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Blog: Sovereign Domestic Debt Restructuring: Handle with Care

December 1, 2021
Restructuring domestic debt is like surgery: You only do it if you must, and you avoid it if it might do more harm than good.

Issues in Restructuring of Sovereign Domestic Debt

December 1, 2021
As emerging and developing economies accumulate more domestic sovereign debt, it is likely to play a larger role in the resolution of future sovereign debt crises. This paper analyzes when and how to restructure sovereign domestic debt in unsustainable debt cases while minimizing economic and financial disruptions. Key to determining whether or not domestic debt should be part of a sovereign restructuring is weighing the benefits of the lower debt burden against the fiscal and broader economic costs of achieving that debt relief. The fiscal costs may have to be incurred in the context of restructuring because of the need to maintain financial stability, to ensure the functioning of the central bank, or to replenish pension savings. A sovereign domestic debt restructuring should be designed to anticipate, minimize, and manage its impact on the domestic economy and financial system. Casting the net wide across claims can help boost participation in the restructuring by lowering the relief sought from each creditor group. A strategy that engages creditors constructively, and as transparently as possible, that relies on market-based incentives, and that presents the exchange as part of a consistent macroeconomic plan typically works best.

Blog: Chart of the WeekGlobal Financial Safety Net—A Lifeline for an Uncertain World

November 30, 2021
When crises hit, such as a global health pandemic, countries have a number of financial resources—both internal and external—to draw on.

Eleventh Periodic Monitoring Report on The Status of Management Implementation Plans In Response To Board-Endorsed IEO Recommendations

November 30, 2021
The Eleventh Periodic Monitoring Report (PMR) on the Status of Management Implementation Plans (MIPs) in Response to Board-Endorsed Independent Evaluation Office (IEO) Recommendations assessed the progress made over the past 18 months on 72 actions contained in 10 MIPs. Significant progress has been made with the implementation of management actions, despite challenges that have arisen from the ongoing COVID-19 pandemic. Overall, 29 of the 72 actions for which implementation progress is assessed in the Eleventh PMR were deemed to have been satisfactorily implemented, while 35 remain open, and eight actions are being reformulated in line with the Board-approved triage framework for long-standing open actions. Despite the effect of reprioritization to make space for the urgent needs of the membership resulting from the pandemic, the pace of implementation observed in the Eleventh PMR, with the 29 actions closed, significantly exceeds the previous trend of about 15 implemented actions per year. Of the 35 open actions, 16 are more than one year past their implementation due dates. The reprioritization of activities owing to the COVID-19 pandemic and resource constraints on account of several years of flat budgets led to delays in the implementation of several actions, partly because of the postponement of important reviews.

Guinea-Bissau: First Review Under the Staff Monitored Program

November 30, 2021
After two years of protracted political turmoil and delays in reforms, the authorities put in place in 2021 an ambitious fiscal consolidation program to ensure debt sustainability while creating fiscal space to address vast developmental needs. In late July, a 9-month SMP was approved to support the government’s reform program aimed at stabilizing the economy, strengthening governance, and building a sound track-record of policy implementation towards an Extended Credit Facility (ECF) arrangement. Guinea-Bissau is a fragile state with considerable needs to address the COVID-19 pandemic and developmental challenges. A Rapid Credit Facility (RCF) disbursement of SDR 14.2 million (50 percent of quota) was approved in January to provide urgent financing to support critical spending in health and catalyze additional donor resources. The RCF disbursement, the recent SDR 27.2 million allocation (96 percent of quota) and reforms underpinned by the SMP are contributing to address the adverse impact of the pandemic, improve government spending transparency and mitigate debt vulnerabilities, and create conditions that would help restore donor confidence and catalyze much-needed concessional financing.

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