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Borrowing is a critical source of financing for human and physical investment. Yet for developing countries borrowing presents unique financial challenges the investment it supports often has diffuse and long-term benefits. Going into the COVID-19 crisis, a growing number of developing countries were facing difficulties in managing their debt, which have been aggravated in the wake of the pandemic.
In this body of work, CGD experts address the following questions: How should borrowing be used to overcome the immediate crisis and relaunch a sustainable and resilient recovery? Can debt relief provide a short-term palliative? For how long? When should longer-term debt restructuring be considered? How can the global community deal help developing countries deal with private sector debt? What is the role of “new” official creditors that were not part of previous debt relief initiatives?
Nigeria is currently classified by the World Bank as a ‘blend’ country, making it the poorest country in the world that does not have ‘IDA-only’ status. This paper uses the World Bank’s own IDA eligibility criteria to assess whether Nigeria has a case for reclassification.
The British proposal to create an International Finance Facility in order to 'frontload' $50 billion in aid per year until 2015 has generated a lot of attention and will likely be a major topic at the G8 meeting this July. But the IFF has also been shrouded in confusion and misconceptions. This paper explains the IFF proposal and highlights some of the common misunderstandings surrounding it, including the mechanics of the scheme itself, the potential for a U.S. role, and the expectations of aid which underlie the IFF’s premise. The UK deserves plaudits for elevating global poverty on the international agenda and for seeking ways to better harness the power of private capital markets for development. But the IFF, as currently conceived, is an idea that merits more scrutiny and a healthy dose of skepticism.
Time to put to rest the stale debate over whether the World Bank should disburse grants or loans to the world’s poorest countries. It is critical that the Bank provide more of its funding as grants, but in a more rational manner than has been the case to date. A third Bank window should distribute grants – and grants only – to very poor countries, for example, with incomes below $500 per capita. Shifting to grants-only for the very poorest countries would ensure they never again find themselves with unpayable debt burdens, and would allow them to re-invest resources into their own economies rather than repay the Bank.
Agence France Presse reported last week that Dominique Strauss-Kahn, France's candidate to head the IMF, told Brazilian President Luiz Inacio Lula da Silva that he wants to reform the IMF--including how the head of the international lender of last resort is selected. Marco Aurelio Garcia, Lula's advisor for international policy, briefed reporters after the two men met. According to AFP:
He said the Socialist party leader and former French finance minister told Lula change was needed in the IMF in "three key areas," including how member states were represented, how its managing director is selected and its operating program....
Strauss-Kahn after his meeting with Lula told reporters, "If I am a candidate, it is because I want to change the IMF."