Debt Relief and Fiscal Sustainability

Sebastian Edwards

NBER Working Paper No. 8939
Issued in May 2002
NBER Program(s):   IFM

In this paper I analyze the relationship between fiscal policy, aggregate public sector debt sustainability, and debt relief. I develop a methodology to compute the fiscal policy path that is compatible with aggregate debt sustainability in the post-HIPC era. The model explicitly considers the role of domestic debt, and quantifies the extent to which future debt sustainability depends on the availability of concessional loans at subsidized interest rates. The working of the model is illustrated for the case of Nicaragua, a country that in 2002 had one of the highest net present value of public external debt to GDP ratios.

(281 K)

Published: Sebastian Edwards, 2003. "Debt relief and fiscal sustainability," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 139(1), pages 38-65, March.

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