The Finance for Development Lab is an independent non-profit, non-partisan think-tank dedicated to building a fairer and more effective architecture for international finance.
Acting as a hub for policy discussions, the Lab collaborates with think-tanks, researchers, and other key stakeholders across the Global South to generate constructive ideas, craft innovative proposals, and influence global policymakers, with a particular focus on G20 countries and Bretton Woods institutions.
The Lab is housed at the CEPREMAP, a leading French research institute located within the Paris School of Economics. It is supported by the Bill & Melinda Gates Foundation.
In the aftermath of the COVID-19 crisis and amid growing geopolitical uncertainty, the global financial architecture is increasingly unable to finance the Sustainable Development Goals and to support countries in the fight against climate change.
Furthermore, we believe that the interests of low- and middle-income countries are currently not adequately represented in global decision centres, jeopardising their ability to achieve sustainable development.
The Lab’s mission is to fill existing knowledge and perception gaps by serving as a specialised research and discussion forum specifically focused on development finance and debt related issues. We do so by collaborating with research partners across the Global South, and disseminating recommendations among international decision centres. To achieve our mission, we provide experts in developing countries with research support, and with assistance in disseminating and channelling their ideas and policy proposals as effectively as possible.
Our work is organised around three key pillars: financing, debt and multilateralism.
Financing models need to be adapted to today’s context of recurrent crises
• Better allocate Special Drawing Rights and extend the Global Financial Safety Net
• Improve investment from private sources to help advance sustainable development.
Debt sustainability is increasingly fragile. Our proposals focus on:
• Fostering more collaborative approaches between creditors and debtors
• Redefine the role of international organisations
• Revising our understanding of debt sustainability
Multilateralism is in danger and development finance is increasingly fragmented:
• Better understand the role of emerging lenders
• Foster mutual understanding between key stakeholders
We will update the model regularly (possibly very soon with IDS 2023 when it is released) and share the data when possible next year.
4. Current multilateral safety nets are insufficient (PRGT ~ 20bns, IDA, ~93 bns additional). Urgency of increasing MDB lending, and concessional arms as well.
3. If current financing conditions continue, flexible refinancing options should be considered, including through maturity extensions/rescheduling of debt service by official creditors where possible. In some cases by commercial lenders too.
And we welcome readers' feedback!
2. We do think it is helpful as a guide - we have not seen such dynamics modelled. We will refine by considering countries dynamics. Including by sharing data/results, and make it open source .
So what do we conclude?
1. This is a crude model - a lot of things to improve. Financing mix is fixed by assumption. We do not consider domestic debt dynamics. No feedback between investment and growth. DSF thresholds are approximate at best. We hope to improve in next versions.
External PPG debt stocks (at PV) would not deteriorate that much... So still mainly about debt liquidity and the cost of debt (at these rates, refinancing becomes unsustainable).
Then debt service tensions much more general, 35 countries cross their risk thresholds for debt service / revenues. Most affected: LMICs with market exposure, including SSA countries.
But... financial conditions have changed. It is hard (impossible?) to predict what will happen in the next years, but assume for now that rates continue to be high and USD relatively appreciated. Under those simplistic assumptions (and keeping financing mix ~ those in 2015-19)
Meanwhile, external debt stocks decline after 2020. High GDP growth, tighter fiscal deficits that we assume (we follow the IMF WEO) largely explain this.
So: more liquidity than solvency, and dynamics are painful for many countries, but not generalized.
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