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Evaluating debt relief: challenges and results

EADI/DSA Conference York, 19-22 September 2011 Geske Dijkstra Erasmus University Rotterdam dijkstra@fsw.eur.nl. Evaluating debt relief: challenges and results. Most debt relief is ODA. Comparison of methods: Theory-based evaluation Econometrics

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Evaluating debt relief: challenges and results

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  1. EADI/DSA Conference York, 19-22 September 2011 Geske Dijkstra Erasmus University Rotterdam dijkstra@fsw.eur.nl Evaluating debt relief:challenges and results

  2. Most debt relief is ODA

  3. Comparison of methods: Theory-based evaluation Econometrics Strengths and weaknesses of methods Comparison of results Conclusion Measuring the fffect of debt relief on growth: overview

  4. Relief on sovereign debts provided by official creditors: On debt service (flows) or on debt stocks Rescheduling versus cancellation Type of creditor: Bilateral: aid loans or export credits (“commercial”) Multilateral Private What is debt relief?

  5. A high debt may affect growth through: A large and (partly) not serviced debt stock, leading to a debt overhang that hampers capital inflows, investment, and incentives for policy reforms A large flow of debt service payments that reduces government physical and social investment Theory

  6. Debt overhang:The debt Laffer curve

  7. Stock Flow Conditionality Inputs Different modalities Policy conditions Outputs Reduction of debt stock Increase in flow of resources Policy change Outcomes Stock effects: creditworthiness, private investment Flow effects: government investment Impact Economic growth Theory-based evaluation

  8. Examples • Dijkstra 2008: Evaluation of debt relief to 8 countries 1990-1999: • Bolivia, Jamaica, Nicaragua, Peru • Mozambique, Tanzania, Uganda, Zambia • IOB2010Evaluation of 2005 debt relief to Nigeria

  9. Econometrics Depetris Chauvin and Kraaij 2005, Presbitero 2009 Johansson 2010 NPV debt reduction plus market value of debt reduction, stock and flow effect Panel of 118 countries 1989-2004 Effect on growth, investment Standard growth regression with GMM • NPV debt reduction as result of forgiveness and concessional reschedulings • 62 LICs • 1989-2003, 2006 • Effect on growth, government spending, investment, • Difference-in-difference

  10. Criteria for comparison of methods • Validity of debt relief measures • Validity of causal relationship: attribution • Potential for assessing channel of influence • External validity

  11. Comparison of results

  12. Conclusions • Strengths theory-based evaluation: measuring debt relief, effect of different modalities, channels of influence • Strengths econometrics: attribution, external validity • Results are similar: limited effects

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