Haque, TobiasPartow, ZeinabVarma, SonaOliveira, Luiz Edgard2016-04-052016-04-052016-03https://hdl.handle.net/10986/24009The papers in this series aim to provide a vehicle for publishing preliminary results on Macroeconomics and Fiscal Management (MFM) topics to encourage discussion and debate. This paper explores two new financing mechanisms that multilateral and bilateral development agencies could consider deploying to address problems of debt sustainability in small states. In this paper the authors provide an initial assessment of these proposals, informed by analysis of small state indebtedness and recent debt dynamics. Proposed financing instruments are predicated on assumptions that small states face high levels of indebtedness, and that reducing debt levels while increasing climate resilience could sustainably reduce such vulnerabilities. The authors find that levels of indebtedness vary widely across small states. Analysis of small state debt dynamics shows that small state debt accumulation has been driven by large primary and current account deficits and slow economic growth. Debt reduction from new mechanisms can only be expected to be sustainable, therefore, if countries simultaneously address the macroeconomic imbalances driving debt accumulation. The authors demonstrate that, while exposure to natural disasters is likely to have exacerbated economic management challenges in some small states, such exposures are unlikely to be the only important cause of indebtedness. The authors conclude that proposed new financing instruments can potentially help reduce small state debt burdens and gain fiscal space for climate adaptation but will not present a sustainable solution to problems of small state debt risks unless they involve macroeconomic and structural reforms to address the underlying imbalances driving rapid debt accumulation.en-USCC BY 3.0 IGODEBT SOURCEPUBLIC EXTERNAL DEBTCREDIT MARKETSPLEDGESDEFICITHOLDINGDEBT ACCUMULATIONCAPITAL MARKETSDEBT SUSTAINABILITY ANALYSESINTERNATIONAL CAPITALREAL INTEREST RATESPARTICULAR DEBTFISCAL DEFICITSINTERESTDEBTORSDEBT STOCKINTEREST RATEPRIVATE CREDITEXCHANGELOCAL GOVERNMENTSLIQUIDITYDEBT MANAGEMENTDEBT STATISTICSDEVELOPING COUNTRIESGOVERNMENT BORROWINGREPAYMENTSREAL INTERESTTOTAL DEBTINTERNATIONAL CAPITAL MARKETSEXPORTERSREVENUESPORTFOLIOLIQUIDITY RISKDOMESTIC DEBT MARKETSDEBT PORTFOLIOSDISCOUNTMULTILATERAL DEBT RELIEFMARKET ACCESSCURRENT ACCOUNT SURPLUSESINTERNATIONAL BANKDEBT BURDENSCREDITORSDEBT BURDENCREDITORCASH FLOWSINSTRUMENTSDEBT LEVELOUTSTANDING DEBT STOCKSBUDGETINITIAL DEBTCOMMERCIAL CREDITORSINDEBTEDNESSDOMESTIC CURRENCYNATURAL DISASTERDISBURSEMENTGRACE PERIODSACCESS TO FINANCINGPORTFOLIOSCURRENT ACCOUNTDEBTSMACROECONOMIC RISKSINTEREST RATESBANK DEBTTOTAL EXTERNAL DEBTNATURAL DISASTERSEXTERNAL INDEBTEDNESSMULTILATERAL CREDITORSMARKETSDEBTRETURNDEFICITSDEBT-RELIEFPUBLIC DEBT MANAGEMENTINTERNATIONAL DEBTDEBT SERVICING NEEDSMULTILATERAL DEBTDOMESTIC DEBTREAL INTEREST RATEAMORTIZATION PAYMENTSDEBT SERVICETRUST FUNDSFINANCECURRENT ACCOUNT DEFICITSEXPENDITUREDEBT LEVELSTRANSACTIONDEBT SUSTAINABILITY ANALYSISINTEREST PAYMENTSEXTERNAL DEBT STOCKDEBT REDUCTIONEXTERNAL DEBT SERVICECOUNTRY DEBTDOMESTIC MARKETSLEGAL OBLIGATIONFUTUREDEBT CRISESDEBT THRESHOLDCOMMERCIAL TERMSRETURNSCOMMERCIAL DEBTDEBT RELIEF INITIATIVESBUDGETSBAILOUTSREPAYMENTDEBT EXCHANGESCURRENT ACCOUNT DEFICITINSTITUTIONAL CAPACITYDIVERSIFIED PORTFOLIOSFACE VALUEREAL EXCHANGE RATEDEBT STOCKSMARKETDEBT RATIOSNET PRESENT VALUE OF DEBTPUBLIC DEBTSOLVENCYPRIVATE DEBTMACROECONOMIC VARIABLESAVERAGE DEBTGOVERNMENT DEBTDEBT MARKETSSTOCKSDEBT SERVICE REDUCTIONINVESTMENTDEBT SERVICE OBLIGATIONSOUTSTANDING DEBTBILATERAL DONORSSHARECOMPOSITION OF DEBTDEBT RESTRUCTURINGDEBT OBLIGATIONSEXTERNAL PUBLIC DEBTDEBT SERVICE PAYMENTSINSTITUTIONAL DEVELOPMENTDEBT REPAYMENTSEXTERNAL SHOCKSEXTERNAL DEBTINVESTMENTSTRUST FUNDPUBLIC SECTOR DEBTDEBT THRESHOLDSDEBT FORGIVENESSSWAPSLEVEL OF DEBTAMOUNT OF DEBTEXTERNAL FINANCINGMATURITIESDEBT SWAPEXCHANGE RATEDEBT SERVICINGDEBT SUSTAINABILITYPUBLIC SPENDINGDEBT CONVERSIONBILATERAL CREDITORSLIABILITIESMARKET RETURNSDEBT REDUCTIONSEXTERNAL LIQUIDITYDEBT DYNAMICSCASH FLOWDEVELOPMENT BANKSWAPDEBT RELIEFBILATERAL DONORINVESTINGWorking PaperWorld Bank10.1596/24009