Analytical Aspects of the Debt Problems of Heavily Indebted Poor Countries

No AccessPolicy Research Working Papers25 Jun 2013Analytical Aspects of the Debt Problems of Heavily Indebted Poor CountriesAuthors/Editors: Ravi Kanbur, Enrica Detragiache, Peter Wickham, Stijn ClaessensRavi Kanbur, Enrica Detragiache, Peter Wickham, Stijn Claessenshttps://doi.org/10.1596/1813-9450-1618SectionsAboutPDF (1.7 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:June 1996 A group of heavily indebted low-income countries (HIPCs), most in Sub-Saharan Africa, has continued to experience external debt problems. Because the HIPCs' economic characteristics and external imbalances are very different from those of middle-income countries, the analysis of debt problems and debt-reduction must be modified and complemented in important ways. Therefore, the authors revisit the methodological issues underlying debt sustainability analysis, as well as theory and empirical evidence on how large debts affect economic performance. Their main question is: Should consideration be given to more upfront debt reduction for HIPCs, over and above that provided under current mechanisms, or should debts continue to be refinanced, subject to conditionality? Ongoing refinancing with conditionality reduces moral hazard and gives countries an incentive to maintain good policies. However, this approach entails transition costs, can create uncertainty, may lack credibility, and can impede local ownership of reform programs. Upfront debt reduction can create moral hazard problems and may weaken the incentives for maintaining sound policy. There are theoretical arguments about why a high level of debt can impede investment and policy reform. Although empirical evidence concerning the hypothesis that HIPCs suffer significant adverse effects from their large debt overhang is inconclusive, evidence from middle-income countries suggests that debt reduction can benefit an economy if the policy environment is right. Whether there should be further debt reduction for specific heavily indebted low-income countries depends on the facts for each case and requires quantitative analysis of data about different forces at play in the countries involved. Previous bookNext book FiguresReferencesRecommendedDetails View Published: November 1999 Copyright & Permissions Related RegionsAfricaLatin America & CaribbeanRelated CountriesCzech RepublicRelated TopicsFinance and Financial Sector DevelopmentInternational Economics & TradeMacroeconomics and Economic GrowthPrivate Sector Development KeywordsBILATERAL CREDITORSCOMMERCIAL CREDITORSCREDITORCREDITORSDEBTDEBT CRISISDEBT OVERHANGDEBT PROBLEMDEBT PROBLEMSDEBT REDUCTIONDEBT SERVICINGDEBT STOCKDEBT SUSTAINABILITYDEBTORDEBTOR COUNTRIESDEBTORSDEBTSEXTERNAL DEBTEXTERNAL OBLIGATIONSINDEBTED COUNTRY PDF DownloadLoading ...