The Choice Between External and Domestic Debt in Financing Budget Deficits: The Case of Central and West African Countries

By Philippe Beaugrand, Montfort Mlachila, Boileau Loko

May 1, 2002

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Philippe Beaugrand, Montfort Mlachila, and Boileau Loko. The Choice Between External and Domestic Debt in Financing Budget Deficits: The Case of Central and West African Countries, (USA: International Monetary Fund, 2002) accessed September 20, 2024

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 reviews the principles and practical considerations involved in the choice between foreign and domestic financing of fiscal deficits, and derives a series of recommendations broadly applicable to Central and West African countries. The paper develops a simple analytical framework and shows that highly concessional external debt is usually a superior choice to domestic debt in terms of financial costs and risks, even in the face of a probable devaluation. The paper stresses the importance of the availability and terms of financing, and of overall long-term debt sustainability. It concludes that these countries need to take a gradual approach to domestic debt financing, beginning with the issuance of short-term bills, and ensure a solid track record of meeting their debt-service obligations.

Subject: Budget planning and preparation, Debt service, Domestic debt, External debt, Government debt management, Public debt, Public financial management (PFM)

Keywords: Budget deficit financing, Budget planning and preparation, Central Africa, Central bank, Debt management, Debt service, Domestic debt, External debt, Financing choice, Financing requirement, Financing source, Government debt management, Government financing option, Private sector, Public sector financing instrument, Sub-Saharan Africa, Sustainability analysis, West Africa, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/079
Stock No:

WPIEA0792002
ISBN:

9781451850215
ISSN:

1018-5941

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