External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries

Rivista Internazionale di Scienze Sociali, No. 2, 2007

25 Pages Posted: 5 Jun 2006 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

Andrea Filippo Presbitero

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

Date Written: April 20, 2007

Abstract

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.

Keywords: HIPC, Debt Sustainability, Domestic Debt

JEL Classification: F34, H63, O19

Suggested Citation

Arnone, Marco and Presbitero, Andrea Filippo, External Debt Sustainability and Domestic Debt in Heavily Indebted Poor Countries (April 20, 2007). Rivista Internazionale di Scienze Sociali, No. 2, 2007. Available at SSRN: https://ssrn.com/abstract=904618

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)

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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