The question of debt sustainability analysis is also key to the resolution of the debt crisis of other low and middle income countries.

Although the government s stimulus policies have increased the national debt, the debt GDP ratio remains relatively low, at roughly 37 . Public debt in Japan, by contrast, exceeds 220 of GDP.

In general, the Gulf Cooperation Council countries maintain low or modest external debt stocks and debt to GDP ratios and have accumulated substantial foreign assets.

Progress also needed to be made on extending external debt cancellation to low and middle income countries.

This year, the Group of Eight countries have pledged increased aid and debt cancellation for low income countries.

Action on debt relief and trade reform to benefit low income countries should also reflect the Millennium Development Goals.

Many African countries have used the past decade to put in place sound and sustainable economic policies that have delivered robust growth and low inflation. Together with debt relief, these policies have resulted in low levels of public debt, relatively sound financial systems, and most important  rising living standards.

Many African countries have used the past decade to put in place sound and sustainable economic policies that have delivered robust growth and low inflation. Together with debt relief, these policies have resulted in low levels of public debt, relatively sound financial systems, and most important rising living standards.

The Panel strongly supports the proposal that all debt should be cancelled, in any event for all low income countries.

Accordingly, the Panel recommends a 100 per cent debt cancellation for all low income countries, including those not eligible for debt relief under the HIPC initiative, and significant relief for middle income countries.

18 See IMF Debt Sustainability in Low Income Countries Further Considerations on an Operational Framework and Policy Implications, 10 September 2004.

Such initiatives should include efforts by IMF and the World Bank to develop a debt sustainability framework for low income countries.

To reverse this trend, the international community must address debt sustainability in highly indebted and low income countries, particularly in Africa.

A reformed United Nations system must, therefore, devise special mechanisms to reduce the debt burdens of low and middle income countries.

Nominal interest rates for periphery countries sovereign debt have remained extremely low, and, even when taking into account expectations of very low inflation (or even deflation), real interest rates are low. The eurozone now is facing not only a financial crisis, but a stagnation crisis.

Interest payments on the debt eventually become so burdensome that bondholders demand higher interest payments (Greek debt recently yielded over 30 ). Interest rates on US government debt remain low, so this threat is prospective, but future deficits will be far higher than government projections when rates normalize.

Since 1999, the poverty reduction strategy papers have become the overall framework for lending, debt relief and development cooperation in low income countries.

16. We are also determined to deal comprehensively and effectively with the debt problems of low and middle income developing countries, through various national and international measures designed to make their debt sustainable in the long term.

Regrettably, those efforts are being hampered by limited access to the markets of developed countries, low disbursements of development assistance and the debt burden.

It had been estimated that every percentage point increase in debt service in low income countries reduced public investment by about 0.2 per cent.

Such initiatives should include efforts by the International Monetary Fund and the World Bank to develop a debt sustainability framework for low income countries.

Urgent consideration needed to be given to providing significant debt relief or restructuring for low and middle income developing countries that were not covered by the Heavily Indebted Poor Countries (HIPC) Initiative and whose debt burden was unsustainable.

11. Also stresses the need to find a solution for the debt problems of heavily indebted low and middle income developing countries that are not eligible for debt relief under the Heavily Indebted Poor Countries Initiative, and in this regard continues to encourage the exploration of mechanisms to comprehensively address the debt problems of those countries, which may include debt for sustainable development swaps or multicreditor debt swap arrangements, as appropriate

(d) To acknowledge the problems of the debt sustainability of some low income countries that are not heavily indebted, in particular those facing exceptional circumstances

Noting with concern that some other highly indebted low and middle income developing countries are facing serious difficulties in meeting their external debt servicing obligations,

The value of innovative sources of financing for development had been recognized and agreement had been reached on considering additional measures to ensure long term debt sustainability through increased grant based financing, cancellation of the official multilateral and bilateral debt of Heavily Indebted Poor Countries, and debt relief or restructuring for low income and middle income developing countries with unsustainable debt burdens.

A modern Keynesian government does not hesitate to increase spending in the face of a recession. But, in order to do that, it needs the high credibility and low debt that follow from having saved and repaid debt during the upswing.

So the question is not what to do when debt gets near its limit, however high or low. It is how to prevent debt from getting near that limit in the first place, except in very extreme and unusual circumstances.

Stressing the determination expressed in the Millennium Declaration to deal comprehensively and effectively with the debt problems of low and middle income developing countries, through various national and international measures designed to make their debt sustainable in the long term,

With due deference to the 2003 Evian approach , there has, however, been no real initiative to address the debt of low income and middle income developing countries that are not part of the Heavily Indebted Poor Countries (HIPC) Debt Initiative process.

How can existing debt and crisis management mechanisms for low income countries be adapted or new mechanisms formulated, to meet the needs of all developing countries?

But that debt costs only 1 2 of GDP to service, allowing Japan to remain solvent. Likewise, Greece can now manage its public debt burden, which stands at about 175 of GDP, thanks to the ultra low interest rates and long maturities (longer than those on Japan s debt) granted by its European partners.

Fourth, there is no connection between the size of national debt and the price that a government must pay to finance it. The interest rates that Japan, the United States, the UK, and Germany pay on their national debt are equally low, despite vast differences in their debt levels and fiscal policies.

Provide debt relief to all developing countries, including debt cancellation to HIPC, as well as extending the HIPC initiative, and resolving the debt problems of LDCs, low and middle income developing countries that are not eligible to debt relief under the HIPC and to explicitly link debt relief to the national development plans and efforts aimed at achieving the internationally agreed development goals including the MDGs, as well as other development goals.

This fundamental problem has now manifested itself in these countries unsustainable debt dynamics. Euro membership, which temporarily enabled massive borrowing at low interest rates, merely aggravated it.

Mention is not made of other low income countries not included in the HIPC Initiative which might need full debt cancellation to reach their Millennium Development Goals.

The debt problems faced by many low and middle income developing countries continue to severely constrain their ability to accelerate economic development and to achieve the MDGs.

In October 2003, Paris Club creditors agreed on the Evian approach to deal with the debt of non HIPC low income and middle income countries, taking into account not only the financing gaps but also the medium term debt sustainability of these countries.

Debt relief and debt sustainability also needed to be addressed adequately as soon as possible in order to help achieve the Goals and Viet Nam welcomed the decision of the Group of 8 to cancel the outstanding debt to the World Bank, the IMF and the African Development Bank of 18 low income countries.

Indeed, the implementation of the Multilateral Debt Relief initiated by the G 8 already provides an unprecedented opportunity to complete the process of debt relief for a large number of low income countries. This also opens the way for the IMF to dispose of its current diffusion of activity in low income countries and intensify its agenda in the areas of its core expertise.

Promote a comprehensive and durable solution to the external debt problems of African countries, including through the cancellation of 100 per cent of multilateral debt consistent with the Heavily Indebted Poor Countries Initiative and significant reduction or cancellation of the debt of heavily indebted low and middle income developing countries that are not part of the Initiative

In fact, Greece's official creditors have granted it long enough grace periods and low enough interest rates that the burden is bearable. Greece actually spends less on debt service than Italy or Ireland, both of which have much lower (gross) debt to GDP ratios.

So, the prescription goes, why not generate higher inflation for a while? This will surprise fixed income investors who agreed in the past to lend long term at low rates, bring down the real value of debt, and eliminate debt overhang, thereby re starting growth.

In the case of Gabon, sustainability could be explained by good price prospects of petroleum exports, and in the case of the Dominican Republic the debt ratios are low.

(e) fully support efforts by the international community to raise bilateral grants to the LDCs and other low income countries, in addition to those grants provided through debt cancellation