Debt sustainability and financing terms in IDA14 (English)
During the International Development Association - IDA13 - period, the Bank has been working with the International Monetary Fund (IMF), to develop a more systematic basis on which to identify countries at risk of debt distress, and hence, where more ... See More +
During the International Development Association - IDA13 - period, the Bank has been working with the International Monetary Fund (IMF), to develop a more systematic basis on which to identify countries at risk of debt distress, and hence, where more concessional financing is needed to help manage debt sustainability. A strong interest in debt sustainability has been indicated, as the central criterion for grants in IDA14, as well as support from the systematic classification of countries at risk of debt distress, and accordingly, the allocation of grants to a level responsive to need. The level of grants in IDA'S financing would therefore be an outcome, and not a pre-specified input. Using the debt sustainability criteria outlined in the Framework Paper could be a more optimal way to allocate grants in IDA, than did the IDA13 debt vulnerable classification which provided only one possible treatment for any "debt vulnerable" country. The proposed approach would differentiate between individual countries with higher, or lower levels of debt distress, through higher, or lower grant allocations. The Framework Paper also provides policy dependent debt burden thresholds, i.e. better performing countries are able to take on higher levels of debt, before being considered debt distressed. Going forward, the allocation system presented in this paper can be adapted to reflect further work underway by the IMF, and the Bank on elements of the Framework Paper. This paper discusses opportunities for IDA in incorporating the debt sustainability framework into credit, and grant-making decisions. Section II shows how IDA management proposes to build on the Framework Paper's approach, to identify countries where continued borrowing may lead to unsustainable debt ratios. Section III develops an allocation system to determine the appropriate mix of grants, and credits based on the country groups identified in Section II. Concluding remarks and next steps are presented in Section V, while Section VI summarizes the key issues for discussion. The technical arguments underpinning the findings of Sections II through IV are elaborated in a series of Annexes.
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