofman & Helmut Reisen, 1990. "Debt Overhang, Liquidity Constraints and Adjustment Incentives," OECD Development Centre Working Papers 32, OECD, Development Centre. [Downloadable!]
  3. Yýlmaz Akyüz, . "Global Rules and Markets: Constraints over Policy Autonomy in Developing Countries," Working Papers 2007/5, Turkish Economic Association. [Downloadable!]
  4. Nigel Andrew Chalk & Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 00/81, International Monetary Fund.
  5. Campos, Camila F.S. & Jaimovich, Dany & Panizza, Ugo, 2006. "The unexplained part of public debt," Emerging Markets Review, Elsevier, vol. 7(3), pages 228-243, September. [Downloadable!] (restricted)
    Other versions:
  6. Yılmaz AKYÜZ, 2007. "Global rules and markets: Constraints over policy autonomy in developing countries," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 22(257), pages 5-43.
  7. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-19, September. [Downloadable!] (restricted)
    Other versions:
  8. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2003. "Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons," NBER Working Papers 9828, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Guillermo A. Calvo, 2003. "Explaining Sudden Stops, Growth Collapse and BOP Crises: The Case of Distortionary Output Taxes," NBER Working Papers 9864, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Sebastian Edwards, 2001. "Does the Current Account Matter?," NBER Working Papers 8275, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Henning Bohn, 2005. "The Sustainability of Fiscal Policy in the United States," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  12. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Enzo Croce & V. Hugo Juan-Ramon, 2003. "Assessing Fiscal Sustainability: A Cross Country Comparison," IMF Working Papers 03/145, International Monetary Fund. [Downloadable!]
  14. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-71, February. [Downloadable!] (restricted)
    Other versions:
  15. Hjertholm, Peter, 2001. "Debt Relief and the Rule of Thumb: Analytical History of HIPC Debt Sustainability Targets," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  16. Abdul Abiad & Jonathan David Ostry, 2005. "Primary Surpluses and sustainable Debt Levels in Emerging Market Countries," IMF Policy Discussion Papers 05/6, International Monetary Fund. [Downloadable!]
  17. Morris Goldstein, 2005. "What Might the Next Emerging-Market Financial Crisis Look Like?," Peterson Institute Working Paper Series WP05-7, Peterson Institute for International Economics. [Downloadable!]
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