Development Account Projects
Capacity building for debt sustainability in developing countries
Debt financing is considered an important vehicle for mobilizing resources for public and private investment in developing countries, in particular in countries with a small domestic savings capacity. It is essential for economic stability and development in developing countries to assure that the debt situation resulting from such financing does not become unsustainable. Goal 8 of the Millennium Declaration of the United Nations includes the target to “deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term.”
Since its launching in 1996, the initiative for debt relief of the Heavily Indebted Poor Countries (HIPC) has been at the centre of efforts to solve the problem of unsustainable debt burdens of the low-income countries in a comprehensive manner, but the issues of how to determine the sustainable level of debt and how to prevent unsustainable debt situations are largely unresolved. The Monterrey Consensus stressed that “Future reviews of debt sustainability should also bear in mind the impact of debt relief on progress towards the achievement of the development goals contained in the Millennium Declaration”, and also pointed to the need to address “the appropriateness of the debt sustainability assessments”. It called for a review of “the computational procedures and assumptions underlying debt sustainability analysis”. The Doha Ministerial Declaration acknowledged the importance of a durable solution to the problem of external indebtedness of developing and least developed countries, and of greater coherence of international trade and financial policies.
The World Summit on Sustainable Development, in its Plan of Implementation, agrees on the need to reduce unsustainable debt burdens through debt relief and to “restructure unsustainable debt in a timely and efficient manner, taking into account the need to involve the private sector in the resolution of crises due to indebtedness”. It also encourages “exploring innovative mechanisms to comprehensively address the debt problems of developing countries, including middle-income countries and countries with economies in transition”.
Identifying appropriate policy measures at the national and international level, and at strengthening the policy-making and managerial capacity in developing countries to help them attain and preserve a level and structure of debt that is sustainable in the long term as well as compatible with the resource needs to attain the MDGs for human development and poverty reduction.
- Improved capacity of policy makers in debtor countries and the international community to analyse the macroeconomic and structural requirements for debt sustainability
- Improved capacity of policy makers in debtor countries and the international community to understand and analyse the concepts underlying the appropriate definition and use of debt indicators, taking into account the increased interdependence between trade, finance, investment and debt
- Improved capacity of policy makers and debt managers to review the links between the accumulation of countries’ external and domestic government debt
- Improved capacity of individual countries to achieve and maintain sustainable levels of debt, including their capacity to participate effectively in international debt negotiations
- Enhanced economic cooperation among developing countries and strengthened regional and international efforts towards achieving debt sustainability in low and middle-income countries
The project started to have an impact, as a number of countries that have participated in the initial set of workshops are using the material that was distributed in planning the organization of their debt offices. The project will have further impact in the last year and beyond through the creation of online training activities and specific training of debt managers in the selected six countries. Questionnaires from the first series of workshops indicate that the project is having an impact on improving the capacity of policy-makers in debtor countries for analysing the macroeconomic and structural requirements for debt sustainability, enhancing the capacity for understanding and analysing the concepts underlying the appropriate definition and use of debt indicators, taking into account the increased interdependence between trade, finance, investment and debt, reviewing the links between the accumulation of countries’ external and domestic government debt, and maintaining sustainable levels of debt, including their capacity to participate effectively in international debt negotiations The project is also enhancing economic cooperation among developing countries and strengthening regional and international efforts towards achieving debt sustainability in low and middle-income countries.