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Debt Sustainability Framework for Low Income Countries

Debt Sustainability Framework for Low Income Countries. Progress Report Mark Roland Thomas Economic Policy and Debt Department The World Bank. Outline. Reminder of basic principles Implementation to date Issues going forward. DSF Principles.

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Debt Sustainability Framework for Low Income Countries

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  1. Debt Sustainability Framework for Low Income Countries Progress Report Mark Roland Thomas Economic Policy and Debt Department The World Bank Multilateral Development Banks

  2. Outline • Reminder of basic principles • Implementation to date • Issues going forward Multilateral Development Banks

  3. DSF Principles • Indicative debt burden thresholds depend on countries’ CPIA ratings • Forward looking: 20 year forecast period • Relies on macro framework and borrowing assumptions • Relies on staff judgment • Domestic debt • Other exogenous and policy risks • IDA now uses for decisions regarding grants • Part of IMF surveillance and program design Multilateral Development Banks

  4. Indicative Debt Burden Thresholds Multilateral Development Banks

  5. Forward Looking Multilateral Development Banks

  6. Analytical Issues • Growth forecasts • Financing assumptions • Stress tests • Domestic debt • International reserves Multilateral Development Banks

  7. IDA Grants • Low risk of debt distress  credits • All ratios below thresholds under stress tests • 60 percent grant element • Moderate risk of debt distress  50% grants • Ratios under thresholds under baseline but not necessarily under all stress tests • 80 percent grant element • High risk of debt distress  100% grants • At least one ratio above thresholds or stress tests driving ratios significantly above thresholds • … an ex-antemechanism to avoid future debt sustainability problems Multilateral Development Banks

  8. Implementation • 40+ LIC DSAs prepared • All IDA-only countries will shortly have DSAs completed • IDA grant allocations for FY07 based on DSAs where available • DSF Review being prepared by staff of the Bank and Fund for Boards in October Multilateral Development Banks

  9. Emerging Issues • Is “moderate risk” catching too many cases? • More than half the DSAs to date are in this category • How to deal more systematically with domestic debt • Does the MDRI imply the need for any adjustments? • “MDG finance” versus “new debt buildup” concerns • Can we coordinate creditors around the DSF? • How to deal with emerging creditors and the potential issue of “free riding” Multilateral Development Banks

  10. Next Steps • Continue to implement • DSAs on the web • DSF Review at Executive Boards of WB and IMF • Outreach: DSF as a coordination device • Further training Multilateral Development Banks

  11. Outreach and Training • Outreach • DSA as a tool for MDBs and ECAs • DSA as a tool for governments • Training • Bank economists • Partnerships with DRI and Regional capacity building organizations • CEMLA, WAIFEM, MEFMI, Pôle Dette • Link to debt management capacity building • UNCTAD, Commonwealth Secretariat Multilateral Development Banks

  12. Questions and Suggestions www.worldbank.org/debt mthomas1@worldbank.org Multilateral Development Banks

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