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Mr. Christian H. Beddies, Ms. Marie-Helene Le Manchec, and Ms. Bergljot B Barkbu

History has shown that debt sustainability matters for sustained development. LICs have struggled with large external debts and destabilizing macro-economic outcomes, and ultimately development has been constrained. Now many LICs' debt burdens have been reduced as a result of debt relief, raising new challenges. As described above, the DSF has been designed to help guide countries and donors in mobilizing resources to finance LICs' development needs while reducing the chances of an excessive buildup of debt. The financial landscape has and will continue to

Mr. Christian H. Beddies, Ms. Marie-Helene Le Manchec, and Ms. Bergljot B Barkbu

Abstract

Borrowing can help achieve economic and social objectives, and debt is its consequence. Many low-income countries (LICs) require substantial external financing to reach their development objectives, and stepped-up investment in infrastructure is critical to achieve sustained growth and development. External debt financing can help in this regard by channeling resources to projects where the rate of return of the debt-financed investment is at least sufficient to service the debt incurred.

Mr. Christian H. Beddies, Ms. Marie-Helene Le Manchec, and Ms. Bergljot B Barkbu

Abstract

When governments face resource constraints, they often resort to borrowing to finance their expenditure plans. When outlays exceed revenues, a government has two basic options: eliminate the deficit by cutting expenditures or raising more revenues, or finance it through new (net) borrowing, which increases the stock of public debt. Governments may borrow by issuing securities, such as government bonds and bills, or through loans from domestic or foreign institutions (Box 2.1).

Mr. Christian H. Beddies, Ms. Marie-Helene Le Manchec, and Ms. Bergljot B Barkbu

Abstract

Low-income countries continue to face significant challenges in meeting their vast development needs while maintaining a sustainable debt position, even after many of these countries have benefited from substantial debt relief. These challenges are further exacerbated by changes in the financial landscape, including the emergence of new creditors and investors, the use of more complex financing vehicles, and the development of domestic markets. The joint World Bank/IMF debt sustainability framework is well placed to help address these challenges and reduce the risks of renewed episodes of debt distress. This paper explains the analytical underpinnings of the framework and the means to ensure its full effectiveness.

Mr. Christian H. Beddies, Ms. Marie-Helene Le Manchec, and Ms. Bergljot B Barkbu

Abstract

Assessments of external and fiscal sustainability are key elements of the IMF's work. The IMF's advice on macroeconomic policies, in the context of both IMF-supported programs and surveillance, is anchored in an analysis of a country's capacity to finance its policy objectives and service the ensuing debt without unduly large adjustments that may compromise its stability and that of its economic partners.

Mr. Christian H. Beddies, Ms. Marie-Helene Le Manchec, and Ms. Bergljot B Barkbu

Abstract

To make it a fully effective tool, borrowers, donors, and lenders must act in broad harmony with the DSF. The DSF helps inform borrowers about the amount and types of financing that are consistent with long-term debt sustainability and progress toward achieving their development objectives. It also provides guidance to donors and lenders on lending and grant-allocation decisions that are consistent with these goals. The DSF can thus help minimize the risk of debt crises and promote the use of scarce concessional resources by the countries that need them most. Its effectiveness in achieving these objectives increases with the number of borrowers, donors, and lenders using it.

International Monetary Fund

’ existing export basket and/or introduce new higher value-added products, not only in manufacturing but also in agriculture – often the least productive sector in LICs. Development policies in LICs should therefore include rather than abandon agriculture. Cross-country empirical evidence points to a range of general policy and reform measures that have proven effective in promoting diversification and structural transformation in LICs. These include improving infrastructure and trade networks, investing in human capital, encouraging financial deepening, and reducing

International Monetary Fund

members in fragile situations, and enhance attention to small states, especially those that are most vulnerable to external shocks; and In LICs where the agenda is substantial: review concessional facilities and debt limit policies to ensure effective Fund support for LIC development agendas; assess exposure to global risks and related policy challenges such as building buffers; advise on financial deepening to foster macroeconomic stability in shallow financial markets and managing natural resource revenues; and improve technical assistance outcomes. 5. Adequate

International Monetary Fund. Strategy, Policy, & and Review Department

during the Global Financial Crisis, with a large impact on already weak health systems. LICsdevelopment is expected to be set back for several years and exacerbate divergence with advanced countries compared to the path expected before the crisis. A lack of fiscal space, limited access to financing and little room for monetary policy support have significantly restricted the scope for policy responses. While access to financial market eased relatively rapidly for most country groupings, they remained generally constrained for LICs. International efforts were

International Monetary Fund
As described in the latest Consolidated Multilateral Surveillance Report, policy actions in Europe and improving U.S. indicators have helped attenuate financial strains. But recent developments point to the fragility of the world economy and the need to come to grips with a formidable policy agenda. Among the challenges ahead are the immediate risks from a return of stresses in Europe and higher oil prices. Beyond that lie the risks from protracted low growth, too rapid fiscal consolidation in certain cases, deleveraging and uncertain medium-term policy frameworks in some key advanced countries. Many emerging markets may have to deal with inflation risks, elevated oil prices, the resurgence and volatility in capital inflows, and the consequences of extended credit booms. Delays in implementing global regulatory reforms also pose risks.