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What to do after the clean slate? Post-relief public debt sustainability and management

Author

Listed:
  • Danny Cassimon

    (IOB, University of Antwerp)

  • Dennis Essers

    (IOB, University of Antwerp)

  • Karel Verbeke

    (IOB, University of Antwerp)

Abstract

Major international public debt relief initiatives for low-income countries are nearing their end. This report reflects on the legacy of such initiatives and casts some light on the future. First, we summarise the literature on the evolution and effects of past debt relief efforts. We find that grand, concerted initiatives like HIPC and MDRI have been necessary interventions to render low-income countries’ debt stocks and service sustainable again, although their impact on governance, investment, pro-poor spending, and ultimately, growth and poverty reduction remains difficult to gauge. Based on the latest IMF’s DSAs, the immediate prospects for debt sustainability in former HIPCs seem moderately positive, albeit with a few exceptions. In the second part of the report we document a number of post-relief trends in development financing and (planned) initiatives deemed to be of importance for debt sustainability and management over the medium- to longer-term. Among the evolutions that require close monitoring are the growing importance of loans in overall ODA, the crossing of World Bank’s IDA eligibility thresholds by fast-growing former HIPCs, the aid-cum-investment packages of emerging donors, and ex-HIPCs’ recently acquired access to international and domestic capital markets. We argue that, above all, countries themselves will need to better manage the key drivers of public debt dynamics, through prudent fiscal, monetary and exchange rate policies and growth-enhancing strategies. Donors should continue to assist countries by improving the DSA/DSF framework and extending current activities aimed at building local debt management capacity. Lastly, we compare ‘market-based’ and ‘statutory’ approaches to future restructuring of non-concessional public debt, i.e., adaptations to the contractual clauses of international bonds vs. a full-fledged multilateral legal framework. Whereas the first approach has already achieved some successes, it has limited scope and does not address problems beyond collective action failures. Conversely, the second approach is more comprehensive but faces many hurdles, not the least of which is opposition from the main financial centres.

Suggested Citation

  • Danny Cassimon & Dennis Essers & Karel Verbeke, 2015. "What to do after the clean slate? Post-relief public debt sustainability and management," BeFinD Working Papers 0103, University of Namur, Department of Economics.
  • Handle: RePEc:nam:befdwp:0103
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    References listed on IDEAS

    as
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    Cited by:

    1. Florence Dafe & Dennis Essers & Ulrich Volz, 2018. "Localising sovereign debt: The rise of local currency bond markets in sub‐Saharan Africa," The World Economy, Wiley Blackwell, vol. 41(12), pages 3317-3344, December.
    2. Danny Cassimon & Dennis Essers & Karel Verbeke, 2018. "Sovereign Debt Workouts: Quo Vadis?," Africagrowth Agenda, Africagrowth Institute, vol. 15(3), pages 4-8.
    3. Christian Senga & Danny Cassimon & Dennis Essers, 2018. "Sub-Saharan African Eurobond yields: What really matters beyond global factors?," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 8(1), pages 49-62.
    4. Welander, Anna, 2016. "Does Debt Relief Improve Child Health? Evidence from Cross-Country Micro Data," Working Papers 2016:29, Lund University, Department of Economics.
    5. Eberhardt, Markus, 2018. "(At Least) Four Theories for Sovereign Default," CEPR Discussion Papers 13084, C.E.P.R. Discussion Papers.
    6. Danny Cassimon & Dennis Essers & Karel Verbeke, 2016. "The changing face of Rwanda's public debt," BeFinD Working Papers 0114, University of Namur, Department of Economics.

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    More about this item

    Keywords

    public debt; debt relief; debt restructuring; debt sustainability; HIPC;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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