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Methodology for evaluating debt relief

Geske Dijkstra Erasmus University Rotterdam and Policy and Operations Evaluation Department (IOB), MoFa, NL. Methodology for evaluating debt relief. What is debt relief Theory-based evaluation Alternative method: cross section econometrics Comparison of results

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Methodology for evaluating debt relief

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  1. Geske Dijkstra Erasmus University Rotterdam and Policy and Operations Evaluation Department (IOB), MoFa, NL Methodology for evaluating debt relief

  2. What is debt relief Theory-based evaluation Alternative method: cross section econometrics Comparison of results Conclusion: strength and weaknesses of theory-based evaluation Overview

  3. Relief on sovereign debts provided by official creditors: On debt service (flows) or on debt stocks Rescheduling versus cancellation Type of creditor: Bilateral: aid loans or export credits (“commercial”) Multilateral Private What is Debt Relief?

  4. A high and unsustainable debt may affect growth through: A large and (partly) not serviced debt stock, leading to a debt overhang that hampers capital inflows, investment, and incentives for policy reforms A large flow of debt service payments that reduces government physical and social investment Theory

  5. Debt overhang:The debt Laffer curve

  6. Intervention theory debt relief Debt relief may increase growth and poverty reduction through three channels: • A reduction in debt stock • A reduction in debt service flow • Through policy conditions attached to debt relief agreement

  7. Stock Flow Conditionality Inputs Different modalities Policy conditions Outputs Reduction of debt stock Increase in flow of resources Policy change Outcomes Stock effects: creditworthiness, private investment Flow effects: government investment Impact Economic growth Intervention logic debt relief

  8. Alternative method: Econometrics • Effect of debt relief on growth, investment, government spending • Via difference-in-difference method (Depetris Chauvin & Kraay ’05, Presbitero ‘09), or standard growth regression • Debt relief: present value of debt reduction, plus (Johansson ‘10) estimated reduction in market value of debt

  9. Theory-based evaluation of debt relief in the 1990s • IOB 2003, also in Dijkstra 2008: Evaluation of debt relief to 8 countries 1990-1999: • Bolivia, Jamaica, Nicaragua, Peru • Mozambique, Tanzania, Uganda, Zambia

  10. Comparison of results

  11. Conclusion on theory-based evaluation • Strength: can take into account: • Different debt relief modalities • Different channels of influence, including conditionality channel • Weaknesses: • Attribution of outputs possible, outcomes more difficult; impact via theory • Impact cannot be quantified

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