Low-income countries continue to face significant challenges in meeting their vast development needs while maintaining a sustainable debt position, even after many of these countries have benefited ...from substantial debt relief. These challenges are further exacerbated by changes in the financial landscape, including the emergence of new creditors and investors, the use of more complex financing vehicles, and the development of domestic markets. The joint World Bank/IMF debt sustainability framework is well placed to help address these challenges and reduce the risks of renewed episodes of debt distress. This paper explains the analytical underpinnings of the framework and the means to ensure its full effectiveness.
When Is External Debt Sustainable? Kraay, Aart; Nehru, Vikram
The World Bank economic review,
01/2006, Volume:
20, Issue:
3
Journal Article
Peer reviewed
Open access
The article empirically examines the determinants of debt distress, defined as periods in which countries resort to any of three forms of exceptional finance: significant arrears on external debt, ...Paris Club rescheduling, and nonconcessional International Monetary Fund lending. Probit regressions show that three factors explain a substantial fraction of the cross-country and time-series variation in the incidence of debt distress: the debt burden, the quality of policies and institutions, and shocks. The relative importance of these factors varies with the level of development. These results are robust to a variety of alternative specifications, and the core specifications have substantial out-of-sample predictive power. The quantitative implications of these results are examined for the lending strategies of official creditors.
Debt Relief and Beyond Primo Braga, Carlos A; Braga, Carlos Alberto Primo
2009, 10-06-2009, 20090101
eBook, Book
Open access
The history of debt relief goes back several decades. It reveals that a countrys accumulation of unsustainable debt stems from such factors as deficiencies in macroeconomic management, adverse ...terms-of-trade shocks, and poor governance. Debt-relief initiatives have provided debt-burdened countries with the opportunity for a fresh start, but whether the benefits of debt relief can be preserved depends on transformations in a countrys policies and institutions.In 1996, the Heavily Indebted Poor Countries (HIPC) Initiative was launched as the first comprehensive, multilateral, debt-relief framework for low-income countries. In 2005, the Multilateral Debt Relief Initiative was established, which increased the level of debt relief provided to HIPCs. As of early 2009, assistance through these two initiatives had been committed to 35 countries and amounted to US117 billion in nominal terms, or half of the 2007 GDP of these countries.Debt Relief and Beyond assesses the implications of debt relief for low-income countries and how its benefits can be preserved and used to fight poverty. The chapter authors bring unique operational experience to their examination of debt relief, debt sustainability, and debt management. Several key questions are addressed, including:What consequences does debt relief have for poverty-reducing expenditures, growth, and access to finance? Can debt relief guarantee debt sustainability? How can debt management at all levels of government be improved? What lessons can be learned from countries that have experienced debt restructuring? Finally, this book provides sound empirical evidence using current econometric techniques.
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