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Debt relief and fiscal sustainability

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Abstract

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. JEL no. F3, F34, F35.

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Authors and Affiliations

  1. AGSM-UCLA, University of California at Los Angeles, 90095, Los Angeles, CA, USA

    Sebastian Edwards

  2. National Bureau of Economic Research, Cambridge, Mass

    Sebastian Edwards

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  1. Sebastian Edwards
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Correspondence to Sebastian Edwards.

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Edwards, S. Debt relief and fiscal sustainability. Rev. World Econ. 139, 38–65 (2003). https://doi.org/10.1007/BF02659607

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  • DOI: https://doi.org/10.1007/BF02659607

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