Arbeitspapier

Debt Sustainability in Low-Income Countries: The Grants versus Loans Debate in a World without Crystal Balls

When allocating their aid budget, development agencies need to decide whether to give outright grants or use concessional loans that blend a grant and credit element. Theory suggests that the degree of concessionality should be negatively correlated with debt sustainability. Several donors use the World Bank/IMF Debt Sustainability Framework to guide their aid decisions. They give loans to low-risk countries, a blend of loans and grants to medium-risk countries, and only grants to high-risk countries. The paper shows that there are problems with this approach and proposes an alternative allocation mechanism based on GDP-indexed concessional loans.

Language
Englisch

Bibliographic citation
Series: FERDI Working Paper ; No. P120

Classification
Wirtschaft
International Monetary Arrangements and Institutions
International Lending and Debt Problems

Event
Geistige Schöpfung
(who)
Panizza, Ugo
Event
Veröffentlichung
(who)
Fondation pour les études et recherches sur le développement international (FERDI)
(where)
Clermont-Ferrand
(when)
2015

Handle
Last update
20.09.2024, 8:21 AM CEST

Data provider

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Object type

  • Arbeitspapier

Associated

  • Panizza, Ugo
  • Fondation pour les études et recherches sur le développement international (FERDI)

Time of origin

  • 2015

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