The Choice Between External and Domestic Debt in Financing Budget Deficits The Case of Central and West African Countries |
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| Author:
| Loko, Boileau |
| ISBN: | 978-1-281-60248-0 |
| Publication Date: | Jan 2002 |
| Publisher: | International Monetary Fund
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| Book Format: | Ebook |
| List Price: | USD $15.00 |
Book Description:
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The paper reviews the principles and practical considerations involved in the choice between foreign and domestic financing of fiscal deficits, and derives a series of recommendations broadly applicable to Central and West African countries. The paper develops a simple analytical framework and shows that highly concessional external debt is usually a superior choice to domestic debt in terms of financial costs and risks, even in the face of a probable devaluation. The paper stresses...
More DescriptionThe paper reviews the principles and practical considerations involved in the choice between foreign and domestic financing of fiscal deficits, and derives a series of recommendations broadly applicable to Central and West African countries. The paper develops a simple analytical framework and shows that highly concessional external debt is usually a superior choice to domestic debt in terms of financial costs and risks, even in the face of a probable devaluation. The paper stresses the importance of the availability and terms of financing, and of overall long-term debt sustainability. It concludes that these countries need to take a gradual approach to domestic debt financing, beginning with the issuance of short-term bills, and ensure a solid track record of meeting their debt-service obligations.