World Bank revises debt framework for low-income countries

The World Bank’s Board of Executive Directors has approved a number of improvements to the analytical framework used for assessing debt sustainability and allocating IDA resources in low-income countries.

These improvements, according to the Washington-based lender in a statement February 23, 2012, are to ensure the framework remains “relevant given the changing macroeconomic landscape facing low-income countries.”

The paper, Revisiting the Debt Sustainability Framework for Low-Income Countries, which also was discussed by the Board of the International Monetary Fund (IMF) last week, provides a comprehensive review of the Debt Sustainability Framework (DSF), a joint World Bank-IMF tool used to conduct public and external debt sustainability analysis.

Based on analytical work and consultations with a range of stakeholders, the proposals endorsed by the Bank’s Board include:

·   Refining the analysis of debt thresholds by giving more prominence to country-specific factors affecting debt sustainability in low-income countries.

·   Improving the analysis of public debt and fiscal vulnerabilities, to guide external and domestic borrowing decisions.

·   Simplifying the implementation of the debt sustainability analysis to allow country authorities to undertake their own analyses, achieve greater transparency and strengthen their ownership of the DSF.

·   Strengthening the link between debt-financed investment and growth by relying on analytical models developed by IMF and World Bank staff to better capture the expected economic and social returns from investments.

The World Bank’s Director for Economic Policy and Debt, Jeffrey D. Lewis said “Underlying this revision of the DSF is the reality and recognition that low-income countries need to finance an enormous investment gap in order to achieve sustainable growth.”

It’s key to adapt the DSF to help low-income countries meet the new challenges and enhance the policy dialogue with their development partners, Lewis added.

By Ekow Quandzie