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Policy, vulnerability and the new debt sustainability framework

  • Benno Ferrarini

    (World Trade Institute, Bern, Switzerland)

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    We investigate the empirical foundations of the New Debt Sustainability Framework (NDSF), which was recently endorsed by the IMF and the World Bank in support of low-income countries' (LICs) debt sustainability. Our empirical re-assessment questions the existence of a probabilistic relationship between the quality of countries' policies and institutions and their risk of debt distress. In contrast, we find that indicators of economic vulnerability are more significant predictors of debt distress among LICs. We argue that the NDSF is bound to distort aid allocation away from the country-specific circumstances which truly matter for the achievement of debt sustainability. Copyright © 2008 John Wiley & Sons, Ltd.

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    Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

    Volume (Year): 21 (2009)
    Issue (Month): 7 ()
    Pages: 895-914

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    Handle: RePEc:wly:jintdv:v:21:y:2009:i:7:p:895-914
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    1. Madhur Gautam, 2003. "Debt Relief for the Poorest : An OED Review of the HIPC Initiative," World Bank Publications, The World Bank, number 15164, September.
    2. Kevin Ross & R. Brooks & Robert Powell & Ydahlia A. Metzgen Quemarez & Doris C. Ross & Mariano Cortes & Saqib Rizavi & Benoit Ketchekmen & Francesca Fornasari, 1998. "External Debt Histories of Ten Low-Income Developing Countries: Lessons from Their Experience," IMF Working Papers 98/72, International Monetary Fund.
    3. Kraay, Aart & Nehru, Vikram, 2004. "When is external debt sustainable?," Policy Research Working Paper Series 3200, The World Bank.
    4. Kanbur, Ravi, 2005. "Reforming the Formula: A Modest Proposal for Introducing Development Outcomes in IDA Allocation Procedures," Working Papers 127071, Cornell University, Department of Applied Economics and Management.
    5. P. Guillaumont & L. Chauvet, 2001. "Aid and Performance: A Reassessment," Journal of Development Studies, Taylor & Francis Journals, vol. 37(6), pages 66-92.
    6. Christopher L. Gilbert & Alexandra Tabova, 2005. "Can we link concessional debt service to commodity prices?," Department of Economics Working Papers 0508, Department of Economics, University of Trento, Italia.
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