Trade and Sustainable Finance for Development

This paper evaluates the long-term sustainability of external finance for developing countries. It focuses specifically on the role of initial conditions and the social and economic implications of structural change.

Past growth rates provide a good indication of a country's growth capacity. They provide evidence of the initial conditions that affect each country as it embarks on its development process. Although optimism must be a part of any development analysis, there are three major types of risks involved in an overoptimistic debt sustainability analysis:

• Expected performance may not be achieved;
• Conditions attached to lending/borrowing contracts may not be fulfilled;
• Credibility of institutions preparing future debt sustainability scenarios may suffer.

After two decades of different plans, debt cancellation seems a necessity for most low-income economies. A sustainable development process would include:

• Enabling external environment;
• Borrowing from abroad;
• Good domestic governance and accountability;
• Appropriate financial instruments;
• Realistic terms for lending contracts.