Debt Sustainability
Debt "sustainability" is often defined as the ability of a country to meet its debt obligations without requiring debt relief or accumulating arrears. To assess this type of debt sustainability, three main international methodologies have been developed – Heavily Indebted Poor Countries Debt Relief Analyses , the Low Income Countries Debt Sustainability Framework (LIC-DSF) and the Middle-Income Countries Debt Sustainability Framework (MIC-DSF). They all involve making projections of intended borrowings and economic variables over a maximum 20-year period, and then using ratios comparing debt stock, present value or service with GDP, exports or budget revenue to assess payment capacity. For a discussion of the ratios and sustainability thresholds used in the HIPC and LIC-DSF methodologies, please click here.
These assessments are useful from a financial point of view. However, developing countries see debt sustainability as fully positive only if it is providing enough finance to reach their overall national development goals. Therefore the key aim of assessing debt sustainability should be to reconcile financing needs for development with sustainable debt levels DFI’s work always starts from this perspective and therefore sustainability analysis includes a scenario where the Millennium Development Goals and other national development plans (where these have been costed) are fully funded.
Latest work DFI carried out in this area:
17-29 October – Debt Sustainability Work in DRC
A Debt Sustainability Workshop was held in Kinshasa, Democratic Republic of Congo, on 17-29 October. The objective of the workshop was to enhance capacity in debt sustainability for staff from the Public Debt Department, the Ministry of Finance, the Ministry of Budget, and the Central Bank. About thirty staff were trained using the methodology developed by the World Bank and the IMF (Debt Sustainability Framework for Low Income Countries) in order to draft the country's debt sustainability report.
5 September - BMZ Seminar on Managing Sovereign Debt Crisis beyond HIPC
DFI helped to mobilize Development Countries Participants for the Workshop "Managing Sovereign Debt Crises beyond HIPC" hosted by the Federal Ministry of Development Co-operation (BMZ) in Berlin in June. For the organizers final report click here.25 July - 5 August – Southern Sudan Debt Policy and Capacity Building Mission
DFI was funded by the Joint Donor Capacity Building Trust Fund for Southern Sudan to help the Government of the newly-independent Republic of Southern Sudan to examine policy options for post-independence development financing – especially borrowing on concessional terms – and the institutional and capacity-building measures required to establish a debt management unit well coordinated with wider economic policymaking. To read more on Southern Sudan’s debt, click here.
April – September – LIC Debt Sustainability Analysis Report
DSAs results are available on the IMF site. The results for Benin, Cameroon, Kyrgyz Republic, Lao, Liberia, Mauritania, Moldova, Mozambique, Papua New Guinea, Rwanda, Senegal, Tajikistan and Tanzania are similar to those of the previous DSA. Ghana and Togo have improved and Cote d'Ivoire and Republic of Congo have worsened their status. The results for Zimbabwe show that the country is in debt distress.
26–29 April – MEFMI – Malawi Debt Sustainability Analysis Workshop
A successful DSA workshop with 22 participants was conducted by MEFMI as part of the HIPC CBP, to support the Malawi government by training staff in the use of the DSF tools. At the end of the workshop a draft DSA report was submitted to senior officials for comments. The exercise revealed that Malawi remains sustainable even in the presence of serious shocks and decline of GDP growth. The results of this DSA will feed into the 2011/12 budget framework and the review of the MTDS planned for the end of 2011.
