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Public debt in low-income countries: current state, restructuring challenges and lessons from the past

Author

Listed:
  • Raffaele De Marchi

    (Bank of Italy)

Abstract
In the face of high and rising debt vulnerabilities in low-income countries (LICs), the G20 Common Framework for Debt Treatments provides an important tool to facilitate debt restructurings, but its implementation has so far been hampered by delays and difficulties. Drawing also from a comparison with past debt relief initiatives (HIPC and MDRI), this paper analyses the main challenges for successful debt restructurings in the current environment characterized by a greater diversity of debt structures in terms of instruments and creditors. The presence of a dominant bilateral lender and the increased role of private creditors make it hard to replicate the solutions applied in the past to reduce LICs’ debt. The current challenges also reflect a distributional conflict between advanced economies and China as to the allocation of the losses deriving from debt relief, which also involves a different approach regarding the role to be played by Multilateral Development Banks in support of the countries in need of debt restructurings.

Suggested Citation

  • Raffaele De Marchi, 2022. "Public debt in low-income countries: current state, restructuring challenges and lessons from the past," Questioni di Economia e Finanza (Occasional Papers) 739, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_739_22
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2022-0739/QEF_739_22.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    public debt; debt relief; G20 Common Framework; low-income countries; international organizations;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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