1 / 11

Application of the Bank-Fund Debt Sustainability Framework

Application of the Bank-Fund Debt Sustainability Framework. MDB Meeting on Debt Issues July 11, 2007 Hervé Joly, IMF. Outline. Recent changes in applying the DSF Raising awareness of debt sustainability risks: With borrowers With creditors Current challenges.

Download Presentation

Application of the Bank-Fund Debt Sustainability Framework

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Application of the Bank-Fund Debt Sustainability Framework MDB Meeting on Debt Issues July 11, 2007 Hervé Joly, IMF

  2. Outline • Recent changes in applying the DSF • Raising awareness of debt sustainability risks: • With borrowers • With creditors • Current challenges

  3. Recent Assessment (April and November 2006) • DSF has now been in use for about 2 years • Boards reviewed use of DSF in April 2006 and viewed it as broadly appropriate but asked for a deeper analysis of MDRI implications and other issues: • Apparent borrowing space • Changes in the lender landscape • Treatment of domestic debt • Proposed changes approved by Boards in end-2006 and implemented since

  4. Main Changes to DSF Application • Pace of New Borrowing • Using more systematically the precautionary features of the DSF. • Building more realistic macroeconomic scenarios • Additional precautionary features (5% “caution flag”) • Domestic Debt • Domestic debt matters for risk of debt distress... • ...but can’t be easily integrated into thresholds • Public sector DSA requirement • Possibility of “splitting the risk rating” • Private Creditors • Use of additional liquidity indicators as needed • Methodology • Use of a three-year moving average of the CPIA

  5. Improving Dissemination of DSAs • Effectiveness of DSF depends on broader information sharing by debtors and creditors • Dedicated webpages on DSAs http://www.imf.org/dsahttp://www.worldbank.org/debt • Boards requested that staffs increase outreach to debtors and creditors.

  6. Broader Use by Borrowers (I) • Active dialogue with borrowers. • Ultimate purpose of DSF is to enable borrowers to design appropriate financing strategies, i.e., a debt path that is sustainable while consistent with development plans and poverty reduction strategy • DSA key element for discussion of fiscal stance and determination of appropriate financing terms • DSA tool to obtain appropriate terms on new finance

  7. Broader Use by Borrowers (II) • Recognized need for stronger capacity building in the debt management area • Need to ensure better coordination of existing providers and initiatives • Boards have agreed to step up assistance. This will start with a pilot covering 4-6 countries a year. The situation will be reassessed in 18 months.

  8. Outreach to Creditors • IMF/WB have stepped up outreach to major creditor groups to raise their awareness of debt sustainability risks • MDBs • Traditional bilateral creditors • Export Credit Agencies • Non-OECD creditors • Some creditor groups are considering developing principles for sustainable lending

  9. Emerging Issues (I) • Non-OECD creditors: A diverse universe • Some raise specific challenges: • Expanding fast • Not members of traditional creditor fora • Limited information • Risk of overlap • May lend on nonconcessional terms • May not use conditionality

  10. Emerging Issues (II) • These creditors are difficult to approach: • May see DSF as an instrument of traditional creditors meant to constrain them • Blame traditional creditors for not living up to their aid scaling-up commitments • How do MDBs perceive non-OECD creditors? Do they collaborate with them? Do they have views on how they should be approached?

  11. Emerging Issues (III) • Concessional finance remains the most appropriate form of financing for LICs. • Although debt levels are much lower in many LICs post debt relief, they remain poor, highly susceptible to shocks, and with limited debt management capacity. • Debt relief has reduced the capacity of some creditors/donors to provide concessional finance • How do MDBs approach this problem?

More Related