Finance for Development Lab’s Post

#OECD Working Paper# Riding the rollercoaster Subnational debt in turbulent times With interest rates at their highest levels in two decades, subnational governments (SNGs) are grappling with growing debt sustainability concerns. This paper investigates SNGs’ financing vulnerabilities by examining their debt levels and sensitivity to interest rate fluctuations. It provides an in-depth analysis of SNG debt portfolios, with a particular focus on marketable debt or bonds. While most SNG bonds have fixed rates and long maturities, some jurisdictions are significantly exposed to interest rate and foreign currency risks. Simulations reveal that interest expenses could rise substantially for some SNGs. Yet, worryingly, the variation in borrowing costs among SNGs within countries is often limited, suggesting potential weaknesses in market discipline. To navigate these challenges, the paper briefly explores how well-crafted fiscal rules, tax autonomy, and insolvency frameworks can help mitigate risks. It also highlights the need for further assessment of bank loans, as systematic information remains scarce. The paper provides insights for policymakers seeking to address risks and inform future reforms of SNG bond markets, reinforcing market discipline and bolstering fiscal resilience.  

Just one day left! #sovereigndebt #debtsustainability #debt #climate #climatefinance #sustainabilitylinkedbonds #SLBs #ESG #greenbonds #greenfinance #inflation #disasterrisk #sovereigndebtmanagement #debtinstruments #monetarytightening #inflationlinked

📣DEADLINE EXTENDED: CALL FOR PAPERS - 3rd PDM Conference -🗓️ April 15, 2024   👉https://bit.ly/3x7ZyZV  Following the success of the previous editions (2019 in Paris, France, and 2022 in Rome, Italy), the Public Debt Management Network, an initiative jointly fostered by the OECD, the Italian Treasury and the World Bank, is pleased to announce the call for papers for the 3rd edition of the biennial Public Debt Management Conference, which will be held in Washington DC, United States, on October 3-4, 2024. The event will be held in a hybrid format (in-person and virtual). Please note that there are no registration fees, but speakers and other participants will cover their own costs. The 2024 Conference aims to explore techniques, analyses, and proposals to address specific challenges related to sustainability, disaster, and climate-related issues in public debt management. Subject areas for the 2024 conference include: ■     Disaster risk finance ■     ESG debt instruments including sovereign green, social, and sustainability bonds ■     Managing sovereign debt in an inflationary environment Submissions addressing these or other related topics relevant to public debt management are welcome. Details on the topics and on how to submit your proposals are explained here 👉https://bit.ly/4ctxQHi The new deadline to submit proposals is April 15, 2024.   Looking forward to receive your paper! Ministero dell'Economia e delle Finanze OECD - OCDE The World Bank #publicdebt #disasterriskfinance #greenbonds #debtsustainability #inflation #socialbonds

We just published the Supplement to the 2018 Guidance Note on the Bank-Fund Debt Sustainability Framework for Low Income Countries (LIC-DSF). This Supplement provides additional guidance to International Monetary Fund and The World Bank staff on the implementation of the LIC-DSF. Since the publication of the 2018 Guidance Note, several issues have increased in significance, requiring more tailored guidance on the implementation of the current LIC-DSF to address issues, including: • Greater prominence of risks from climate change. • Further increase in borrowing on commercial terms and in domestic markets. • Increased number and complexity of debt restructurings. All aspects of the 2018 LIC-DSF Guidance Note remain in effect, except as modified in this Supplement. Download the paper here: https://lnkd.in/ezdjKfgw #Climate #Change #Finance #Public #Debt #Sustainability #DSA #Low #Income #Country #LIC

Published by the Bretton Woods Committee in July 2024, this important and comprehensive report addresses State Contingent Debt Instruments. This report examines the potential advantages and disadvantages of SCDIs, while highlighting the real-world challenges that need to be addressed if SCDIs are to become more effective and widely used tools of sovereign debt management. Sovereign state-contingent debt instruments (SCDIs), such as GDP-linked bonds, as a countercyclical and risk-sharing tool remain appealing. SCDIs have been used sporadically in “normal times”, although they have been a common feature in recent sovereign debt restructurings. The IMF has published a policy paper in May 2017 covering the usage of such instruments and their benefits. #sovereignrisk #debtrestructuring #stateinsolvency #sovereigndebt #GDPlinkedbond #brettonwoods #statecontingentdebtinstruments #SCDIs #IMF #WorldBank #countryrisk #riskmanagement #economics #risksharing

Good review of the pressing need to address the credit rating issue when considering the global sovereign debt picture from The Economic Times: https://lnkd.in/eASTtM4D The Credit Rating Research Initiative #creditratings #debt

Decent review here of the recent Global Sovereign Debt Roundtable developments regarding credit rating agencies and what can be done... I am happy to let the lack of citation for my terming of the problem as the "credit rating impasse" slide on this one occasion 😉 Don't forget my book on the impasse is entirely free to read!! https://lnkd.in/e4Nx6pWZ

UN Trade and Development (UNCTAD)'s Chief Rebeca Grynspan calls for a permanent sovereign debt restructuring system... https://lnkd.in/eGn-h6Vu Whilst this has been theorised and formed parts of academic experiments over the years, it is still a valid request. However, you cannot just create a restructuring system in a silo. You can read more about this in my new United Nations University Centre for Policy Research (UNU-CPR) paper "Rating the Globe" - https://lnkd.in/dKbEW8rz - in which we call this issue 'systemic levers'. There are so many systemic levers at play now that the private creditor has become the dominant creditor for the developing world, that one overarching system simply will not cut it, even if we could get one off the ground! Grynspan is so right though to call for a capitalisation on the current momentum. In the credit rating world specifically, now is the time to really turn the dial! The Credit Rating Research Initiative #creditratings #developingworld #investors #debt #restructure

What are the debt trends for the world's most vulnerable? This special report makes use of the World Bank's new International Debt Report 2024 to better understand the potential trends associated with private creditors and their lending to the world's most vulnerable countries. My work on the 'credit rating impasse' (https://lnkd.in/e2WzP9ry) has shown that the increasing role of private creditors is potentially extremely damaging if the current International Financial Architecture is not reworked at the same time. This report shows that the trends tell us only one thing: the situation is due to get much worse, not better. Also, the World Bank reveal that not only is private debt increasing across the board, but that for the world's most vulnerable that private debt is becoming much harsher. The realities of the capital markets and its character continue to become clearer and clearer. You can download it below or via my website at: https://lnkd.in/eet_dxKV The impact of this for policy makers is stark. The time for action is probably behind us. But, it is not too late! Pressure is needed right at the very top to adapt and evolve the financial system. This begins with legal evolution. The legal systems of the USA, the EU, and the UK must now actively evolve to design a system for generational sustainability. This current situation cannot continue like it is. The credit rating impasse is merely a microcosm of a greater systemic imbalance that is negatively affecting hundreds of millions people every single day, acutely. As I conclude: "The time for action is now. Urgent work is needed in the legal centres that impact the International Financial Architecture. In the associated fields of credit ratings and private creditors, this is the USA, the EU, and the UK mainly. Legal evolution is now imperative". The Credit Rating Research Initiative #creditratings #debt #debtcrisis #Africa #WorldBank #finance #investors #business Misheck Mutize (PhD) Ann Rutledge Jacob Assa Daouda Sembene, PhD Raymond Gilpin Michelle Mendi Muita Federico Bonaglia Rita Da Costa David McNair Nicole Kearse Sonia Essobmadje, CFA Jean-Marc Kilolo M., Ph.D, MBA Ejigayhu Tefera

Very interesting analysis by Guzmán and Stiglitz of which I highlight two particularly valuable elements: a)       The foreseeable effects of IMF financing: A balanced and adequate “dose” of IMF financing could facilitate a government's ability to return to the capital market, commonly referred as the "catalytic effect". However, an "overdose" of financing from a preferential creditor can have the opposite impact, creating a "crowding out" effect. If the private sector deems the that the sovereign is over-indebted to a preferential creditor (the IMF), this will diminish confidence, reducing the likelihood of re-engaging with private capital markets.  b)      Assumptions in DSA: Econometric projections are never done in a "chemically pure" environment. Debt sustainability analyses (DSAs) are no exception. All DSAs rely on certain assumptions and weights of variables, and subjectivity inevitably plays a role. As Guzmán rightly pointed out the 2018 program hinged on a political assumption: Macri’s re-election.  This assumption was critical, as it underpinned the second, that Argentina would regain access to the private capital market. While I agree with Guzmán on this point, it is important to acknowledge that the IMF, when assisting a country in the proximity of a presidential election, inevitably must make some assumption regarding the results of the next election. The 2018 election, as any other, was bound to have consequences on market expectations about Argentina’s ability to regain market access. However, this does justify the IMF’s decision to disburse 80% of a massive U$S 57 billion program during the rest of Macri’s term, effectively leaving the burden to the next government.