Debt sustainability framework for low-income countries upgraded

• Pages: 343

Page 343

After providing debt relief to the world's poorest heavily indebted countries, the IMF and the World Bank have strengthened a key tool-their debt sustainability framework- designed to help low-income countries adopt prudent borrowing strategies and foster better information exchange between creditors and borrowers.

Speaking to reporters on December 7, Adnan Mazarei and Martine Guerguil of the IMF's Policy Development and Review Department explained that a dramatic reduction in debt burdens under the Multilateral Debt Relief Initiative had created opportunities for low-income countries to invest more in achieving the Millennium Development Goals, but it also raises new sources of vulnerabilities that could lead to another round of debt problems.

While the rise of "emerging donors," such as Brazil, China, India, and oil producing countries, offers the potential for greater resources for economic development, it also requires informed decisions on the part of borrowers, and better information exchanges among creditors to avoid misuse of these resources.

Enhancing the framework

To help borrowers and lenders better take into account this new environment, the upgraded framework provides

* a stronger basis for the growth projections used in the framework. Debt distress is often triggered by low growth.

* alerts when debt buildups or growth assumptions are abnormally high.

* careful...