Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies
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Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.
Summary:
Many emerging market and developing economies face a difficult trade-off between economic support and fiscal sustainability. Market-oriented structural reforms ease this trade-off by promoting economic growth and strengthening public finances. The empirical analysis in this note, based on 62 EMDEs over 1973-2014, shows that reforms are associated with sizeable and long-lasting reductions in the debt-to-GDP ratio mainly through higher fiscal revenues and lower borrowing costs. These effects are larger in countries with greater tax efficiency, lower informality, and higher initial debt. Moreover, a model-based analysis elaborates on how such fiscal gains can be enhanced when revenue windfalls associated with reforms are saved or channeled through higher public investment.
Series:
Staff Discussion Notes No. 2023/005
Subject:
Asset and liability management Debt reduction Economic sectors Emerging and frontier financial markets Financial crises Financial markets Fiscal policy Fiscal stance Public debt
Frequency:
occasional
English
Publication Date:
September 12, 2023
ISBN/ISSN:
9798400247101/2617-6750
Stock No:
SDNEA2023005
Format:
Paper
Pages:
45
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