Publication: Debt Sustainability and the Ongoing Financial Crisis : The Case of IDA-Only African Countries
No Thumbnail Available
Published
2010
ISSN
10176772
Date
2012-03-30
Author(s)
Editor(s)
Abstract
The ongoing financial crisis has raised concerns in many circles about a potential future wave of sovereign defaults spreading among developing countries and, therefore, the need for additional rounds of debt relief in poor indebted countries. This paper addresses this issue for a group of 31 International Development Association (IDA)-only African countries, which are in a fragile debt situation. Using the most recent debt sustainability analyses (DSAs) undertaken for these countries by the World Bank and the IMF, this paper studies the potential adverse effect of the ongoing financial crisis on the countries' debt burden indicators, as a function of the depth and length of the crisis. The latter is measured by the fall and the duration of such fall in exports revenues, and by the terms at which each country can obtain financing to muddle through the crisis period. The analysis underscores the importance of concessional financing for these countries, especially if the crisis proves to be a protracted one. This, because the likelihood of countries being able to muddle through the crisis without defaulting on their external debt decreases with the hardening of the financial conditions faced by them--alternatively, the size of the downsizing in domestic (fiscal) expenditures needed to ensure the service of their foreign debts increases with the tightening of financial conditions.
Link to Data Set
Digital Object Identifier
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Citations
Collections
Related items
Showing items related by metadata.
Publication The Indonesian Economy amidst the Global Crisis : Good Policy and Good Luck(2010)The global economic crisis has caused economic collapse in many countries. Indonesia is obviously affected by this crisis, its export growth declined significantly. Nevertheless, the impact of the crisis on the Indonesian economy is relatively limited compared to other countries in the region, including Singapore, Malaysia, and Thailand. This situation leads into a question of why the impact of the global crisis on the Indonesian economy is relatively limited so far. Is it because of the structure of Indonesia's trade or the effectiveness of Indonesia's fiscal policy and monetary response? This paper argues that there are at least two reasons why Indonesia's performance was relatively good. Firstly, it was due to the appropriate policy responses both from Bank Indonesia and the Indonesian government. Secondly, Indonesia's relatively small export share to GDP saved the country from the global financial crisis. This was more a case of good luck than deliberately planned economic policy strategy. Nevertheless, this paper indicates that exports are a source of Indonesia's economic growth. Exports have a large effect in supporting economic growth, albeit less stable compared to domestic demand. Because of this, a strategy safeguarding a balance between domestic economy and global orientation, such as becoming a part of a production network and promoting export-oriented growth, must be a part of the development strategy of the national economy.Publication How Global Financial Markets Affect Sub-Saharan Africa(2010)This paper uses a unique database covering 44 countries in sub-Saharan Africa between 2000 and 2007 to study the determinants of the allocation and composition of private capital flows across countries, as well as channels through which these flows could affect growth. In the sample, the degree of financial market development is an important determinant of the distribution of capital flows across countries, as opposed to property rights institutions. The fairly consistent positive association between net capital flows and growth for sub-Saharan African countries is encouraging, though the data do not allow for making conclusive inferences about a causality relationship.Publication Banking Flows and Financial Crisis : Financial Interconnectedness and Basel III Effects(2011-08-01)This paper examines the factors that determine banking flows from advanced economies to emerging markets. In addition to the usual determinants of capital flows in terms of global push and local pull factors, it examines the role of bilateral factors, such as growth differentials and economic size, as well as contagion factors and measures of the depth in financial interconnectedness between lenders and borrowers. The analysis finds profound differences across regions. In particular, in spite of the severe impact of the global financial crisis, banking flows in emerging Europe stand out as a more stable region than is the case in other developing regions. Assuming that the determinants of banking flows remain unchanged in the presence of structural changes, the authors use these results to explore the short-term implications of Basel III capital regulations on banking flows to emerging markets.Publication Bank Ownership and Lending Patterns during the 2008-2009 Financial Crisis : Evidence from Latin America and Eastern Europe(World Bank, Washington, DC, 2012-09)This paper examines the impact of bank ownership on credit growth in developing countries before and during the 2008-2009 crisis. Using bank-level data for countries in Eastern Europe and Latin America, it analyzes the growth of banks' total gross loans as well as the growth of corporate, consumer, and residential mortgage loans. Although domestic private banks in Eastern Europe and Latin America contracted their loan growth rates during the crisis, there are differences in foreign and government-owned bank credit growth across regions. In Eastern Europe, foreign bank total lending fell by more than domestic private bank credit. These results are primarily driven by reductions in corporate loans. Furthermore, government-owned banks in Eastern Europe did not act counter-cyclically. The opposite was true in Latin America, where the growth of government-owned banks' corporate and consumer loans during the crisis exceeded that of domestic and foreign banks. Contrary to the case of foreign banks in Eastern Europe, those in Latin America did not fuel loan growth prior to the crisis and did not contract lending at a faster pace than domestic banks during the crisis.Publication Macro Volatility and Financial Crisis in Thailand : Some Historical Evidence(2009)This paper uses national income identity to explain the causal relationships among Thailand's aggregate volatility, deficient financial structure, financial liberalization, and financial crisis in this country. Relatively good macroeconomic policies and diversified structure were able to compensate for financial imperfections and weak corporate governance in the financial sector in the period 1970-90. Under these conditions, real GDP growth was positive, inflation was relatively low, and consumption was relatively less volatile than GDP. The 1997 crisis, however, severely affected the ability of central authorities to smooth fluctuation. Investment and consumption volatility increased substantially. This implies that, when counter-cyclical policies are difficult to implement and incomplete markets exist, it is much more difficult to stabilize consumption.
Users also downloaded
Showing related downloaded files
No results found.