what DRIVES PUBLIC DEBT?
By Théodore Humann
This paper presents a methodology for public debt decomposition and introduces FDL's new publicly available online tool to be used by researchers and analysts in the field. It builds on the IMF methodology for Debt Sustainability Analyses and was developed relying only on publicly available statistics from the IMF and the World Bank.
Two decades after HIPC and MDRI, two famous debt relief initiatives, the world is back to an era of high inflation and rising public debt, making it more important than ever to better understand the drivers behind debt dynamics in developing economies. This should help promote tailored fiscal and policy recommendations for key debt drivers, eventually pressing for pre-emptive debt restructuring in countries facing unsustainable dynamics.
Discover FDL's new debt decomposition tool
FDL's new tool makes it possible to systematically study debt-to GDP ratio dynamics in low-and middle-income economies at country-level and various aggregate perspectives. We have addressed several methodological challenges, from crossing IMF and World Bank debt statistics on external debt, to the understanding of stock-flow adjustments.
The FDL debt decomposition tool enables to disentangle the contributions to changes in debt ratios of interest payments, exchange rates, inflation, GDP growth, primary balance and stock-flow adjustments. We made the decomposition as accurate as possible, for instance by taking into account the various currencies of denomination of external debt. This tool will be updated in the future to account for methodological and statistical improvements, as well as user feedbacks, which we welcome.