TAILIEUCHUNG - DEBT SUSTAINABILITY FRAMEWORK FOR LOW INCOME COUNTRIES : POLICY AND RESOURCE IMPLICATIONS - Part 8

. The framework summarized in the paper 1 starts with a grouping of all low income countries in accordance with the performance of institutions and effectiveness of policies followed by choices of the most appropriate thresholds for the selected debt burden indicators. It is understood that DSAs will become dynamic in nature capturing information as they become available during each replenishment period rather than holding them static for each period. The preparation of forward-looking DSAs will be a development that will take place during IDA 14. The next step is to use this classification system as a basis. | DEBT SUSTAINABILITY FRAMEWORK FOR LOW INCOME COUNTRIES POLICY AND RESOURCE IMPLICATIONS Paper submitted for the G-24 Technical Group Meeting Washington . September 27-28 2004 Part 8 Nihal Kappagoda Research Associate The North-South Institute Nancy C. Alexander Director Citizen s Network on Essential Services Conclusions and Recommendations 59. The framework summarized in the paper1 starts with a grouping of all low income countries in accordance with the performance of institutions and effectiveness of policies followed by choices of the most appropriate thresholds for the selected debt burden indicators. It is understood that DSAs will become dynamic in nature capturing information as they become available during each replenishment period rather than holding them static for each period. The preparation of forward-looking DSAs will be a development that will take place during IDA 14. The next step is to use this classification system as a basis for decisions on grant allocations within the IDA entitlements based on the PBA system. In the interests of equity and financing the grant allocations management has proposed levying an upfront charge of 20 percent for each grant allocated. 60. The significant change during IDA 14 under the proposal will be that the grant allocation is determined from the debt distress classification and country performance unlike in IDA 13 when the maximum grant percentage was set ex ante. This increases the operational difficulties for IDA financing due to foregone credit reflows assuming higher levels of grants. The projected requirements for IDA 14 during FY 06-08 are estimated to be billion compared to billion and billion during IDA 13 and IDA 12 The additional 1 Ibid footnote 3. 2 Financing Requirements from IDA for Poor Countries during IDA 14 IDA June 2004. funding needed for IDA 14 is as important as the proposal for grant funding based on the DSF. 61. The following conclusions and recommendations .

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