Evaluating debt relief: challenges and results
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Evaluating debt relief:challenges and results
EADI/DSA Conference
York, 19-22 September 2011
Geske Dijkstra
Erasmus University Rotterdam
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Most debt relief is ODA
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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
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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
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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
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Debt overhang:The debt Laffer curve
Debt
Expected debt payments
O
A
B
45°
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growthEconomic Impact
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
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Examples
• Dijkstra 2008: Evaluation of debt relief to 8 countries 1990-1999:– Bolivia, Jamaica, Nicaragua, Peru– Mozambique, Tanzania, Uganda, Zambia
• IOB 2010 Evaluation of 2005 debt relief to Nigeria
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EconometricsDepetris Chauvin and Kraaij 2005, Presbitero 2009
• NPV debt reduction as result of forgiveness and concessional reschedulings
• 62 LICs• 1989-2003, 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• 1989-2004• Effect on growth,
investment• Standard growth
regression with GMM
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Criteria for comparison of methods
• Validity of debt relief measures
• Validity of causal relationship: attribution
• Potential for assessing channel of influence
• External validity
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Criterion Theory-based evaluation
Econometrics
Validity of measuring DR
Good Limited
AttributionImpact via theory; outputs better than outcomes
Good but robust results difficult due to small impact
Channel of influence
Good Good for stock; limited for flow and conditionality
External validity
Limited, better with many case studies
Good
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Comparison of resultsStock Flow Conditionality Growth
Bolivia + + 0 +
Jamaica + + 0 +
Nicaragua 0 0 0 0
Peru ++ 0 0 +
Mozambique 0 0 0 0
Tanzania O 0 0 0
Uganda O 0 0 0
Zambia O 0 0 0
2005 Nigeria + 0 ++ +
Depetris 0 0 NA, + 0
Presbitero 0 NA NA 0
Johansson 0 0 NA 0
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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