Policy, vulnerability and the new debt sustainability framework

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.

Africa : out of debt, into fiscal space? Dynamic fiscal impact of the debt relief initiatives on African Heavily Indebted Poor Countries (HIPCs)

International audienceAfter two debt relief initiatives launched in 1996 (the Heavily Indebted Poor Countries, HIPC Initiative) and in 1999 (The enhanced HIPC initiative), the G7 decided to go further by cancelling (most of) the remaining multilateral debt for these HIPC countries through the Multilateral Debt Relief Initiative (MDRI, 2005). Building on earlier literature that tries to assess the fiscal response effects of HIPC debt relief, we extend this assessment by explicitly including the fiscal response effects of MDRI debt relief, and by using an extended dataset and alternative econometric techniques, in order to have sufficient hindsight and better tackle methodological issues such as country specific effects. We confirm earlier findings that debt relief, and especially the enhanced HIPC initiative, has had a positive impact on recipient country total domestic revenue and public investment (as percentage of GDP). Additionally, thanks to our large observation span, we also observe that the MDRI led to a significant increase in current primary expenditures and domestic revenue ratios, although these effects are on average smaller than the HIPC Initiative ones