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Debt Sustainability in Times of Financial Crisis
Addis Ababa, 13 November 2009 – Economists attending the 4th African Economic Conference (AEC) in Addis Ababa have recommended a concessional funding for Low Income Countries during a period of protracted financial crisis.
In a Paper titled “Debt Sustainability and the Ongoing Financial Crisis: The Case Of IDA-only African Countries”, the researchers said debt burden indicators deteriorate significantly for all countries with the severity–length and/or depth–of the crisis, given the financial conditions under which a country finances its reduced exports proceeds.
However, the paper asserts, a tightening of financial conditions leads to a significant deterioration of liquidity or debt service indicators, but not so much on solvency or Present Value (PV) of-debt indicators.
“A tightening of financial conditions causes a significant deterioration in countries’ probability of debt distress, assessed by the distance from the threshold, although not so much in the length of the period (or number of episodes) during which a country’s threshold is breached,” the study says.
The study is based on data from 31 Africa countries eligible for loan and grants resources from the International Development Association (IDA) the soft loan window of the World Bank.