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External debt sustainability and domestic debt in Heavily Indebted Poor Countries

Andrea Presbitero and Marco Arnone

MPRA Paper from University Library of Munich, Germany

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.

Keywords: HIPC; Domestic debt; Debt sustainability; Debt Relief (search for similar items in EconPapers)
JEL-codes: F34 H63 O19 (search for similar items in EconPapers)
Date: 2006-05
New Economics Papers: this item is included in nep-pbe
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Journal Article: External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries (2007) Downloads
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