Debt Sustainability Framework for Low Income Countries

1
Debt Sustainability Framework for Low Income
Countries

• Progress Report
• Mark Roland Thomas
• Economic Policy and Debt Department
• The World Bank

2
Outline

• Reminder of basic principles
• Implementation to date
• Issues going forward

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

4
Indicative Debt Burden Thresholds
5
Forward Looking
6
Analytical Issues

• Growth forecasts
• Financing assumptions
• Stress tests
• Domestic debt
• International reserves

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-ante mechanism to avoid future debt
  sustainability problems

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

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

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

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

12
Questions and Suggestions

• www.worldbank.org/debt
• mthomas1_at_worldbank.org