Market Reforms and Public Debt Dynamics in Emerging Market and Developing Economies
Author | : Mr. Zamid Aligishiev |
Publisher | : International Monetary Fund |
Total Pages | : 45 |
Release | : 2023-09-12 |
ISBN-10 | : 9798400247101 |
ISBN-13 | : |
Rating | : 4/5 (01 Downloads) |
Book excerpt: 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.