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Is Ethiopia's debt sustainable?

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Author Info

  • Ghani, Ejaz
  • Hyoungsoo Zang

Abstract

The debt burden facing a number of low-income countries has received considerable international attention. The international development community has begun to recognize that options aimed at providing debt relief to countries where debt is not sustainable needs to be seriously explored. In this paper, the authors build on the Branson model of debt sustainability and apply it to a severly indebted, low-income country, Ethiopia. They provide a simplified framework where debt sustainability (both domestic and external) is an integral element of macroeconomic stability. Interactions between different policy variables (such as debt, fiscal, and interest rate policies), outcome variables (such as GDP and export growth), and international economic conditions (international interest rates) jointly define whether a country is on a sustainable debt path. Equations on debt sustainability can be estimated under this framework, thus providing a good starting point for examining debt sustainability. There are three lessons from the empirical analysis of Ethiopia: 1) a strong reform program is critical in bringing the country back on a sustainable debt path; 2) the issue of debt relief requires serious consideration by the international development community; and 3) growth and resource mobilization need adequate emphasis to ensure that debt is repaid.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1525.

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Date of creation: 31 Oct 1995
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Handle: RePEc:wbk:wbrwps:1525

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Related research

Keywords: Payment Systems&Infrastructure; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; Strategic Debt Management; Banks&Banking Reform; Environmental Economics&Policies; Strategic Debt Management; Public Sector Economics&Finance; Economic Theory&Research;

References

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  1. Anand, Ritu & van Wijnbergen, Sweder, 1989. "Inflation and the Financing of Government Expenditure: An Introductory Analysis with an Application to Turkey," World Bank Economic Review, World Bank Group, vol. 3(1), pages 17-38, January.
  2. Fischer, Stanley & Easterly, William, 1990. "The Economic of the Government Budget Constraint," World Bank Research Observer, World Bank Group, vol. 5(2), pages 127-42, July.
  3. Cohen, Daniel, 1988. "The Management of the Developing Countries' Debt: Guidelines and Applications to Brazil," World Bank Economic Review, World Bank Group, vol. 2(1), pages 77-103, January.
  4. Branson, William H, 1990. "Financial Market Integration, Macroeconomic Policy and the EMS," CEPR Discussion Papers 385, C.E.P.R. Discussion Papers.
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Cited by:
  1. José Dario Uribe & Luis Ignacio Lozano, 2003. "Fiscal issues and central banks in emerging markets: the case of Colombia," BIS Papers chapters, in: Bank for International Settlements (ed.), Fiscal issues and central banking in emerging economies, volume 20, pages 109-121 Bank for International Settlements.

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