That Squeezing Feeling : The Interest Burden and Public Debt Stabilization

Author/Editor:

Tidiane Kinda ; Xavier Debrun

Publication Date:

May 22, 2013

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The paper explores the extent to which the pressure of debt service on other spending items may push governments to embark on fiscal consolidation beyond what is strictly necessary to secure solvency. The empirical analysis identifies thresholds of interest bill indicators beyond which governments appear to shift to policies aimed at durably curbing the debt trajectory. Hence, in the current context of high inherited public debts, countries experiencing rising borrowing costs and interest payments would be more likely to enact more aggressive fiscal consolidations than warranted by strict solvency concerns. Conversely, those benefiting from persistently low interest rates despite rising debt stocks would likely opt for a more gradual fiscal consolidation path than what solvency considerations would normally dictate.

Series:

Working Paper No. 13/125

Subject:

English

Publication Date:

May 22, 2013

ISBN/ISSN:

9781484321737/1018-5941

Stock No:

WPIEA2013125

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

30

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