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External debt sustainability and domestic debt in Heavily Indebted Poor Countries

  • Presbitero, Andrea F.
  • Arnone, Marco

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.

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File URL: http://mpra.ub.uni-muenchen.de/1396/1/MPRA_paper_1396.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1396.

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Date of creation: May 2006
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Handle: RePEc:pra:mprapa:1396
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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, June.
  2. Craig Burrnside, 2005. "Fiscal Sustainability in Theory and Practice : A Handbook," World Bank Publications, The World Bank, number 7495, March.
  3. Kraay, Aart & Nehru, Vikram, 2004. "When is external debt sustainable?," Policy Research Working Paper Series 3200, The World Bank.
  4. Jakob Christensen, 2004. "Domestic Debt Markets in Sub-Saharan Africa," IMF Working Papers 04/46, International Monetary Fund.
  5. John T. Cuddington, 1997. "Analysing the Sustainability of Fiscal Deficits in Developing Countries," International Finance 9706001, EconWPA.
  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. World Bank & International Monetory Fund, 2001. "Developing Government Bond Markets : A Handbook," World Bank Publications, The World Bank, number 13865, March.
  8. George Iden & Marco Arnone, 2003. "Primary Dealers in Government Securities; Policy Issues and Selected Countries Experience," IMF Working Papers 03/45, International Monetary Fund.
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