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Why Are Developing Countries Heavily Indebted, Again

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  • Diwan, Ishac
  • Ferry, Marin

Abstract

Do poor countries systematically over-borrow, leading to cyclical debt crises, or are the current debt difficulties caused by unusually large external shocks? To answer this question, the paper focuses on the debt situation in 2019, before a series of negative shocks started hitting developing countries. The authors dispute the cynical view that for poor countries, debt crisis is destiny. They show that in the recent period, there is a much greater heterogeneity of cases that suggested by this deterministic pessimism. The findings suggest that while some countries’ current debt difficulties mirror past patterns, others face challenges that are distinct and influenced by external shocks.

Suggested Citation

  • Diwan, Ishac & Ferry, Marin, 2025. "Why Are Developing Countries Heavily Indebted, Again," FDL Policy Notes 2505, CEPREMAP.
    • Handle: RePEc:cpm:notfdl:2505
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    References listed on IDEAS

    as
    1. Benno J Ndulu & Stephen A O’Connell, 2021. "Africa’s Development Debts [Is Debt Relief Efficient?]," Journal of African Economies, Centre for the Study of African Economies, vol. 30(Supplemen), pages 33-73.
    2. Bertrand Gruss & Suhaib Kebhaj, 2019. "Commodity Terms of Trade: A New Database," IMF Working Papers 2019/021, International Monetary Fund.
    3. Easterly, William, 2002. "How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief," World Development, Elsevier, vol. 30(10), pages 1677-1696, October.
    4. Ratha, Dilip, 2005. "Demand for World Bank lending," Economic Systems, Elsevier, vol. 29(4), pages 408-421, December.
    5. Marchesi, Silvia & Missale, Alessandro, 2013. "Did High Debts Distort Loan and Grant Allocation to IDA Countries?," World Development, Elsevier, vol. 44(C), pages 44-62.
    6. Nancy Birdsall & Stijn Claessens & Ishac Diwan, 2003. "Policy Selectivity Forgone: Debt and Donor Behavior in Africa," The World Bank Economic Review, World Bank, vol. 17(3), pages 409-435, December.
    7. 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.
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