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Debt Sustainability in Emerging Markets:A Critical Appraisal
This paper critically assesses the standard 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 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.
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 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.