We need to move forward—or backward—in what we expect development finance institutions (DFIs) to do in terms of financing private sector development in the world’s poorest countries.
CGD Policy Blogs
More World Bank Borrowers Will Need Grants, Not Loans. As a Result, More World Bank Donors Will Need to Pony Up
Rather than providing relief on repayments from existing loans, IDA’s debt sustainability framework adjusts future financing from loans to grants for countries at high risk of debt distress. But what happens to IDA’s loans-to-grants model when a large number of IDA countries trigger the risk thresholds? Can IDA afford its commitment to debt sustainability?
With a Debt Crisis Looming, Researchers Who Estimated China’s “Hidden” Lending Respond to Their Critics
Last year, economists Sebastian Horn, Carmen Reinhart, and Christoph Trebesch put forward estimates of the Chinese government’s external (“overseas”) lending in a working paper. Their work was a landmark effort in a number of respects. Perhaps not surprisingly for a working paper, Horn et al. also attracted critics. In a new note for CGD, Horn et al. respond to this criticism.
Let’s unpack our arguments for why a debt standstill would be the wrong move for IDA at this point in time.
Calling All Official Bilateral Creditors to Poor Countries: Switch to IDA Concessional Terms as Part of COVID-19 Response
Overall public debt in IDA countries has risen rapidly since before the global financial crisis; and while debt to private creditors (mostly in the form of bonds or bank loans) has increased, the biggest increases have come from multilateral and official bilateral credits.
We are so accustomed to the Chinese government’s lack of transparency that the opaqueness of China’s overseas loans seems unremarkable at this point. But as we face what inevitably looks like a global debt crisis, one that is likely to hit low-income countries particularly hard, a clear accounting of the scale of the problem is critical.
In new research, we find that China’s role as a creditor has likely been a key driver of more burdensome lending terms in the form of higher interest rates, shorter maturities, and shorter grace periods for lower-income countries.
This week, World Bank president David Malpass took the unusual step of calling out the bank’s peer institutions, the Asian Development Bank (ADB) and African Development Bank, for lending irresponsibly into unsustainable debt environments.