Theoretical and empirical foundations of HIPC debt sustainability targets

Peter Hjertholm

Journal of Development Studies, 2003, vol. 39, issue 6, 67-100

Abstract: This article traces the origins of HIPC (Heavily Indebted Poor Country) debt sustainability targets. These targets are interpreted as 'switching values', below which countries are expected to avoid debt service problems but, as such, they do not take into account that countries encounter debt problems for a variety of reasons and at different levels of debt. It is likely that the 'true' switching value of the debt-to-export ratio of many HIPCs lie below the present target. Regarding the 'fiscal window' of the HIPC initiative, the lack of analytical basis for a 250 per cent target for the debt-torevenue ratio is noted, and the problems raised by the joint 'openness-revenue' condition are discussed. The article concludes that the sustainability targets, as presently applied, are not well supported in analytical terms.

Date: 2003
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DOI: 10.1080/00220380312331293587

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