WIDER Discussion Papers // World Institute for Development Economics (UNU-WIDER) 2001/68
This paper traces the origins of HIPC debt sustainability targets. These targets are interpreted as ‘switching values’, below which countries are expected to avoid debt service problems, but as such, they do not take into account that countries encounter debt problems for a variety of reasons and at different levels of debt. Most likely the ‘true’ switching value of the debt-to-export ratio of many HIPCs lies below or above the present target. Regarding the ‘fiscal window’, the lack of analytical basis for a 250 percent target for the debt-to-revenue ratio is noted, and the problems raised by the ‘openness-tax’ condition are discussed. The paper concludes that sustainability targets, as presently applied, are not well supported in analytical terms.