Debt Sustainability Framework in Hipcs: A Critical Assessment and Suggested Improvements

27 Pages Posted: 20 Dec 2005 Last revised: 30 May 2014

See all articles by Marco Arnone

Marco Arnone

Centre for Macroeconomics & Finance Research (CeMaFiR); Catholic University of the Sacred Heart of Milan - Institute for Economic Policy

Luca Bandiera

World Bank

Andrea Filippo Presbitero

Università Politecnica delle Marche - Department of Economics; Centre for Macroeconomics & Finance Research (CeMaFiR)

Date Written: May 12, 2008

Abstract

This paper presents an assessment of the external debt literature related to the IMF-World Bank HIPC Initiative and proposes to extend the present debt sustainability framework. We argue that a comprehensive debt sustainability analysis requires a fully-fledged government budget constraint, which includes not only the external position, but also public domestic debt and the feedback effects of the choices on deficit financing. We also suggest to consider uncertainty and the risk of default, to carefully evaluate the resource required to finance poverty reduction policies, and to develop a legal framework to deal with private creditors. As a result, debt relief should be tailored on specific country needs and it should be part of a more comprehensive development policy, aimed at reducing poverty, built on the fully-fledged government budget constraint and designed for providing a permanent exit from debt dependence and an incentive to strengthen institutions and policies.

Keywords: HIPC Initiative, Debt Sustainability, Debt Relief, External Debt

JEL Classification: F34, H63, O11, O19

Suggested Citation

Arnone, Marco and Bandiera, Luca and Presbitero, Andrea Filippo, Debt Sustainability Framework in Hipcs: A Critical Assessment and Suggested Improvements (May 12, 2008). Available at SSRN: https://ssrn.com/abstract=871171 or http://dx.doi.org/10.2139/ssrn.871171

Marco Arnone

Centre for Macroeconomics & Finance Research (CeMaFiR) ( email )

Piazza Mirabello, 2
Milano, 20121
Italy

HOME PAGE: http://www.a-bpfoundation.org

Catholic University of the Sacred Heart of Milan - Institute for Economic Policy ( email )

Via Necchi, 5
20123 Milan
Italy
+39 02 72342921 (Phone)

Luca Bandiera

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Andrea Filippo Presbitero (Contact Author)

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli, 8
Ancona, AN 60121
Italy
+39 0712207074 (Phone)

HOME PAGE: http://sites.google.com/site/presbitero/

Centre for Macroeconomics & Finance Research (CeMaFiR) ( email )

Piazza Mirabello, 2
Milan, 20100
Italy

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