Debt Build-Up in Frontier Low-Income Developing Countries (Lidcs) Since 2012: Global or Country-Specific Factors and Way Forward?
41 Pages Posted: 8 Apr 2019
Date Written: February 2019
This paper focuses on the debt build-up that frontier low-income developing countries (LIDCs) have faced since 2012. First, it documents a 20-percentage point increase in the external and government debt-to-GDP ratios, a composition shift toward higher non-concessional debt, and a rise in interest rate payments. Second, using panel regressions, it shows that while both global and country-specific factors are correlated with debt-to-GDP ratios over 1998-2016, global factors dominate for the period 2012-16. Third, through a small open-economy model, it shows that the projected tightening in global financial conditions would reduce debt-to-GDP ratios by less than the increase associated with the expected rise in investment.
Keywords: Domestic debt, Real interest rates, Economic growth, Heavily indebted poor countries, Interest rate increases, Debt build-up, Frontier LIDCs, global and country-specific factors, debt-to-GDP ratio, debt-to-GDP, country-specific, federal fund rate, fund rate
JEL Classification: E60, F30, H60, E6, F3, H6, E01, E62, G21, L31
Suggested Citation: Suggested Citation