Cassimon, Denis and Moreno-Dodson, Blanca and Wodon, Quentin (2008): Debt Sustainability for Low-Income Countries: A Review of Standard and Alternative Concepts. Published in: Public Finance for Poverty Reduction: Concepts and Case Studies from Africa and Latin America (edited by Blanca Moreno-Dodson and Quentin Wodon, published in World Bank Directions in Development) (January 2008): pp. 21-56.
Download (2146Kb) | Preview
Governments in low-income countries have the difficult task of making wide-ranging decisions about public spending, taxation, and borrowing. Although we can analyze at length how both public spending and taxation can be designed and implemented to contribute to growth and poverty reduction, the biggest challenge that most developing countries face is in determining how much they can borrow without jeopardizing their long-term prospects. The objective of this paper is to introduce the key issues involved in debt sustainability analysis. We review the main approaches developed in the literature, starting from the traditional fiscal and external approaches and covering recent alternative frameworks, such as the debt overhang analysis and the human development approach (especially as it relates to the funding requirements for achieving the Millennium Development Goals).
|Item Type:||MPRA Paper|
|Original Title:||Debt Sustainability for Low-Income Countries: A Review of Standard and Alternative Concepts|
|Keywords:||Debt sustainbility; fiscal sustainability; debt overhang; Millennium Development Goals; human development|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems
H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management; Sovereign Debt
|Depositing User:||Quentin Wodon|
|Date Deposited:||14. Oct 2008 04:54|
|Last Modified:||15. Feb 2013 09:36|
African Development Bank Group. 2006. “Multilateral Debt Relief Initiative by the African Development Fund—At a Glance.”
Agénor, Pierre-Richard, and Peter J. Montiel. 1996. Development Macroeconomics. Princeton, NJ: Princeton University Press.
Baldacci, Emanuele, and Kevin Fletcher. 2004. “A Framework for Fiscal Debt Sustainability Analysis in Low-Income Countries.” In Helping Countries Develop: The Role of Fiscal Policy, ed. S. Gupta, B. Clements, and B. Inchauste, 130–61. Washington. DC: International Monetary Fund.
Berlage, Lode, Danny Cassimon, Jacques Drèze, and Paul Reding. 2003. “Prospective Aid and Indebtedness Relief: A Proposal.” World Development 31 (10): 1635–54.
Birdsall, Nancy, and John Williamson. 2002. Delivering on Debt Relief: From IMF Gold to a New Development Architecture. Washington, DC: Center for Global Development and Institute for International Economics.
Borensztein, Eduardo, and Pablo Mauro. 2004. “The Case for GDP-indexed Bonds.” Economic Policy 19 (38): 165–216.
Buiter,Willem, and Urjit Patel. 1992. “Debt, Deficits, and Inflation: An Application to the Public Finances of India.” Journal of Public Economics 47: 171–205.
Chauvin, Nicolas D., and Aart Kraay. 2005. “What Has 100 Billion Dollars Worth of Debt Relief Done for Low-Income Countries?” Photocopy. World Bank, Washington, DC.
Chauvin, Nicolas D., and Aart Kraay. 2006. “Who Gets Debt Relief?” Discussion Paper 4000, World Bank, Washington, DC.
Claessens, Stijn. 1990. “The Debt Laffer Curve: Some Estimates.”World Development 18 (12): 1671–77.
Clements, Benedict, Rina Bhattacharya, and Toan Quoc Nguyen. 2004. “External Debt, Public Investment, and Growth in Low-Income Countries.” In Helping Countries Develop: The Role of Fiscal Policy, ed. S. Gupta, B. Clements, and B. Inchauste, 105–29.Washington. DC: International Monetary Fund.
Cohen, Daniel. 1985. “How to Evaluate the Solvency of an Indebted Nation.” Economic Policy 1: 139–67.
Cohen, Daniel. 1991. Private Lending to Sovereign States: A Theoretical Autopsy. Cambridge, MA: MIT Press.
Cohen, Daniel. 1996. “The Sustainability of African Debt.” Policy Research Working Paper 1621,World Bank,Washington, DC.
Cuddington, John T. 1997. “Analyzing the Sustainability of Fiscal Deficits in Developing Countries.” Policy Research Working Paper 1784,World Bank,Washington, DC.
Diwan, Ishac, and Dani Rodrik. 1992. “External Debt, Adjustment, and Burden Sharing: A Unified Framework.” Princeton Studies in International Economics 73.
Easterly, William. 1999. “When Is Fiscal Adjustment an Illusion?” Economic Policy 14 (28): 57–86.
Edwards, Sebastian. 2002a. “Debt Relief and the Current Account: An Analysis of the HIPC Initiative.” Paper presented at a conference in honor of W. Max Corden, Washington, DC, April.
Edwards, Sebastian. 2002b. “Debt Relief and Fiscal Sustainability.”Working Paper 8939, National Bureau of Economic Research, Cambridge, MA.
Eichengreen, Barry, and Ricardo Hausmann. 1999. “Exchange Rates and Financial Fragility.”Working Paper 7418, National Bureau of Economic Research, Cambridge, MA.
EURODAD (European Network for Debt and Development). 2001. “Putting Poverty First.”
Fedelino, Annalisa, and Anna Kudina. 2003. “Fiscal Sustainability in African HIPC Countries: A Policy Dilemma?” Working Paper WP/03/187, International Monetary Fund,Washington, DC.
Gunter, Bernhard G. 2002.”What’s Wrong with the HIPC Initiative and What’s Next?” Development Policy Review 20 (1): 5–24.
Haque, Nadeem Ul, and Peter Montiel. 1994. “Pakistan: Fiscal Sustainability and Macroeconomic Policy.” In Public Sector Deficits and Macroeconomic Performance, ed.W. Easterly, C. Rodriguez, and K. Schmidt-Hebbel, 413–57. New York: Oxford University Press.
Hausmann, Ricardo, and Roberto Rigobon. 2003. “IDA in UF: On the Benefits of Changing the Currency Denomination of Concessional Lending to Low-Income Countries.”
Heller, Peter S. 2005. “Understanding Fiscal Space.” Policy Discussion Paper PDP/05/4, International Monetary Fund,Washington, DC.
Hjertholm, Peter. 2003. “Theoretical and Empirical Foundations of HIPC Debt Sustainability Targets.” Journal of Development Studies 39 (6): 67–100.
IDA. 2005a. “Additions to IDA Resources: Fourteenth Replenishment—Working Together to Achieve the Millennium Development Goals.” Report from the Executive Directors of IDA to the Board of Governors, March.
IDA. 2005b. “The Multilateral Debt Relief Initiative: Implementation Modalities for IDA.” November 18.
IDA and IMF. 2002. “External Debt Management in Heavily Indebted Poor Countries (HIPCs).” Washington, DC.
IDA and IMF. 2006.”Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI)—Status of Implementation.” August. Washington, DC.
IMF. 2002. “Assessing Sustainability.” Policy Development and Review Department,Washington, DC.
IMF. 2003. “Debt Sustainability in Low-Income Countries—Towards a Forward-looking Strategy.” Policy Development and Review Department, Washington, DC.
IMF. 2006. “A Factsheet:The Multilateral Debt Relief Initiative.” Washington, DC.
IMF and IDA. 2005. “Operational Framework for Debt Sustainability Assessments in Low-Income Countries—Further Considerations.” Washington, DC.
IMF and World Bank. 2006. “Review of Low-Income Country Debt Sustainability Framework and Implications of the MDRI.” Washington, DC.
Kraay, Aart, and Vikram Nehru. 2006. “When Is External Debt Sustainable.” World Bank Economic Review 20 (3): 341–65.
Kremer, Michael, and Seema Jayachandran. 2002. “Odious Debt.” Policy Brief 103, Brookings Institution, Washington, DC.
Krugman, Paul. 1988. “Financing versus Forgiving a Debt Overhang.” Journal of Development Economics 29 (3): 253–68.
Ley, Eduardo. 2004. “Fiscal (and External) Sustainability.” December 2004 version.
Manasse, Pablo, and Nouriel Roubini. 2005. “‘Rules of Thumb’ for Sovereign Debt Crises.” Working Paper WP/05/42, International Monetary Fund,Washington, DC.
Northover, Henry, Karen Joyner, and David Woodward. 1998. “A Human Development Approach to Debt Sustainability for the World’s Poor.” Catholic Agency for Overseas Development, London.
Parker, Karen, and Steffen Kastner. 1993. “A Framework for Assessing Fiscal Sustainability and External Viability, with an Application to India.” Working Paper 93/78, International Monetary Fund,Washington, DC.
Patillo, Catherine, Helène Poirson, and Luca Ricci. 2002. “External Debt and Growth.”Working Paper WP/02/69, International Monetary Fund,Washington, DC.
Patillo, Catherine, Helène Poirson, and Luca Ricci. 2004. “What Are the Channels Through Which External Debt Affects Growth?”Working Paper WP/04/15, International Monetary Fund,Washington, DC.
Raffer, Kunibert. 1990. “Applying Chapter 9 Insolvency to International Debts: An Economically Efficient Solution with a Human Face.” World Development 18 (2): 301–11.
Sachs, Jeffrey D. 2002. “Resolving the Debt Crisis of Low-Income Countries.” Brookings Papers on Economic Activity 2002 (1): 257–86.
Sun, Yan. 2004. “External Debt Sustainability in HIPC Completion Countries.” Working Paper WP/04/160, International Monetary Fund,Washington, DC.
UNCTAD (United Nations Conference on Trade and Development). 2004. “Debt Sustainability: Oasis or Mirage?” Geneva.
World Bank. 2003. “The Heavily Indebted Poor Countries (HIPC) Debt Initiative. An OED Review.” Operations Evaluation Department,World Bank,Washington, DC.
World Bank. 2006a. “Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative.” Independent Evaluation Group,World Bank,Washington, DC.
World Bank. 2006b. “How to Do a Debt Sustainability Analysis for Low-Income Countries.” Debt Division,World Bank,Washington, DC.