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

Author/Editor:

Philippe Beaugrand ; Montfort Mlachila ; Boileau Loko

Publication Date:

May 1, 2002

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 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.

Series:

Working Paper No. 02/79

Subject:

English

Publication Date:

May 1, 2002

ISBN/ISSN:

9781451850215/1018-5941

Stock No:

WPIEA0792002

Format:

Paper

Pages:

30

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