The Choice between External and Domestic Debt in Financing Budget Deficits The Case of Central and West African Countries

30 Pages Posted: 15 Feb 2006

See all articles by Philippe Beaugrand

Philippe Beaugrand

affiliation not provided to SSRN

Boileau Loko

International Monetary Fund (IMF)

Montfort Mlachila

International Monetary Fund (IMF)

Date Written: May 2002

Abstract

The paper reviews the principles and practical considerations involved in the choice between foreign and domestic financing of fiscal deficits, and derives a series of recommendations broadly applicable to Central and West African countries. The paper develops a simple analytical framework and shows that highly concessional external debt is usually a superior choice to domestic debt in terms of financial costs and risks, even in the face of a probable devaluation. The paper stresses the importance of the availability and terms of financing, and of overall long-term debt sustainability. It concludes that these countries need to take a gradual approach to domestic debt financing, beginning with the issuance of short-term bills, and ensure a solid track record of meeting their debt-service obligations.

Keywords: budget deficit financing external debt domestic debt Central Africa West Africa

JEL Classification: H6 E6

Suggested Citation

Beaugrand, Philippe and Loko, Boileau and Mlachila, Montfort, The Choice between External and Domestic Debt in Financing Budget Deficits The Case of Central and West African Countries (May 2002). IMF Working Paper, Vol. , pp. 1-30, 2002. Available at SSRN: https://ssrn.com/abstract=879599

Philippe Beaugrand (Contact Author)

affiliation not provided to SSRN

No Address Available

Boileau Loko

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Montfort Mlachila

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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