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TWN Global Economy Series no. 28

Debt Sustainability in Emerging Markets: A Critical Appraisal

By YILMAZ AKY‹Z

Publisher: TWN (ISBN: 978-967-5412-35-6)

Year: 2010†† No. of pages: 48

ABOUT THE BOOK

This paper critically assesses the standard International Monetary Fund (IMF) analytical framework for debt sustainability in emerging markets. It focuses on complementarities and trade-offs between fiscal and external sustainability, and interactions and feedbacks among policy and endogenous variables affecting debt ratios. It examines current fragilities in emerging markets and notes that domestic debt is of concern. Despite favourable conditions, many governments are unable to generate a large enough primary budget surplus to stabilize public debt ratios. Worsening global financial conditions may create difficulties for budgetary transfers, posing greater challenges to government debt management since restructuring often is more difficult for domestic than external debt.

ABOUT THE AUTHOR

YILMAZ AKY‹Z is Special Economic Advisor to the South Centre and former Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development (UNCTAD).

Contents

1 †††† INTRODUCTION†††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††

2 †††† DEBT SUSTAINABILITY: CONCEPT, ANALYSIS AND LIMITATIONS†††††††††††††††††††††††††

††††††† Public debt and fiscal sustainability††††††††††††††††††††††††††††††††††††††††††††††††

††††††† External debt and sustainability†††††††††††††††††††††††††††††††††††††††††††††††††††††† †

††††††† Public debt and deficits and balance-of-payments stability†††

††††††† Feedbacks and virtuous and vicious circles†††††††††††††††††††††††††

3 †††† THE IMF APPROACH TO DEBT SUSTAINABILITY†††††††††

††††††† The sustainability framework††††††††††††††††††††† †††††††††††††††††††††††††††††††††††††††††††††††

††††††† Public debt and fiscal space††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††

††††††† Capital flows, balance-of-payments and fiscal stability††††††††††††††††††††

4 †††† CONCLUSIONS†††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††

References††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††

Annex:† Fiscal and External Sustainability††††††††††††††† †††††††††††††††††††††††

††††††††††††††††††††††††††††††††††††††††††††

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