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Making the Low-Income Country Debt Sustainability Framework Fit for Purpose

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dc.contributor.authorGill, Indermit
dc.date.accessioned2023-11-14T14:19:24Z
dc.date.available2023-11-14T14:19:24Z
dc.date.issued2023-11-14
dc.description.abstractThe World Bank and the International Monetary Fund use the Low-Income Country Debt Sustainability Framework to assess the sustainability of sovereign debt in about 75 low- and middle-income developing countries. It is overdue for a review, and this paper recommends that it be replaced for three reasons. First, it was designed when official concessional external debt was virtually synonymous with public debt. Over the past decade, however, the marginal cost of borrowing for Low-Income Country Debt Sustainability Framework countries has been defined increasingly by domestic and external debt markets. This has rendered the framework largely obsolete. Second, the framework focuses mainly on external debt, but development outcomes in the framework countries are more closely related to overall public debt. The mission of the World Bank—and, increasingly, the International Monetary Fund—is to improve growth, stability and living standards. So public debt ought to be the principal focus of the revised Low-Income Country Debt Sustainability Framework. Third, causality in the framework countries flows from fiscal deficits to current account deficits rather than the other way around, and the public component constitutes the lion’s share of total external debt. To focus on external debt distress in these circumstances is tantamount to tackling the symptom—accumulated current-account deficits—instead of the fundamental cause: fiscal deficits, or the gap between government investment and saving. The experiences of Ethiopia, Ghana and Zambia illustrate the arguments. The paper recommends a framework based on nominal public debt and its dynamics, supplemented with a thorough analysis of international liquidity. Discarding the Low-Income Country Debt Sustainability Framework could well be disruptive in the short run. However, the alternative would be worse: retaining an obsolete framework that has failed to anticipate public debt crises and is poorly aligned with the Sustainable Development Goals.en
dc.identifierhttp://documents.worldbank.org/curated/en/099138311092310534/IDU0f7d657e600e14045fa0913f066d33d53954a
dc.identifier.doi10.1596/1813-9450-10602
dc.identifier.urihttps://openknowledge.worldbank.org/handle/10986/40604
dc.languageEnglish
dc.language.isoen
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Papers; 10602
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttps://creativecommons.org/licenses/by/3.0/igo/
dc.subjectDEBT SUSTAINABILITY
dc.subjectLOW-INCOME COUNTRY DEBT SUSTAINABILITY FRAMEWORK
dc.subjectOVERAL PUBLIC DEBT
dc.subjectFISCAL DEFICIT FLOW
dc.subjectSUSTAINABLE DEVELOPMENT
dc.titleMaking the Low-Income Country Debt Sustainability Framework Fit for Purposeen
dc.typeWorking Paper
dspace.entity.typePublication
okr.crossref.titleMaking the Low-Income Country Debt Sustainability Framework Fit for Purpose
okr.date.disclosure2023-11-09
okr.date.lastmodified2023-11-09T00:00:00Zen
okr.doctypePolicy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/099138311092310534/IDU0f7d657e600e14045fa0913f066d33d53954a
okr.guid099138311092310534
okr.identifier.docmidIDU-f7d657e6-0e14-45fa-913f-66d33d53954a
okr.identifier.doi10.1596/1813-9450-10602
okr.identifier.doihttp://dx.doi.org/10.1596/1813-9450-10602
okr.identifier.externaldocumentum34194257
okr.identifier.internaldocumentum34194257
okr.identifier.reportWPS10602
okr.import.id2290
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/099138311092310534/pdf/IDU0f7d657e600e14045fa0913f066d33d53954a.pdfen
okr.region.countryEthiopia
okr.region.countryGhana
okr.region.countryZambia
okr.topicFinance and Financial Sector Development::Debt Markets
okr.unitOff of Sr VP Dev Econ/Chief Econ (DECVP)
relation.isAuthorOfPublication211cec36-3fba-5b57-91c5-72448bf62eb6
relation.isAuthorOfPublication.latestForDiscovery211cec36-3fba-5b57-91c5-72448bf62eb6
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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