On the sustainability of external debt: is debt relief enough?

Elaborating on Pasinetti (1998), the 'geometry of debt sustainability' (GDS) represents an analytical tool for the analysis of the long term sustainability of foreign debt. The paper focuses on debt sustainability in low-income countries, which face several major challenges simultaneously: achieving economic growth, consolidating human development goals and meeting regular debt service payments. The GDS reveals how the 'structural' aspect of debt sustainability-as indicated by trends in the non-interest current account-is closely interlinked with sustainability from a 'financial' point of view as indicated by the relationship between the growth and the interest rate. The GDS shows why both debt cancellation and additional aid are necessary to give indebted low-income economies a chance to improve their long term economic viability.