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Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies

Author

Listed:
  • Mr. Zamid Aligishiev
  • Ms. Gabriela Cugat
  • Mr. Romain A Duval
  • Davide Furceri
  • João Tovar Jalles
  • Ms. Margaux MacDonald
  • Mr. Giovanni Melina
  • Mr. Futoshi Narita
  • Mr. Chris Papageorgiou
  • Carlo Pizzinelli

Abstract

Many emerging market and developing economies face a difficult trade-off between economic support and fiscal sustainability. Market-oriented structural reforms ease this trade-off by promoting economic growth and strengthening public finances. The empirical analysis in this note, based on 62 EMDEs over 1973-2014, shows that reforms are associated with sizeable and long-lasting reductions in the debt-to-GDP ratio mainly through higher fiscal revenues and lower borrowing costs. These effects are larger in countries with greater tax efficiency, lower informality, and higher initial debt. Moreover, a model-based analysis elaborates on how such fiscal gains can be enhanced when revenue windfalls associated with reforms are saved or channeled through higher public investment.

Suggested Citation

  • Mr. Zamid Aligishiev & Ms. Gabriela Cugat & Mr. Romain A Duval & Davide Furceri & João Tovar Jalles & Ms. Margaux MacDonald & Mr. Giovanni Melina & Mr. Futoshi Narita & Mr. Chris Papageorgiou & Carlo , 2023. "Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies," IMF Staff Discussion Notes 2023/005, International Monetary Fund.
    • Handle: RePEc:imf:imfsdn:2023/005
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    Cited by:

    1. Osoro, Jared & Cheruiyot, Kiplangat Josea, 2024. "Fiscal and monetary policy interaction during economic shocks: A wedge or bridge for bank profitability?," KBA Centre for Research on Financial Markets and Policy Working Paper Series 76, Kenya Bankers Association (KBA).

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