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Are We Heading for Another Debt Crisis in Low-Income Countries? Debt Vulnerabilities: Today vs the pre-HIPC Era

Author

Listed:
  • Chuku Chuku
  • Prateek Samal
  • Joyce Saito
  • Ms. Dalia S Hakura
  • Mr. Marcos d Chamon
  • Mr. Martin D. Cerisola
  • Guillaume Chabert
  • Mr. Jeromin Zettelmeyer

Abstract

There are growing concerns that 25 years after the launch of the HIPC debt relief initiative, many low-income countries are again facing high debt vulnerabilities. This paper compares debt vulnerabilities in LICs today versus those on the eve of the HIPC Initiative and examines challenges to a similarly designed debt-relief framework. While solvency and liquidity indicators in most LICs have steadily worsened in recent years, they remain substantially better on average than they were on the eve of HIPC in the mid-1990s. This said, if current trends persist, debt vulnerabilities in LICs could (but would not necessarily) reach levels comparable to the pre-HIPC era over the medium- to long-term. Today’s more complex creditor landscape makes coordination challenging. It is therefore essential for countries to reduce today’s debt burdens promptly through economic reform, lowering the cost of financing, and debt restructuring on a case-by-case basis. The international community should also step up efforts to improve debt restructuring processes, including the G20 Common Framework, to ensure that debt relief is delivered in a timely and efficient manner where it is needed.

Suggested Citation

  • Chuku Chuku & Prateek Samal & Joyce Saito & Ms. Dalia S Hakura & Mr. Marcos d Chamon & Mr. Martin D. Cerisola & Guillaume Chabert & Mr. Jeromin Zettelmeyer, 2023. "Are We Heading for Another Debt Crisis in Low-Income Countries? Debt Vulnerabilities: Today vs the pre-HIPC Era," IMF Working Papers 2023/079, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2023/079
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    Cited by:

    1. Florence Dafe & Annina Kaltenbrunner & Ingrid Harvold Kvangraven & Iván Weigandi, 2023. "Local Currency Bond Markets in Africa: Resilience and Subordination," Development and Change, International Institute of Social Studies, vol. 54(5), pages 1031-1064, September.
    2. Brad W. Setser, 2023. "The Common Framework and its Discontents," Development and Change, International Institute of Social Studies, vol. 54(5), pages 1065-1086, September.

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