Reconsidering External Financing of Domestic Budget Deficits: Debunking Some Received Wisdom

July 1, 2000

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David Woo, and Simon T Gray. Reconsidering External Financing of Domestic Budget Deficits: Debunking Some Received Wisdom, (USA: International Monetary Fund, 2000) accessed September 18, 2024

Disclaimer: This Policy Dicussion 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 past decade has witnessed a steady increase in outstanding external sovereign debt issued by emerging market economies. This paper examines some of the “received wisdom” regarding the benefits of external financing of domestic budget deficits and argues that it is often predicated on a narrow set of assumptions and incomplete evaluation of the underlying costs. The paper also suggests alternative sources of financing that can help capture some of the benefits associated with foreign financing without all of its costs.

Subject: Currencies, Exchange rate risk, Financial markets, Financial regulation and supervision, Foreign exchange, Government debt management, International capital markets, Money, Public financial management (PFM)

Keywords: Bill issuance, Cost, Currencies, Currency composition, Currency denomination, Currency diversification, Currency diversification of debt issue, Currency risk premium, Debt issue, Debt management, Exchange rate risk, Financing, Foreign currency denominated sovereign debt, Foreign currency reserve, Foreign exchange position, Funding cost, Government debt management, International capital markets, Investor, PDP, Rate risk, Risk appetite

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Policy Discussion Paper No. 2000/008
Stock No:

PPIEA0082000
ISBN:

9781451970951
ISSN:

1564-5193

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