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External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries

  • M. ARNONE
  • A. F. PRESBITERO

In this paper we broaden the standard debt sustainability framework used in the IMF-WB Heavily Indebted Poor Countries (HIPC) Initiative to include the analysis of domestic public debt and other feedback effects into the usual debt sustainability analysis (DSA). The latter does not take into account the fully-fledged government budget constraint and the feedback effects of the fiscal and monetary adjustment required by multilateral programs. This work focuses on the evaluation of total public debt sustainability in a simple accounting framework that includes exchange rate effects. We use new data on domestic public debt and show how 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.

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Article provided by Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore in its journal Rivista Internazionale di Scienze Sociali.

Volume (Year): 115 (2007)
Issue (Month): 2 ()
Pages: 187-213

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Handle: RePEc:vep:journl:y:2007:v:115:i:2:p:187-213
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  1. Philippe Beaugrand & Montfort Mlachila & Boileau Loko, 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.
  2. Jakob Christensen, 2004. "Domestic Debt Markets in Sub-Saharan Africa," IMF Working Papers 04/46, International Monetary Fund.
  3. Cuddington, John T., 1997. "Analyzing the sustainability of fiscal deficitsin developing countries," Policy Research Working Paper Series 1784, The World Bank.
  4. World Bank & International Monetory Fund, 2001. "Developing Government Bond Markets : A Handbook," World Bank Publications, The World Bank, number 13865, June.
  5. 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, June.
  6. Aart Kraay & Vikram Nehru, 2006. "When Is External Debt Sustainable?," World Bank Economic Review, World Bank Group, vol. 20(3), pages 341-365.
  7. George Iden & Marco Arnone, 2003. "Primary Dealers in Government Securities; Policy Issues and Selected Countries Experience," IMF Working Papers 03/45, International Monetary Fund.
  8. Craig Burrnside, 2005. "Fiscal Sustainability in Theory and Practice : A Handbook," World Bank Publications, The World Bank, number 7495, June.
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