Staff Discussion Notes

Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies

By Zamid Aligishiev, Gabriela Cugat, Romain A Duval, Davide Furceri, João Tovar Jalles, Margaux MacDonald, Giovanni Melina, Futoshi Narita, Chris Papageorgiou, Carlo Pizzinelli

September 12, 2023

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Zamid Aligishiev, Gabriela Cugat, Romain A Duval, Davide Furceri, João Tovar Jalles, Margaux MacDonald, Giovanni Melina, Futoshi Narita, Chris Papageorgiou, and Carlo Pizzinelli. Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies, (USA: International Monetary Fund, 2023) accessed November 5, 2024

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.

Subject: Asset and liability management, Debt reduction, Economic sectors, Emerging and frontier financial markets, Financial crises, Financial markets, Fiscal policy, Fiscal stance, Public debt

Keywords: Asia and Pacific, Debt Dynamics, Debt reduction, Debt sustainability analysis, Economic Regulation, Emerging and frontier financial markets, Emerging Market Economies, Fiscal Policy, Fiscal stance, GDP ratio, Global, Government debt reduction, Government policy response, Low-Income Developing Countries, Market reform, Reform impact, Structural Reforms

Publication Details

  • Pages:

    45

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Staff Discussion Notes No. 2023/005

  • Stock No:

    SDNEA2023005

  • ISBN:

    9798400247101

  • ISSN:

    2617-6750

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