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Debt Relief and Fiscal Sustainability


  • Sebastian Edwards


In this paper I analyze the relationship between fiscal policy, aggregate public sector debt sustainability, and debt relief. I develop a methodology to compute the fiscal policy path that is compatible with aggregate debt sustainability in the post-HIPC era. The model explicitly considers the role of domestic debt, and quantifies the extent to which future debt sustainability depends on the availability of concessional loans at subsidized interest rates. The working of the model is illustrated for the case of Nicaragua, a country that in 2002 had one of the highest net present value of public external debt to GDP ratios.

Suggested Citation

  • Sebastian Edwards, 2002. "Debt Relief and Fiscal Sustainability," NBER Working Papers 8939, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8939
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    References listed on IDEAS

    1. Gian Maria Milesi Ferretti & Assaf Razin, 2000. "Current Account Reversals and Currency Crises: Empirical Regularities," NBER Chapters,in: Currency Crises, pages 285-323 National Bureau of Economic Research, Inc.
    2. Gian Maria Milesi-Ferrett & Assaf Razin, 1996. "Sustainability of Persistent Current Account Deficits," NBER Working Papers 5467, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Sebastian Edwards, 2015. "Sovereign Default, Debt Restructuring, and Recovery Rates: Was the Argentinean “Haircut” Excessive?," NBER Working Papers 20964, National Bureau of Economic Research, Inc.
    2. Baharumshah, Ahmad Zubaidi & Lau, Evan, 2007. "Regime changes and the sustainability of fiscal imbalance in East Asian countries," Economic Modelling, Elsevier, vol. 24(6), pages 878-894, November.
    3. Emanuele Baldacci & Sanjeev Gupta & Carlos Mulas-Granados, 2010. "Restoring Debt Sustainability After Crises; Implications for the Fiscal Mix," IMF Working Papers 10/232, International Monetary Fund.
    4. Carrera, Claudia Martínez & Vergara, Rodrigo, 2012. "Fiscal Sustainability: The Impact of Real Exchange Rate Shocks on Debt Valuation, Interest Rates and GDP Growth," World Development, Elsevier, vol. 40(9), pages 1762-1783.
    5. World Bank, 2003. "Nicaragua: Country Financial Accountability Assessment," World Bank Other Operational Studies 14591, The World Bank.
    6. Angela I. Uwakwe, 2008. "Public Debt Management & Fiscal Sustainability in Italy," AIUB Bus Econ Working Paper Series AIUB-BUS-ECON-2008-20, American International University-Bangladesh (AIUB), Office of Research and Publications (ORP), revised Jun 2008.
    7. Evan Lau & Ahmad Zubaidi Baharumshah, 2005. "Assessing The Mean Reversion Behavior Of Fiscal Policy: The Case Of Asian Countries," Macroeconomics 0504002, EconWPA.
    8. repec:dau:papers:123456789/4089 is not listed on IDEAS
    9. Carlos Díaz Alvarado & Alejandro Izquierdo & Ugo Panizza, 2004. "Fiscal Sustainability in Emerging Market Countries with an Application to Ecuador," Research Department Publications 4371, Inter-American Development Bank, Research Department.
    10. Pincin, Jared, 2012. "Foreign aid and political influence of the development assistance committee countries," MPRA Paper 39668, University Library of Munich, Germany.
    11. Sebastian Edwards, 2015. "Sovereign Default, Debt Restructuring, and Recovery Rates: Was the Argentinean “Haircut” Excessive?," Open Economies Review, Springer, vol. 26(5), pages 839-867, November.
    12. repec:eco:journ1:2017-03-95 is not listed on IDEAS
    13. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops," NBER Working Papers 10276, National Bureau of Economic Research, Inc.
    14. Carlos Díaz Alvarado & Alejandro Izquierdo & Ugo Panizza, 2004. "Viabilidad fiscal en países de mercados emergentes con un enfoque en Ecuador," Research Department Publications 4372, Inter-American Development Bank, Research Department.
    15. Evan Lau & Ahmad Zubaidi Baharumshah & Shazali Abu Mansor & Chin-Hong Puah, 2009. "Testing Stationarity of Budgetary Position in Developing Countries," International Econometric Review (IER), Econometric Research Association, vol. 1(2), pages 77-87, April.
    16. Annalisa Fedelino & Alina Kudina, 2003. "Fiscal Sustainability in African HIPC Countries; A Policy Dilemma?," IMF Working Papers 03/187, International Monetary Fund.
    17. Ahmad Zubaidi Baharumshah & Evan Lau, 2010. "Mean Reversion Of The Fiscal Conduct In 24 Developing Countries," Manchester School, University of Manchester, vol. 78(4), pages 302-325, July.
    18. Marco Arnone & Luca Bandiera & Andrea Presbitero, 2005. "External Debt Sustainability: Theory and Empirical Evidence," International Finance 0512007, EconWPA.
    19. Nur Keyder, 2003. "Debt Sustainability and the Exchange Rate: The Case of Turkey," ERC Working Papers 0306, ERC - Economic Research Center, Middle East Technical University, revised Jun 2003.
    20. Sun, Zhentian & Li, Xuhong & Xie, Yuanchang, 2014. "A comparison of innovative financing and general fiscal investment strategies for second-class highways: Perspectives for building a sustainable financing strategy," Transport Policy, Elsevier, vol. 35(C), pages 193-201.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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