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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.

Suggested Citation

  • Jafri, Sabina Khurram, 2009. "External Debt Sustainability Analysis for the Medium Term: A Case Study," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 62(3), pages 363-382.
  • Handle: RePEc:ris:ecoint:0004
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    File URL: http://www.iei1946.it/RePEc/ccg/JAFRI%20363_382.pdf
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    2. Philippe D Karam & Douglas Hostland, 2005. "Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods," IMF Working Papers 05/226, International Monetary Fund.
    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. 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.
    5. Kamau Thugge & Anthony R. Boote, 1997. "Debt Relief for Low-Income Countries and the HIPC Initiative," IMF Working Papers 97/24, International Monetary Fund.
    6. 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.
    7. 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.
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    More about this item

    Keywords

    External Debt; Sustainability; Pakistan;

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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