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Keywords

public debt; external debt; debt sustainability; Latin America

Abstract

This paper develops a framework for debt sustainability analysis that integrates econometric estimates of the effect of global factors on a set of key domestic variables that determines public and external debt dynamics. The methodology is applied to assess debt sustainability in Latin America – a region highly sensitive to external conditions. Results suggest that, while some countries in the region are well placed to withstand moderate or even large foreign shocks, many would benefit from strengthening their fiscal positions to be able to deploy countercyclical policies under adverse scenarios, especially tail events. External sustainability, on the other hand, does not appear to be a source of concern for most countries.

Acknowledgments

We thank Saúl Lizondo, Miguel Savastano, Charles Kramer, Dora Iakova, Gian Maria Milesi-Ferretti, Luis Cubeddu, Oya Celasun, Ulric Erickson von Allmen, Herman Kamil, Leonardo Martinez, Esteban Vesperoni, and participants at the International Monetary Fund’s Western Hemisphere Department seminar series for their useful comments and feedback, and Andresa Lagerborg for her excellent research assistance. We also thank two anonymous referees for their detailed and valuable feedback. The views expressed in this paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

First Page

81

Last Page

120

Page Count

120

Received Date

University of Warsaw

Revised Date

30 January 2015

Accept Date

9 July 2015

Online Available Date

21 January 2016

DOI

10.7172/2353-6845.jbfe.2016.1.4

JEL Code

C32; E62; F41; F47; H62; H63

Publisher

21 January 2016

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