Debt Sustainability in Developing Countries

Topics: Deficit, United States public debt, Public finance Pages: 23 (7969 words) Published: March 14, 2013
1.1 Introduction…………………………………………………………………........1 1.2 Background…………………………………………………………………........1 1.3 Problem statement………………………………………………………………. 1.4 Motivation of the study………………………………………………..................3 1.5 Objectives/Investigations…………………………………………………….......4 Chapter 2: Conceptual and theoretical framework

2.1 Introduction …………………………………………………………………......5 2.2 Concept of the public debt and types of public debts……………………….......7
2.3 The size and the composition of the public debt……………………………......7
2.4 Concepts economic development and developing countries………………........8
2.5 Theoretical linkage between the debt and development…………………..........9
2.6 Debt management in developing countries ……………………………….........10 2.7 Impacts of public debt on economic development 2.7.1 The positive effect of public debt on a country’s development 2.7.2 The negative effect of public debt on a country’s development Chapter 3: Empirical Evidence/Case studies

3.1 Introduction …………………………………………………………................11 3.2 Case study on Brazil…………………………………………………................16 3.3 Case study on China……………………………………………………............17 3.4 Case study on South Africa.................................................................................19 References.................................................................................................................................21

Chapter 1
Objective of the study
1.1Introduction
This chapter seeks to outline the main purpose of the proposed study on the role of public debt on the economic development of developing countries. In the first section, literature is used to provide background and the problem statement to the study, as it relates to debt and development in developing countries. The second section is centred on the rationale of the study, drawing attention to public debt, specifically in developing countries. The last section of the chapter will outline the research question and investigations about the topic.

1.2 Background
The role of the public debt to the economic development can be examined from the sources, the uses, and debt management perspectives. In generally the role of the debt is to assist the country’s government to finance its expenditure on development projects, which can no longer be finance with the local income collected, mainly from taxes. If the income collected is not sufficient enough to finance the country’s expenditure, it is said that the country has incurred the deficit for that year, whereby its spending capacity is more than the level of income. This implies that the country will not have adequate financial muscle to enhance service delivery in the economy. Hence with no financial resources the country’s development becomes constraint somehow. Therefore it is only through borrowings, adjusting tax system or receiving donation that the uneven gap between country’s income and expenditure can be closed to maintain and support development in the economy. The study has shown that two of the above three options available for the country to get financial assistant are no longer efficient and supportive for economic development. With the case of changing of tax system, some economists, especially neo-classical economists, argue that all taxation creates market distortion and results in economic inefficiency. Hence this affects the future generation if such a tax system will not be utilized efficiency for development projects. Thus it is considered economically inefficient for government to alter tax systems to try to promote economic development. The main feature of this is that it is a long run aspect to be adjusted for...
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