ABSTRACT
Debt relief for the poorest countries has been in the forefront of the development agenda for the past 20 years. Imagine a country that, before debt relief, starts out with a debt outstanding of dollar 200m, of which dollar 20m falls due in the current year. Since tax revenues are still only dollar 50m, the government primary budget surplus is zero and it cannot cover its remaining debt service obligations. But in the longer term the same fundamental force that led to high debt in the first place is still present: the government is spending more than it takes in tax revenues, and eventually debt problems will re-emerge. This chapter discusses the fiscal and debt sustainability analysis of the sort that motivates the author's discussion: indeed the simple question of whether a pattern of spending and taxes is consistent with a stable public debt.
