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On The Sustainability of External Debt: Is Debt Relief Enough?

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  • Annalisa Prizzon

    (Department of Economics and Quantitative Methods, University of Pavia, and OECD)

  • Gianni Vaggi

    (Department of Economics and Quantitative Methods, University of Pavia)

Abstract

Elaborating on PAsinetti (1998), the 'Geometry of Debt Sustainability' - GDS - represents a simple analytical tool for the analysis of the long run sustainability of foreign debt. GDS provides a simple analysis of three aspects of debt sustainability. It points up how the 'structural' aspect - NICA, the non-interest current account - is closely interlinked with the purely 'financial' aspect. The paper focuses on low income countries, LICs, which face several daunting tasks at once: economic growth, human development and regular debt service. Therefore GDS is also used to analyse the 'human development' aspect of debt sustainability. By considering the three aspects together it emerges that there might be a very stringent trade-off between regular debt service and human development expenditures. All the more so because mosto LICs suffer from structural NICA deficits and GDS highlights the fact its improvement is a anecessary condition to achieve long-run debt sustainability. However, export diversification and the building of stronger trading capacities take time. GDS shows why both debt cancellation and additional aid are necessary to give indebted low income economies a chance to improve both human development and long-run economic viability.

Suggested Citation

  • Annalisa Prizzon & Gianni Vaggi, 2009. "On The Sustainability of External Debt: Is Debt Relief Enough?," Quaderni di Dipartimento 094, University of Pavia, Department of Economics and Quantitative Methods.
    • Handle: RePEc:pav:wpaper:094
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    References listed on IDEAS

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    Cited by:

    1. Debapriya Bhattacharya & Zeeshan Ashraf, 2018. "Is Bangladesh Rolling towards Debt Stress? An Exploration of Debt Sustainability in the Context of Recent External Financial Flows," South Asian Journal of Macroeconomics and Public Finance, , vol. 7(2), pages 137-173, December.
    2. Gatien Bon & Gong Cheng, 2020. "China’s overseas Sovereign debt relief actions: What insights do recent cases provide?," Working Papers hal-04159690, HAL.
    3. Clara Capelli & Gianni Vaggi, 2014. "Why Gross National Disposable Income should substitute Gross National Income," DEM Working Papers Series 091, University of Pavia, Department of Economics and Management.
    4. Botta, Alberto & Spinola, Danilo & Yajima, Giuliano & Porcile, Gabriel, 2023. "Pasinetti, Debt Sustainability and (Green) Structural Change at the Time of Global Finance: An Emerging and Developing Countries’ Perspective," CAFE Working Papers 25, Centre for Accountancy, Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University.
    5. Bon, Gatien & Cheng, Gong, 2021. "Understanding China's role in recent debt relief operations: A case study analysis," International Economics, Elsevier, vol. 166(C), pages 23-41.
    6. Charles, Sebastien & Dallery, Thomas, 2013. "L’expiation par l’austérité ou la stratégie de l’échec : une interprétation post-keynésienne de la crise des pays périphériques en zone euro [Expiation through austerity or the strategy of failure:," MPRA Paper 65735, University Library of Munich, Germany.
    7. Yun Yang & Leyi Chen & Qingqing Huang, 2015. "The Measurement of the Utilisation Efficiency of External Debt Funds and Its Influencing Factors," Australian Economic Papers, Wiley Blackwell, vol. 54(3), pages 185-205, September.
    8. Clara Capelli & Gianni Vaggi, 2016. "Why Gross National Disposable Income Should Replace Gross National Income," Development and Change, International Institute of Social Studies, vol. 47(2), pages 223-239, March.
    9. Clara Capelli & Gianni Vaggi, 2013. "A better indicator of standards of living: The Gross National Disposable Income," DEM Working Papers Series 062, University of Pavia, Department of Economics and Management.

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    More about this item

    Keywords

    debt relief; external debt sustainability; development finance.;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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