Reconsidering External Financing of Domestic Budget Deficits: Debunking Some Received Wisdom

David Woo and Simon Gray

No 2000/008, IMF Policy Discussion Papers from International Monetary Fund

Abstract: The past decade has witnessed a steady increase in outstanding external sovereign debt issued by emerging market economies. This paper examines some of the “received wisdom” regarding the benefits of external financing of domestic budget deficits and argues that it is often predicated on a narrow set of assumptions and incomplete evaluation of the underlying costs. The paper also suggests alternative sources of financing that can help capture some of the benefits associated with foreign financing without all of its costs.

Keywords: PDP; cost; financing; investor; debt issue; risk appetite; Debt management; foreign currency denominated sovereign debt; currency denomination; currency composition; currency diversification of debt issue; funding cost; currency risk premium; bill issuance; foreign exchange position; currency diversification; rate risk; foreign currency reserve; Currencies; Government debt management; International capital markets; Exchange rate risk (search for similar items in EconPapers)
Pages: 24
Date: 2000-07-01
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Citations: View citations in EconPapers (6)

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