Evaluating debt relief: challenges and results EADI/DSA Conference York, 19-22 September 2011 Geske Dijkstra Erasmus University Rotterdam

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Presentation transcript:

Evaluating debt relief: challenges and results EADI/DSA Conference York, September 2011 Geske Dijkstra Erasmus University Rotterdam

Most debt relief is ODA

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

What is debt relief? 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

Theory 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

Debt overhang: The debt Laffer curve

growthEconomicImpact Flow effects: government investment Stock effects: creditworthiness, private investment Outcomes Policy changeIncrease in flow of resources Reduction of debt stock Outputs Policy conditions modalitiesDifferentInputs ConditionalityFlowStock Theory-based evaluation

Examples Dijkstra 2008: Evaluation of debt relief to 8 countries : –Bolivia, Jamaica, Nicaragua, Peru –Mozambique, Tanzania, Uganda, Zambia IOB 2010 Evaluation of 2005 debt relief to Nigeria

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

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

CriterionTheory-based evaluation Econometrics Validity of measuring DR GoodLimited Attribution Impact via theory; outputs better than outcomes Good but robust results difficult due to small impact Channel of influence GoodGood for stock; limited for flow and conditionality External validity Limited, better with many case studies Good

Comparison of results StockFlowConditionalityGrowth Bolivia++0+ Jamaica++0+ Nicaragua0000 Peru++00+ Mozambique0000 TanzaniaO000 UgandaO000 ZambiaO Nigeria+0+++ Depetris00NA, +0 Presbitero0NA 0 Johansson00NA0

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