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Analytical History of Heavily Indebted Poor Country (HIPC) Debt Sustainability Targets

  • Peter Hjertholm

    (Institute of Economics, University of Copenhagen)

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    This paper traces the origins of World Bank indicators of debt distress and their employment as HIPC sustainability targets. These targets are interpreted as ‘switching values’, below which countries are (on average) expected to avoid debt service problems, but as such, they do not take into account that countries encounter debt service problems for a variety of reasons and at different levels of debt. It is likely that the ‘true’ switching value of the debt to export ratio of several HIPCs lies below the lower bound of the present target range. Regarding the ‘fiscal window’, the lack of analytical basis for a 280 percent target for the debt to revenue ratio is noted, and the consistency problems raised by the added ‘openness_tax’ condition are discussed. Moreover, the implications for economic performance of the pursuit for a s ustainable debt position remain a concern. It seems uncertain whether the development needs of HIPC countries can be accommodated within sustainable debt paths, as envisioned. The paper concludes that the sustainability targets, as presently applied, are not well supported in analytical terms. The rationale for adopting an average target range for the debt indicators involved remains weak, and the adoption of country_specific targets is suggested as a way to tailor debt relief more accurately to country needs.

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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2000/0003.pdf/
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    Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 00-03.

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    Length: 44 pages
    Date of creation: Mar 1999
    Date of revision:
    Handle: RePEc:kud:kuiedp:0003
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    1. van Wijnbergen, Sweder, 1989. "External Debt, Inflation, and the Public Sector: Toward Fiscal Policy for Sustainable Growth," World Bank Economic Review, World Bank Group, vol. 3(3), pages 297-320, September.
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