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The Emerging Debt Problems of Small States  

Dinesh Dodhia is a former senior staff member of the Commonwealth Secretariat. Since 1995 he has been managing director of Rappidd Consultancy Ltd, which provides specialist advice on economic and development issues to international organisations such as UNCTAD, the World Bank, African Development Bank, Commonwealth Business Council and Crown Agents.


Dinesh Dodhia,

Series name: Economic Paper Series
Series number: 78

Size: 240 mm x 165 mm
ISSN:
Categories: Economic Paper Series, Economics

ISBN No: 978-0-85092-868-6

Format:

Publication Date: 04-2008
Number of Pages: 104

Status: In stock

Price: £ 10.00    [Currency converter]  


Description

In recent years there has been a significant rise in the indebtedness of small states. However, unlike major debtors and the Heavily Indebted Poor Countries (HIPCs), the emerging debt problems of small, mainly middle income, states have received little international recognition and attention.

 

Thirteen small middle-income Caribbean economies are amongst the most indebted thirty emerging market economies in the world. Similar conditions apply in a number of other small economies in Africa, the Indian Ocean and the Pacific.

 

Dinesh Dodhia examines the history of this indebtedness, its likely causes in different economies, and prospects for dealing with the debt problem in the future. He argues that there is a need for a comprehensive international framework to deal with it, covering:

 

  • fiscal discipline in small states themselves
  • improved debt recording and debt management
  • insurance and grant financing mechanisms that respond to the challenges posed by natural disasters
  • continued grant and concessional financing for small states
  • adequate compensation for preference erosion, and
  • support for the efforts of small states to promote private investment for diversification and growth.

 

This is the first substantial investigation of a newly-recognised international problem.

 

 

 

Contents

Preface

Acronyms and Abbreviations

 

Summary

 

The Emerging Debt Problems of Small States: Causes and Prospects

Introduction

Factors Responsible for Rising Debt Indicators in Small States

Future Debt Prospects

An International Framework to Address Small States’ Debt Problems

The Need for a Comprehensive Framework

Fiscal Discipline

Debt Recording, Management and Restructuring

Mechanisms for Responding to Natural Disasters and Other Shocks

The Crucial Importance of Concessional Financing

Compensating for Preference Erosion and Promoting Private Investment by Mitigating Endowed Handicaps

 

Part I. The Emerging Debt Problems of Small States: Causes and Prospects

 

1. Introduction

 

2. Rising Debt Burdens in Small Economies: Some Stylized Facts

Caribbean Small States

Pacific Ocean Small States

Indian Ocean and African Small States

 

3. Factors Responsible For Rising Debt Indicators in Small States

A Quantitative Assessment of the Role of Different Factors

Reduced Contribution of Growth

Caribbean Small States

Pacific Ocean Small States

Indian Ocean Small States

Deterioration in Primary Balances

Caribbean Small States

Pacific Ocean Small States

Indian Ocean Small States

Rise in Interest Costs

Caribbean Small States

Pacific Ocean Small States

Indian Ocean Small States

 

4. Future Debt Prospects

Caribbean Small States

Pacific Ocean Small States

Indian Ocean Small States

 

Part II. An International Framework to Address the Debt Problems of Small States

 

5. The Need for a Comprehensive Framework

 

6. Fiscal Discipline and Benchmarks

Fiscal Adjustment Experience and Strategy

Fiscal Benchmarks and Fiscal Responsibility Laws

The Need to Build Domestic Consensus

Antigua Workshop Statement: Conclusions on Fiscal Discipline

 

7. Debt Recording, Management and Restructuring

Improving Financial Statistics and Debt Management

Debt Restructuring

Antigua Workshop Statement: Conclusions on Debt Recording, Management and Restructuring

 

8. Insurance, Contingency and Grant Financing Mechanisms to Respond to Shocks

Domestic Measures

Damage Preventive Measures

Insurance

Special Measures for Low-income Households and Budget Contingency Provisions

Regional and International Measures

The Caribbean Catastrophe Risk Insurance Facility

IMF Facilities

Assistance from the World Bank and Other Multilateral Institutions

The Need for a Grant-financed Mechanism that Responds to Natural Disasters

Antigua Workshop Statement: Conclusions on Mechanisms to Respond to Natural Disasters and Other Shocks

 

9. The Crucial Importance of Concessional Finance

Debt Sustainability and Assumptions About Concessional Funding

Multilateral Institutions and Access to Concessional Resources

Bilateral Donors

Antigua Workshop Statement: Conclusions on the Importance of Concessional Resources

 

10. Compensating for Preference Erosion and Promoting Private Investment by Mitigating Endowed Handicaps

Debt and Private Investment

Preference Erosion and Private Investment

Compensatory Financial Assistance for Preference Erosion

Offsetting Endowed Handicaps for Private Investors in Small States

Antigua Workshop Statement: Conclusions on Compensating for Preference Erosion and Promoting Private Investment

 

Appendix 1. Final Statement of Workshop on Addressing the Debt Problems of Non-HIPC Small States, 23–25 July 2007

 

References

 

Tables

1.1 Small States: Population and Per Capita Income

2.1 Public Debt Ratios in the Caribbean

2.2 Pacific Island Economies: Public Debt Indicators (Percentage of GNI)

3.1 Quantitative Assessment of the Factors Responsible for the Rise in the Public Debt Ratio in Selected Small States

3.2 Very Highly and Moderately Indebted Small Island Economies: GDP Growth Rates (%)

3.3 Caribbean Economies: Primary Balances

3.4 Caribbean Economies: Interest Costs (Percentage of GDP)

3.5 Caribbean Historical Average Interest Rates (Past 10 years)

3.6 Caribbean: ODA Flows and Share of Concessional Debt in Total External Debt

3.7 Pacific Ocean: ODA Flows and Share of Concessional Debt in Total External Debt

3.8 Indian Ocean: ODA Flows and Share of Concessional Debt in Total External Debt

4.1 Caribbean: Public Debt Ratio Prospects, 2011 – Debt Sustainability Scenarios and Bound Tests

4.2 Pacific Ocean: NPV Public Debt Ratio Prospects, 2011 – Debt Sustainability Scenarios and Bound Tests

7.1 Jamaica: Summary of Public Debt by Currency and Maturity

7.2 ECCU: Creditor Composition of Public Debt, End-2004

7.3 Institutional Arrangements for Debt Recording and Management in the Caribbean

 

Boxes

3.1 Analytical Underpinning of Public Debt Increases

3.2 Small States: The Impact of Natural Disasters on Growth and Fiscal Balances

3.3 Small States: Preference Erosion and its Impact on Exports, GDP Growth and Fiscal Balances

7.1 Belize: The High Cost of Recent External Financing Arrangements

10.1 Key Features of the Proposed Model Facility