Analytical approaches to assessing public debt sustainability

Chapter 1 notes that the debt implications of the global financial crisis (GFC) of 2008/09 have been less severe in the Asian and Pacific economies than in developed market economies. Anderson, Silva, and Velandia-Rubiano (2011) review the reasons that 24 emerging market economies (EMEs) fared better than developed countries during the GFC.1 They argue that sound macroeconomic fundamentals along with good monetary and fiscal management just prior to the onset of the GFC, as well as the benign conditions prevailing in the global economy, led to the emergence of strong buffers in many of the EMEs, so that they were able to put in place strong fiscal stimulus packages and yet emerge with relatively robust debt positions. Many of the EMEs had used the period leading up to the GFC to diversify their debt portfolio, reduce their share of external debt, and increase the maturities of their debt. The EMEs’ overall debt management capacities had improved considerably in the decade prior to the GFC. The continued availability of multilateral aid also helped. Economies with better developed bond markets outperformed those with thin bond markets.