june 21, 2006multilateral development banks1 debt sustainability framework for low income countries...
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June 21, 2006 Multilateral Development Banks 1
Debt Sustainability Framework for Low Income Countries
Progress Report
Mark Roland ThomasEconomic Policy and Debt Department
The World Bank
June 21, 2006 Multilateral Development Banks 2
Outline
Reminder of basic principlesImplementation to dateIssues going forward
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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
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Indicative Debt Burden Thresholds
Strength of Policies and Institutions
Ratio: CPIA≤3.25 3.25<CPIA<3.75 CPIA≥3.75
Debt Service to Exports
15 20 25
Debt Service to Revenue
25 30 35
NPV Debt to GDP 30 40 50
NPV Debt to Exports
100 150 200
NPV Debt to Revenue
200 250 300
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Forward Looking
Debt service-to-exports ratio
0
2
4
6
8
10
12
14
16
18
20
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Baseline
Oil Price Shock
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Analytical Issues
Growth forecastsFinancing assumptionsStress testsDomestic debtInternational reserves
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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
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Implementation
40+ LIC DSAs preparedAll IDA-only countries will shortly have
DSAs completedIDA grant allocations for FY07 based on
DSAs where availableDSF Review being prepared by staff of the
Bank and Fund for Boards in October
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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”
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Next Steps
Continue to implementDSAs on the webDSF Review at Executive Boards of WB
and IMFOutreach: DSF as a coordination deviceFurther training
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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
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Questions and Suggestions
www.worldbank.org/debt