# **Figure 25: Non‐Concessional Debt and Debt Service, 2007**

<!-- Start of picture text --> % Non‐concessional Debt Out.<br>100.0% % Non Concessional Debt Service<br>80.0%<br>60.0%<br>40.0%<br>20.0%<br>0.0%<br>Percent of Total<br><!-- End of picture text --> Source: World Bank DDP From another perspective, however, the management of non‐concessional debt poses new challenges and these developments could aggravate the risk that LICs will accumulate unsustainable debt burdens. The buildup of non‐concessional external debt can place a heavy debt‐servicing burden on LICs. If DeM units lack the capacity to undertake a credible forward looking debt sustainability analysis then borrowing strategies may not be aligned with long‐term servicing capacity and imprudent borrowing may result. Even a modest amount of non‐concessional borrowing can significantly impact debt servicing costs. Figure 25 presents debt service amount for seven LICs, of which DR Congo, Ethiopia, Ghana, and Uganda have already benefitted from debt relief. Despite the relatively modest amount of non‐concessional debt stock in 2007, debt service on non‐concessional debt in several countries represented a large portion of total debt service. Ethiopia, Ghana, Myanmar, Uzbekistan and Zimbabwe were all in a situation where non‐ concessional debt‐service made up the majority of total debt service.

The availability of non‐concessional financing has increased the urgency to build capacity to develop and implement credible DeM strategies, so that governments can take informed borrowing decisions to manage their debt portfolios.

# **V. Conclusion**

Sound DeM practices play a critical role in the prevention and mitigation of financial crises.<sup>33</sup> While this is true in both LICs and MICs, LICs face unique challenges. Their relative lack of economic diversification and the shallowness of their financial markets make them particularly vulnerable to external shocks. Second, while more vulnerable, their smaller endowments of institutional and human capital undermine proper crisis preparedness and response. While these vulnerabilities are not new, many LICs still lack a coherent framework to improve DeM capacity. Therefore, first and foremost in addressing the overall DeM performance is an assessment of strengths and weaknesses in a country’s current framework, as adequate institutional and analytical capacity is critical in managing what are increasingly complex public debt portfolios. As the borrowing environment confronting these countries has changed and become more complex, access to concessionary finance is limited, and developing countries that access domestic markets or external commercial borrowing continue to face vulnerabilities.

The DeMPA was designed specifically to identify these weaknesses and provide a benchmark for reform. A preliminary assessment of its results shows that developing countries need to strengthen crucial areas of DeM—particularly analytical capacity to assess cost‐risks tradeoffs in their public debt portfolios. The MTDS is an important tool in addressing this issue. As demonstrated, an effective MTDS illustrates the

> 33 “Guidelines for Public Debt Management.” World Bank and IMF.  Washington, DC; 2003.

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