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External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries

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  • M. ARNONE
  • A. F. PRESBITERO

Abstract

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.

Suggested Citation

  • M. Arnone & A. F. Presbitero, 2007. "External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 115(2), pages 187-213.
  • Handle: RePEc:vep:journl:y:2007:v:115:i:2:p:187-213
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    References listed on IDEAS

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    1. John T. Cuddington, 1997. "Analysing the Sustainability of Fiscal Deficits in Developing Countries," International Finance 9706001, EconWPA.
    2. Aart Kraay & Vikram Nehru, 2006. "When Is External Debt Sustainable?," World Bank Economic Review, World Bank Group, vol. 20(3), pages 341-365.
    3. Craig Burrnside, 2005. "Fiscal Sustainability in Theory and Practice : A Handbook," World Bank Publications, The World Bank, number 7495, June.
    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, January.
    6. Jakob E Christensen, 2004. "Domestic Debt Markets in Sub-Saharan Africa," IMF Working Papers 04/46, International Monetary Fund.
    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. 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.
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    Cited by:

    1. Andrea F. Presbitero, 2009. "Debt-Relief Effectiveness and Institution-Building," Development Policy Review, Overseas Development Institute, vol. 27(5), pages 529-559, September.
    2. Ahmad Danu Prasetyo & Naoyuki Yoshino, 2013. "Improving the Government Debt Market Quality by Determining the Optimal Structure of Government Debt Portfolio," Keio/Kyoto Joint Global COE Discussion Paper Series 2012-038, Keio/Kyoto Joint Global COE Program.
    3. Andrea Filippo Presbitero, 2009. "The 2008-2009 Financial Crisis and the HIPCs: Another Debt Crisis?," Mo.Fi.R. Working Papers 29, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    4. Maria Cipollina, 2007. "The developing countries’ foreign debt in the last twenty years," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 3, July.

    More about this item

    Keywords

    Debt Sustainability; Domestic Debt; HIPC;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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