The Thirteenth Replenishment Agreement of the World Bank’s International Development Association (IDA), covering the period 2003-5 inclusive, introduced grant financing for the first time in IDA’s 40-year history. The Agreement recognized that unsustainable levels of debt should be a criterion for eligibility of grants for low-income borrowers, along with criteria such as the exigencies of natural disasters, conflict and the HIV/AIDS pandemic. In IDA 13, each borrower was subject to a cap of grant funding equivalent to 40 percent of its total IDA allocation. The exact percentage depended on the criteria used to determine grant eligibility such as unsustainable. | 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 2 Nihal Kappagoda Research Associate The North-South Institute Nancy C. Alexander Director Citizen s Network on Essential Services introduction1 1. The Thirteenth Replenishment Agreement of the World Bank s International Development Association IDA covering the period 2003-5 inclusive introduced grant financing for the first time in IDA s 40-year history. The Agreement recognized that unsustainable levels of debt should be a criterion for eligibility of grants for low-income borrowers along with criteria such as the exigencies of natural disasters conflict and the HIV AIDS pandemic. In IDA 13 each borrower was subject to a cap of grant funding equivalent to 40 percent of its total IDA allocation. The exact percentage depended on the criteria used to determine grant eligibility such as unsustainable debt natural disasters etc. There was no distinction drawn among borrowers facing different degrees of debt-servicing problems. During IDA 13 officials at the World Bank and International Monetary Fund IMF worked on developing a more systematic basis for differentiating among borrowers with actual or potential debt servicing problems with a view to providing higher grant levels to those requiring grants for debt sustainability. 2. These efforts led to the preparation of a paper entitled Debt Sustainability in Low Income Countries Proposal for an Operational 1 The authors wish to thank Dr Roy Culpeper President The North-South Institute Ottawa for his assistance. Framework and Policy Implications 2 referred to hereafter as the DSF which sets out a proposal for identifying countries in actual or potential debt distress situations leading to a formula for determining grant eligibility within the amounts of resources to be allocated during the Fourteenth Replenishment of IDA. This paper was .
