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DebtKey Initiatives | Resources
High levels of external or domestic debt can prevent poor countries
from making the investments needed in areas such as health, education,
and infrastructure to reach the Millennium Development Goals (MDGs).
Goal 8 of the MDGs commits the international community to deal comprehensively
with the debt problems of developing countries through debt cancellation. Although they have provided significant relief, UNDP believes that current debt relief schemes, such as the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI), are failing to address the full extent of the problem – they do not cover all the countries that need assistance, the amount of relief has been insufficient, and in order to qualify for debt relief some countries have to adhere to stringent policy conditions. The international community has committed to ensuring that poor countries are not affected by debt problems in the future. UNDP advocates for an approach to aid, debt cancellation and debt sustainability that safeguards the financing required to meet the MDGs. This will require debt cancellation for some countries outside of the current HIPC and MDRI schemes, more aid in the form of grants rather than loans for some countries, and possibly additional borrowing for others. UNDP advises countries on strategies to achieve debt sustainability that are consistent with achieving the MDGs, rather than guided by a requirement to service debt at all costs. This relates partly to policy choices, and partly to financing. On financing, it is sometimes possible to estimate the public expenditure needed in each sector – which can be usefully spent given national capacity – to make progress towards the MDGs. This financing gap can be filled by expanding domestic resources such as tax revenues and savings, by additional aid, or, where appropriate, by borrowing. Analytical ToolsCosting - There are a number of different approaches to estimating what it would cost to reach the MDGs. One approach is to estimate the level of investment and economic growth needed to support a rise in income levels. Other approaches look at the investment needs in each sector – for example in health or education – and estimate what level of spending would be needed to support MDG achievement. Find out more about MDG costing techniques from UNDP’s work on MDG Financing and the Millennium Project’s work on Needs Assessment. Key InitiativesIn his 2005 report, 'In Larger Freedom', the UN Secretary-General argued that 'we should redefine debt sustainability as the level of debt that allows a country to achieve the Millennium Development Goals and reach 2015 without an increase in debt ratios'. UNDP is currently undertaking a project to explore how the needs of poor people can be put at the centre of decisions to borrow or lend money. Our aim is to contribute to the Secretary General definition of debt sustainability – which looks beyond the mere ability to repay, to reflect the ability of a country to invest in its own development. The current definition of sustainability is based on a country’s ability to repay its debts based on how fast it is likely to grow and expand exports, without reference to whether repayment of debt squeezes out vital investments in development and poverty reduction. These investments should be safeguarded as part of any new definition of ‘sustainability’ Framework for Debt Sustainability – We are working together with international experts to define an operational framework for debt sustainability that will be consistent with delivering the aid needed to invest in development and poverty reduction. As part of this exercise we have commissioned five conceptual papers on debt sustainability and the MDGs. Links to these papers are provided below in Resources. National Policy Studies – We are also exploring the debt situation in a number of countries where UNDP provides support to government. We are currently initiating studies in Indonesia, Zambia, Sudan and Niger – and also on domestic debt sustainability in Egypt. These will also be posted on the website when they are ready. ResourcesDiscussion paper number 1: Domestic Resource Mobilization, Fiscal Space, and the MDGs: Implications for Debt Sustainability, Roy Culpeper and Nihal Kappagoda, The North-South Institute, paper commissioned by UNDP, 2007 Discussion paper number 2: External Debt and the Millennium Development Goals, Stephen Spratt, paper commissioned by UNDP, 2007 Discussion paper number 3: MDG-consistent Debt Sustainability: How to Ease the Tension between Achieving the MDGs and Maintaining Debt Sustainability, Bernhard Gunter, paper commissioned by UNDP, 2007 Discussion paper number 4: MDG Achievement and Debt Sustainability in HIPC and Other Critically Indebted Developing Countries: Thoughts on an Assessment Framework, Damoni Kitabire and Moses Kabanda, Ministry of Finance, Planning and Economic Development, Uganda, paper commissioned by UNDP, 2007 Discussion paper number 5: Debt Sustainability and the Millennium Development Goals in Emerging Market Economies, Yilmaz Akyuz, paper commissioned by UNDP, 2007 HIPC practice note, November 2003 Case Studies Zambia Debt Strategies to Meet the Millennium Development Goals Egypt Country Discussion Paper: MDG-based Debt Sustainability Analysis Civil society papers Debt relief as if people mattered: A rights-based approach to debt sustainability, New Economics Foundation Links Debt Finance International Group |
LinksMarch 2008:
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