Is Ethiopia's debt sustainable?

Ejaz Ghani () and Hyoungsoo Zang

No 1525, Policy Research Working Paper Series from The World Bank

Abstract: The debt burden facing a number of low-income countries has received considerable international attention. The international development community has begun to recognize that options aimed at providing debt relief to countries where debt is not sustainable needs to be seriously explored. In this paper, the authors build on the Branson model of debt sustainability and apply it to a severly indebted, low-income country, Ethiopia. They provide a simplified framework where debt sustainability (both domestic and external) is an integral element of macroeconomic stability. Interactions between different policy variables (such as debt, fiscal, and interest rate policies), outcome variables (such as GDP and export growth), and international economic conditions (international interest rates) jointly define whether a country is on a sustainable debt path. Equations on debt sustainability can be estimated under this framework, thus providing a good starting point for examining debt sustainability. There are three lessons from the empirical analysis of Ethiopia: 1) a strong reform program is critical in bringing the country back on a sustainable debt path; 2) the issue of debt relief requires serious consideration by the international development community; and 3) growth and resource mobilization need adequate emphasis to ensure that debt is repaid.

Keywords: Payment Systems&Infrastructure; Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; Strategic Debt Management; Banks&Banking Reform; Environmental Economics&Policies; Strategic Debt Management; Public Sector Economics&Finance; Economic Theory&Research (search for similar items in EconPapers)
Date: 1995-10-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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