World Bank teams up with Commonwealth Secretariat to help indebted countries

The World Bank's top policymaker on debt management, Carlos Braga, met with officials from the Commonwealth Secretariat last week to discuss joint action on the world financial crisis including a pioneering new Debt Management Facility to help indebted countries.

"Many believed in the beginning that this was a crisis that would not significantly affect them. This has proven to be a mistake," says Mr Braga, in a pointed reference to the misplaced prior optimism of some middle and low-income countries.

"It is true that in many of these countries the financial contamination is much more limited in the sense that the financial sectors are less integrated, but as we know the world economy is experiencing a significant de-acceleration so trade flows have been declining dramatically."

"2009 is going to be the first year since 1982 where we are going to see a negative performance for world trade. We expect trade in goods and services to contract by something like 6% over this year. This will have a major impact on developing economies."

Mr Braga, as Director of Economic Policy and Debt at the World Bank, is charged with providing countries with support on issues such as debt, fiscal policy, macroeconomic management and economic policy.

Working closely with the Commonwealth Secretariat, Mr Braga is putting the final touches to a new initiative designed to help the governments of low-income and highly indebted middle income countries better manage their ballooning national debts amid the financial crisis.

Funded to the tune of around $20 million by national governments as well as the World Bank, the facility - scheduled to run for at least the next four years - will enable countries to draw up individual debt management programmes using existing tools such as the World Bank’s Debt Management Performance Assessment and Medium-term Debt Strategy toolkit.

Its work, explains Mr Braga, will be driven in the main by individual country needs, with eight implementing partners including the Secretariat, IMF and regional institutions assisting governments with co-ordinated technical debt management assistance.

The Secretariat already has a debt management computer programme - the Debt Recording and Management System - in place in around 60 countries around the world and, says Mr Braga, its participation in the facility, with its "network of relationships and expertise in the area" offers a significant fillip.

Arindam Roy, Head of Debt Management at the Secretariat, who has been working with Mr Braga to define the Secretariat's involvement, believes the facility will be of "significant" benefit to many Commonwealth countries, allowing them to adopt “lasting solutions” for sound and sustainable debt management.

The facility will “directly benefit” as many as 14 low income Commonwealth countries and up to 24 middle income member countries, most of which are highly indebted, Mr Roy estimates.

"Commonwealth countries are now facing the difficult challenge of maintaining debt sustainability and prudent debt management strategy in the face of significantly growing borrowing needs,” he explains.

“At this juncture, any advisory input on sound debt management will strengthen their overall economic management in these difficult and uncertain times.”

Both Mr Roy and Mr Braga stress that the facility will not on its own transform the fortunes of indebted countries. Nor will it solve the global financial crisis. But they are certain that it can make an important contribution for affected developing countries.

"It would be difficult to argue that this partnership is going to save the world," Mr Braga says. "The facility is not a silver bullet. But it will help governments [deal with] the implications of the financial crisis for their domestic and external debts and help countries to better manage the levels of debt that they have and to avoid major crises in the future."

"These activities that we are doing together [with the Commonwealth] are just one small piece of the overall puzzle."

Secretariat Links:

• Economic Development

Related Websites:

• World Bank