- Toan Nguyen, Benedict Clements, and Rina Bhattacharya
- Published Date:
- March 2006
The IMF launched the Economic Issues series in 1996 to make the IMF staff’s research findings accessible to the public. Economic Issues are short, nontechnical monographs on topical issues written for the nonspecialist reader. They are published in six languages—English, Arabic, Chinese, French, Russian, and Spanish. Economic Issue No. 34, like the others in the series, reflects the opinions of its authors, which are not necessarily those of the IMF.
©2005 International Monetary Fund
IMF External Relations Department
Published April 2005
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Twenty-eight heavily indebted poor countries (HIPCs) were receiving debt relief under the HIPC Initiative by mid-2004, eight years after the Initiative was launched by the IMF and the World Bank and endorsed by governments around the world, and about four years after it was enhanced to provide more substantial and faster debt relief.
The HIPC Initiative, the first coordinated effort by the international financial community to reduce the foreign debt of the world’s poorest countries, was based on the theory that economic growth in these countries was being stifled by heavy debt burdens, making it virtually impossible for them to escape poverty. However, most of the empirical research to date on the effects of debt on growth has lumped together a diverse group of countries, including both emerging market and low-income countries; the literature focusing on the impact of debt on low-income countries (those with 2001 per capita gross national income of less than US$865) is scant.
The paper on which this pamphlet is based, “External Debt, Public Investment, and Growth in Low-Income Countries” (IMF Working Paper No. 03/249, December 2003), addresses this gap in the literature. The paper also appeared as a chapter in a book published by the IMF in 2004, Helping Countries Develop: The Role of Fiscal Policy, edited by Sanjeev Gupta, Benedict Clements, and Gabriela Inchauste. It assesses empirically the effects of external debt on growth in low-income countries and analyzes the channels through which these effects are transmitted, giving special attention to the indirect effects of external debt on growth through its impact on public investment. Readers seeking a more detailed description of our analysis and of the literature on debt and growth are directed to the original working paper, which is available free of charge at www.imf.org/pubs. Brenda Szittya prepared the text for this pamphlet.