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External debt sustainability and domestic debt in Heavily Indebted Poor Countries

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  • Presbitero, Andrea F.
  • Arnone, Marco

Abstract

In this paper we stress the limits of the current debt sustainability framework used in the IMF-WB HIPC Initiative and the necessity to include domestic public debt into the analysis. The standard sustainability analysis does not take into account the fully-fledged budget constraint and the feedback effects of the fiscal and monetary adjustment required by multilateral programs. 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. This work focuses on the evaluation of public debt sustainability in a simple accounting framework. We use data on external public debt (multilateral and bilateral) and on domestic public debt to underline how the inclusion of domestic debt into the analysis undermines the sustainability target.

Suggested Citation

  • Presbitero, Andrea F. & Arnone, Marco, 2006. "External debt sustainability and domestic debt in Heavily Indebted Poor Countries," MPRA Paper 1396, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:1396
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    References listed on IDEAS

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    1. William Easterly, 2002. "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550423, January.
    2. John T. Cuddington, 1997. "Analysing the Sustainability of Fiscal Deficits in Developing Countries," International Finance 9706001, EconWPA.
    3. Jakob E Christensen, 2004. "Domestic Debt Markets in Sub-Saharan Africa," IMF Working Papers 04/46, International Monetary Fund.
    4. Aart Kraay & Vikram Nehru, 2006. "When Is External Debt Sustainable?," World Bank Economic Review, World Bank Group, vol. 20(3), pages 341-365.
    5. George Iden & Marco Arnone, 2003. "Primary Dealers in Government Securities; Policy Issues and Selected Countries Experience," IMF Working Papers 03/45, International Monetary Fund.
    6. Philippe Beaugrand & Montfort Mlachila & Boileau Loko, 2002. "The Choice Between External and Domestic Debt in Financing Budget Deficits; The Case of Central and West African Countries," IMF Working Papers 02/79, International Monetary Fund.
    7. Craig Burrnside, 2005. "Fiscal Sustainability in Theory and Practice : A Handbook," World Bank Publications, The World Bank, number 7495, July.
    8. World Bank & International Monetory Fund, 2001. "Developing Government Bond Markets : A Handbook," World Bank Publications, The World Bank, number 13865, July.
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    Cited by:

    1. 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.
    2. Andrea F. Presbitero, 2009. "Debt-Relief Effectiveness and Institution-Building," Development Policy Review, Overseas Development Institute, vol. 27(5), pages 529-559, September.
    3. 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.
    4. 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.

    More about this item

    Keywords

    HIPC; Domestic debt; Debt sustainability; Debt Relief;

    JEL classification:

    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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