External Debt, Public Investment, and Growth in Low-Income Countries
IMF Working Papers, December 1, 2003
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- External Debt, Public Investment, and Growth in Low-Income Countries
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Bibliographic details
- Authors: Toan Quoc Nguyen, Benedict J. Clements, Rina Bhattacharya
- Published: December 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451875904.001
Summary
- This paper examines the channels through which external debt affects growth in low-income countries.
- The authors: Toan Quoc Nguyen, Benedict J. Clements, Rina Bhattacharya.
- Publication date: December 1, 2003.
- Key headline result: the substantial reduction in the stock of external debt projected for highly indebted poor countries (HIPCs) would directly increase per capita income growth by about 1 percentage point per annum.
- Indirect channel: reductions in external debt service could boost growth through effects on public investment.
- Counterfactual scenario reported: If half of all debt-service relief were channeled for such purposes without increasing the budget deficit, then growth could accelerate in some HIPCs by an additional 0.5 percentage point per annum.
Key findings and projections
- Direct effect of debt reduction:
- Increase in per capita income growth: about 1 percentage point per annum.
- Indirect effect via public investment:
- If 50 percent of debt-service relief is allocated to public investment without raising the budget deficit, additional growth: 0.5 percentage point per annum in some HIPCs.
Policy implications and recommendations
- Debt relief that reduces the stock of external debt can have a measurable, direct positive impact on per capita growth.
- Channeling a portion of debt-service relief into public investment, while maintaining fiscal discipline (i.e., without increasing the budget deficit), can produce further growth gains.
- Policy focus on combining debt-service relief with sustained public investment may be particularly beneficial for HIPCs.
Key statistics and publication identifiers
- Pages: 25
- Volume: 2003
- Issue: 249
- Series: Working Paper No. 2003/249
- DOI: https://doi.org/10.5089/9781451875904.001
- Stock No: WPIEA2492003
- ISBN: 9781451875904
- ISSN: 1018-5941
- Citation format shown in source: Toan Quoc Nguyen, Benedict J. Clements, and Rina Bhattacharya. "External Debt, Public Investment, and Growth in Low-Income Countries", IMF Working Papers 2003, 249 (2003), accessed 8/29/2026, https://doi.org/10.5089/9781451875904.001
IMF Working Paper No. 2003/249