External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries

digital

Article

Magazine

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI

Fascicle

RIVISTA INTERNAZIONALE DI SCIENZE SOCIALI - 2007 - 2

Title

External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries

Authors

Marco Arnone, Andrea F. Presbitero

Publisher

Vita e Pensiero

Format

Article |

Pdf

Online from

02-2007

Issn

0035-676X (print) | 1827-7918 (digital)

€ 6.00

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Description

In this paper we broaden the standard debt sustainability framework used in the IMF-WB Heavily Indebted Poor Countries (HIPC) Initiative to include the analysis of domestic public debt and other feedback effects into the usual debt sustainability analysis (DSA). The latter does not take into account the fully-fledged government budget constraint and the feedback effects of the fiscal and monetary adjustment required by multilateral programs. This work focuses on the evaluation of total public debt sustainability in a simple accounting framework that includes exchange rate effects. We use new data on domestic public debt and show how 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.