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External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries

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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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    Cited by:

    1. Marin Ferry & Marc Raffinot, 2019. "Curse or Blessing? Has the Impact of Debt Relief Lived up to Expectations? A Review of the Effects of the Multilateral Debt Relief Initiatives for Low-Income Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 55(9), pages 1867-1891, September.
    2. Marin Ferry, 2021. "Quel bilan tirer des initiatives d'annulation de la dette des pays pauvres très endettés ?," Revue d'économie financière, Association d'économie financière, vol. 0(1), pages 225-240.
    3. Presbitero, Andrea F., 2008. "Debt Relief Effectiveness and Institution Building," MPRA Paper 12597, University Library of Munich, Germany.
    4. Maxime TERRIEUX & Benoît Jonveaux & Marin Ferry (Université Gustave Eiffel, DIAL), 2021. "Debt sustainability in Africa: state of play and future challenges," Working Paper 5b1b8e30-4a94-42f3-9e4b-9, Agence française de développement.
    5. Maxime TERRIEUX & Benoît Jonveaux & Marin Ferry (Université Gustave Eiffel, DIAL), 2021. "La soutenabilité des dettes en Afrique : état des lieux et enjeux futurs," Working Paper 5b1b8e30-4a94-42f3-9e4b-9, Agence française de développement.
    6. 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.
    7. 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.
    8. Ghulam, Yaseen, 2025. "A further examination of sovereign domestic and external debt defaults," The North American Journal of Economics and Finance, Elsevier, vol. 76(C).
    9. Marin Ferry & Marc Raffinot, 2016. "Réductions de dette, aléa moral et ré-endettement des pays à faible revenu," Post-Print hal-04258196, HAL.
    10. 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.
    11. Fanny Heylen, 2010. "Analyzing the poverty impact of the enhanced Heavily Indebted Poor Countries (HIPC) initiative in Bolivia," Documentos de trabajo 1/2010, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    12. Ms. Sandra Marcelino & Ms. Ivetta Hakobyan, 2014. "Does Lower Debt Buy Higher Growth? The Impact of Debt Relief Initiatives on Growth," IMF Working Papers 2014/230, International Monetary Fund.
    13. Roberto Tamborini & Matteo Tomaselli, 2020. "When does public debt impair economic growth? A literature review in search of a theory," DEM Working Papers 2020/7, Department of Economics and Management.
    14. Nicoleta Georgeta Panait & Costin Alexandru Panait, 2018. "An Empirical Study on Public Debit in Romania," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 6(1), June.
    15. Fløgstad, Cathrin, 2017. "Domestic bond markets in emerging economies: Crowding in or crowding out?," Working Papers in Economics 15/17, University of Bergen, Department of Economics.

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    Keywords

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    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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