Analytical History of Heavily Indebted Poor Country (HIPC) Debt Sustainability Targets

Peter Hjertholm
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Peter Hjertholm: Institute of Economics, University of Copenhagen

No 00-03, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper traces the origins of World Bank indicators of debt distress and their employment as HIPC sustainability targets. These targets are interpreted as ‘switching values’, below which countries are (on average) expected to avoid debt service problems, but as such, they do not take into account that countries encounter debt service 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 several HIPCs lies below the lower bound of the present target range. Regarding the ‘fiscal window’, the lack of analytical basis for a 280 percent target for the debt to revenue ratio is noted, and the consistency problems raised by the added ‘openness_tax’ condition are discussed. Moreover, the implications for economic performance of the pursuit for a s ustainable debt position remain a concern. It seems uncertain whether the development needs of HIPC countries can be accommodated within sustainable debt paths, as envisioned. The paper concludes that the sustainability targets, as presently applied, are not well supported in analytical terms. The rationale for adopting an average target range for the debt indicators involved remains weak, and the adoption of country_specific targets is suggested as a way to tailor debt relief more accurately to country needs.

Keywords: Foreign Debt; Heavily Indebted Poor Countries (HIPC); World Bank; Debt Relief (search for similar items in EconPapers)
JEL-codes: F34 O10 (search for similar items in EconPapers)
Pages: 44 pages
Date: 1999-03
New Economics Papers: this item is included in nep-afr and nep-dev
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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