Addressing acute debt-servicing problems

Concentrating on acute debt-servicing problems
Ensuring sustainable debt-servicing obligations
Reducing debt overhang
Reducing unsustainable debt-servicing obligations
A framework to reduce the burden of debt must: (a) allow debtors to grow faster and export more; (b) enable the cost of debt service to fall.
Possible financial options include: (a) inflow of new capital through foreign direct investment; (b) conversion of foreign currency debt into domestic currency investment through debt equity swaps, thus altering the debtors' obligation and reducing their interest-bearing external debt; (c) conversion of existing loans into local currencies, thus repatriating flight capital and alleviating the drain on foreign currency resources; (d) using performance bonds or commodity-indexed bonds as a source of new money, although this would not significantly reduce debt overhang; (e) cushioning interest rate and currency shocks to debtor countries through financial engineering and liability management - for example, interest rate swaps and interest rate caps reduce interest rate sensitivity of existing liabilities by converting floating rate borrowings into fixed rate liabilities or by putting a ceiling on future interest rates; (f) new contractual arrangements between debtors and lenders, for example by subordinating existing debt to future loans, giving the latter senior status; (g) sharing the burden between debtors and creditors and providing debt relief by partial write-offs of existing loans; (h) partial or complete interest capitalization as an alternative to accumulating new loans to finance interest due.
Type Classification:
F: Exceptional strategies
Related UN Sustainable Development Goals:
GOAL 1: No PovertyGOAL 2: Zero HungerGOAL 3: Good Health and Well-beingGOAL 4: Quality EducationGOAL 5: Gender EqualityGOAL 6: Clean Water and SanitationGOAL 7: Affordable and Clean EnergyGOAL 8: Decent Work and Economic GrowthGOAL 9: Industry, Innovation and InfrastructureGOAL 10: Reduced InequalityGOAL 11: Sustainable Cities and CommunitiesGOAL 12: Responsible Consumption and ProductionGOAL 13: Climate ActionGOAL 14: Life Below WaterGOAL 15: Life on LandGOAL 16: Peace and Justice Strong InstitutionsGOAL 17: Partnerships to achieve the Goal