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On The Sustainability of External Debt: Is Debt Relief Enough?

  • Annalisa Prizzon

    (Department of Economics and Quantitative Methods, University of Pavia, and OECD)

  • Gianni Vaggi

    (Department of Economics and Quantitative Methods, University of Pavia)

Elaborating on PAsinetti (1998), the 'Geometry of Debt Sustainability' - GDS - represents a simple analytical tool for the analysis of the long run sustainability of foreign debt. GDS provides a simple analysis of three aspects of debt sustainability. It points up how the 'structural' aspect - NICA, the non-interest current account - is closely interlinked with the purely 'financial' aspect. The paper focuses on low income countries, LICs, which face several daunting tasks at once: economic growth, human development and regular debt service. Therefore GDS is also used to analyse the 'human development' aspect of debt sustainability. By considering the three aspects together it emerges that there might be a very stringent trade-off between regular debt service and human development expenditures. All the more so because mosto LICs suffer from structural NICA deficits and GDS highlights the fact its improvement is a anecessary condition to achieve long-run debt sustainability. However, export diversification and the building of stronger trading capacities take time. GDS shows why both debt cancellation and additional aid are necessary to give indebted low income economies a chance to improve both human development and long-run economic viability.

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File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/wpaper/q094.pdf
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Paper provided by University of Pavia, Department of Economics and Quantitative Methods in its series Quaderni di Dipartimento with number 094.

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Length: 21 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:pav:wpaper:094
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  1. Daniel Cohen & Thibault Fally & S├ębastien Villemot, 2007. "In Favour of a Fund to Stabilise Commodity Exporters' Income," OECD Development Centre Policy Insights 50, OECD Publishing.
  2. Christopher L. Gilbert & Alexandra Tabova, 2005. "Can we link concessional debt service to commodity prices?," Department of Economics Working Papers 0508, Department of Economics, University of Trento, Italia.
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