June 21, 2006Multilateral Development Banks1 Debt Sustainability Framework for Low Income Countries Progress Report Mark Roland Thomas Economic Policy and Debt Department The World Bank

June 21, 2006Multilateral Development Banks2 Outline Reminder of basic principles Implementation to date Issues going forward

June 21, 2006Multilateral Development Banks3 DSF Principles Indicative debt burden thresholds depend on countries’ CPIA ratings Forward looking: 20 year forecast period Relies on macro framework and borrowing assumptions Relies on staff judgment  Domestic debt  Other exogenous and policy risks IDA now uses for decisions regarding grants Part of IMF surveillance and program design

June 21, 2006Multilateral Development Banks4 Indicative Debt Burden Thresholds Strength of Policies and Institutions Ratio:CPIA≤ <CPIA<3.75CPIA≥3.75 Debt Service to Exports Debt Service to Revenue NPV Debt to GDP NPV Debt to Exports NPV Debt to Revenue

June 21, 2006Multilateral Development Banks5 Forward Looking

June 21, 2006Multilateral Development Banks6 Analytical Issues Growth forecasts Financing assumptions Stress tests Domestic debt International reserves

June 21, 2006Multilateral Development Banks7 IDA Grants Low risk of debt distress  credits  All ratios below thresholds under stress tests  60 percent grant element Moderate risk of debt distress  50% grants  Ratios under thresholds under baseline but not necessarily under all stress tests  80 percent grant element High risk of debt distress  100% grants  At least one ratio above thresholds or stress tests driving ratios significantly above thresholds … an ex-ante mechanism to avoid future debt sustainability problems

June 21, 2006Multilateral Development Banks8 Implementation 40+ LIC DSAs prepared All IDA-only countries will shortly have DSAs completed IDA grant allocations for FY07 based on DSAs where available DSF Review being prepared by staff of the Bank and Fund for Boards in October

June 21, 2006Multilateral Development Banks9 Emerging Issues Is “moderate risk” catching too many cases?  More than half the DSAs to date are in this category How to deal more systematically with domestic debt Does the MDRI imply the need for any adjustments?  “MDG finance” versus “new debt buildup” concerns Can we coordinate creditors around the DSF? How to deal with emerging creditors and the potential issue of “free riding”

June 21, 2006Multilateral Development Banks10 Next Steps Continue to implement DSAs on the web DSF Review at Executive Boards of WB and IMF Outreach: DSF as a coordination device Further training

June 21, 2006Multilateral Development Banks11 Outreach and Training Outreach  DSA as a tool for MDBs and ECAs  DSA as a tool for governments Training  Bank economists  Partnerships with DRI and Regional capacity building organizations CEMLA, WAIFEM, MEFMI, Pôle Dette  Link to debt management capacity building UNCTAD, Commonwealth Secretariat

June 21, 2006Multilateral Development Banks12 Questions and Suggestions