Trade and Sustainable Finance for Development

Identifying new market instruments for development finance
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This paper evaluates the long-term sustainability of external finance for developing countries. It focuses specifically on the role of initial conditions and the social and economic implications of structural change.

Past growth rates provide a good indication of a country's growth capacity. They provide evidence of the initial conditions that affect each country as it embarks on its development process. Although optimism must be a part of any development analysis, there are three major types of risks involved in an overoptimistic debt sustainability analysis:

  • Expected performance may not be achieved;
  • Conditions attached to lending/borrowing contracts may not be fulfilled;
  • Credibility of institutions preparing future debt sustainability scenarios may suffer.

After two decades of different plans, debt cancellation seems a necessity for most low-income economies. A sustainable development process would include:

  • Enabling external environment;
  • Borrowing from abroad;
  • Good domestic governance and accountability;
  • Appropriate financial instruments;
  • Realistic terms for lending contracts.

About this Publication

By Vaggi, G.