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Debt sustainability and financing terms in IDA14 : further considerations on issues and options (English)

This paper responds to the requests made at the third meeting of the IDA14 negotiations for more work on selected elements of the proposal, to make the primary grant eligibility criterion in IDA14 a country's risk of debt distress. At this meeting, Deputies stressed that while addressing the broad issue of debt sustainability, the new grant allocation system for IDA14 should, to the maximum extent, preserve the performance and incentive aspects of IDA'S performance-based allocation (PBA) system, as well as provide poor countries with an adequate volume of resource transfers, in order to accelerate progress towards the Millennium development Goals (MDGs). The paper takes as its starting point the joint Bank-Fund work on a debt sustainability framework, which provides the analytical foundation for the link between debt sustainability and grant eligibility. While the principles underpinning this work have been broadly endorsed, there is also a clear preference for lowering the policy-dependent debt and debt-service thresholds, to help lower the overall risk of actual debt distress situations. The paper is organized according to the same road-map as the previous papers, starting with issues related to eligibility criteria, followed by grant allocation issues, and lastly financing issues. Section II assesses the implications of the revised set of thresholds proposed by the staffs of the Bank and the Fund for IDA14 grant eligibility, and for the overall grant share. It also discusses other grant eligibility issues, including exceptional HIV/AIDS grants for IDA-only countries that would be ineligible for grants under a debt distress criterion; grants for regional projects; and, the "free rider" problem. Section III examines different options for reallocating the resources from the volume discount on grants associated under the proposed Modified Volume Approach. Section IV focuses on grant-financing issues, and discusses the workings of a "hard terms" window, proposed to be set up using the charges-related portion of the volume discount. Summary conclusions are presented in Section V, and suggested issues for discussion are outlined in Section VI. Updated external debt information and country rankings are presented in the tables in Annex 1. The implications of adopting five, rather than three, grant eligibility categories are examined in Annex 2.

Details

  • Document Date

    2004/11/01

  • Document Type

    Board Report

  • Report Number

    30902

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2010/07/01

  • Doc Name

    Debt sustainability and financing terms in IDA14 : further considerations on issues and options

  • Keywords

    Country Policy and Institutional Assessment;risk of debt;per capita income;debt sustainability framework;net present value;impact of shock;debt distress risk;income due;debt sustainability analysis;cash flow profile;balance of payment;country assistance strategy;Country Assistance Strategies;export credit agencies;list of countries;terms of trade;commodity price shock;gross national income;traffic light system;quality of policy;share of credit;reallocation of resource;return on investment;country credit risk;regional development bank;Learning and Innovation Credit;exogenous shock;green light;grant financing;free rider;grant allocation;grant element;resource transfer;eligibility criterion;blend country;financing terms;discount rate;debt service;debt threshold;lending window;country ranking;base case;government contract;concessional lending;alternative use;service charges;empirical analysis;Lending Product;hipc initiative;aids program;interest charge;debt relief;operational framework;liquid asset;allocation system;incentive structure;debt information;lending rate;credit agreement;short-term adjustment;long-term impact;reasonable estimate;beneficiary country;baseline regression;performance categories;macroeconomic variable;determining eligibility;oil price;international community;explanatory variable;absolute cut;resource flow;operational level;fixed service;incentive mechanism;net importer;investment return;distinct advantage;export incentive;resource constraint;grace period;export performance;principal payment;operational mechanism;debt stock;investment horizon;full repayment;treasury security;outstanding balance;common feature;income equal;project grant;Donor Contribution;future investment;Treasury securities;future debt;administrative expense;incentive system;natural disaster;investment portfolio;maximum extent;regression line;composite index;moral hazard;Debt Statistics;relative distance;red light;comparative advantage;determination process;financial strength;equity reasons;fiscal space;

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Citation

Debt sustainability and financing terms in IDA14 : further considerations on issues and options (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/771341468762925720/Debt-sustainability-and-financing-terms-in-IDA14-further-considerations-on-issues-and-options