Methodology for evaluating debt relief

1
Methodology for evaluating debt relief

• Geske Dijkstra
• Erasmus University Rotterdam and Policy and
  Operations Evaluation Department (IOB), MoFa, NL
  

2
Overview

• What is debt relief
• Theory-based evaluation
• Alternative method cross section econometrics
• Comparison of results
• Conclusion strength and weaknesses of
  theory-based evaluation

3
What is Debt Relief?

• Relief on sovereign debts provided by official
  creditors
• On debt service (flows) or on debt stocks
• Rescheduling versus cancellation
• Type of creditor
• Bilateral aid loans or export credits
  (commercial)
• Multilateral
• Private

4
Theory

• A high and unsustainable debt may affect growth
  through
• A large and (partly) not serviced debt stock,
  leading to a debt overhang that hampers capital
  inflows, investment, and incentives for policy
  reforms
• A large flow of debt service payments that
  reduces government physical and social investment

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Debt overhangThe debt Laffer curve
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Intervention theory debt relief

• Debt relief may increase growth and poverty
  reduction through three channels
• A reduction in debt stock
• A reduction in debt service flow
• Through policy conditions attached to debt relief
  agreement

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Intervention logic debt relief
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Alternative method Econometrics

• Effect of debt relief on growth, investment,
  government spending
• Via difference-in-difference method (Depetris
  Chauvin Kraay 05, Presbitero 09), or standard
  growth regression
• Debt relief present value of debt reduction,
  plus (Johansson 10) estimated reduction in
  market value of debt

9
Theory-based evaluation of debt relief in the
1990s

• IOB 2003, also in Dijkstra 2008 Evaluation of
  debt relief to 8 countries 1990-1999
• Bolivia, Jamaica, Nicaragua, Peru
• Mozambique, Tanzania, Uganda, Zambia

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Comparison of results
Stock Flow Conditionality Growth
Bolivia 0
Jamaica 0
Nicaragua 0 0 0 0
Peru 0 0
Mozambique 0 0 0 0
Tanzania O 0 0 0
Uganda O 0 0 0
Zambia O 0 0 0
Depetris 0 0 NA, 0
Presbitero 0 NA NA 0
Johansson 0 0 NA 0
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Conclusion on theory-based evaluation

• Strength can take into account
• Different debt relief modalities
• Different channels of influence, including
  conditionality channel
• Weaknesses
• Attribution of outputs possible, outcomes more
  difficult impact via theory
• Impact cannot be quantified