No. 739 - Public debt in low-income countries: current state, restructuring challenges and lessons from the past
The paper analyzes the current public debt vulnerabilities in low-income countries (LICs) and evaluates the initiatives undertaken by the G20 to provide financial support and facilitate the resolution of unsustainable debt situations. Drawing also from a comparison with past debt relief initiatives, it examines the main challenges for successful debt restructurings in the current environment characterized by a greater complexity of debt structures in terms of instruments and creditors.
The presence of a dominant bilateral lender and the increased role of private creditors make it hard to replicate the solutions applied in the past to reduce LICs' debt. The current challenges also reflect a distributional conflict between advanced economies and China as to the allocation of the losses deriving from debt relief, which also involves a different approach regarding the role to be played by Multilateral Development Banks in support of the countries in need of debt restructurings.
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