IMF Staff Papers, Volume 57, No. 1

IMF Staff Papers, Volume 57, No. 1
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Volume:
57
Series:
IMF Staff Papers
Author(s):
International Monetary Fund. Research Dept.
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
March 2010
DOI:
http://dx.doi.org/10.5089/9781589069114.024
ISBN:
9781589069114
ISSN:
1020-7635
Page:
287
Do highly indebted countries suffer from a debt overhang? Can debt relief foster their growth rates? To answer these important questions, this article looks at how the debt-growth relation varies with indebtedness levels, as well as with the quality of policies and institutions, in a panel of developing countries. The main findings are that, in countries with good policies and institutions, there is evidence of debt overhang when the net present value of debt rises above 20–25 percent of GDP; however, debt becomes irrelevant above 70–80 percent. In countries with bad policies and institutions, thresholds appear to be lower, but the evidence of debt overhang is weaker and we cannot rule out that debt is always irrelevant. Indeed, in such countries, as well as in countries with high indebtedness levels, investment does not depend on debt levels. The analysis suggests that not all countries are likely to profit from debt relief, and thus that a one-size-fits-all debt relief approach might not be the most appropriate one.
Article

Prospects for Sustained Growth in Africa: Benchmarking the Constraints

Author(s):
International Monetary Fund. Research Dept.
Published Date:
March 2010
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