Center for Global Development | Mon, Jul 19, 2021
by Scott Morris and David Mihalyi
The G7 countries pledged a massive scale-up in support of developing-country financing at their recent summit in the UK. How it will be financed remains an open question. But analyzing trends in recent debt flows by lenders to developing countries, and taking stock of the Debt Service Suspension Initiative (DSSI), can provide some important lessons for the G7’s new ambitions.
New data from the World Bank provide a clearer picture of debt flow dynamics. In contrast to debt stock figures (which typically change slowly, but nevertheless account for many of the headlines in financial reporting), debt flows on a net basis (loan disbursements net of borrowers’ repayments) better reflect the experience of ministries of finance in constantly looking for fresh financing to ensure that both their debt servicing obligations and current financing needs are met. These numbers also reveal important dynamics in debt flows in the lead-up to the COVID crisis, which point to significant financing challenges for developing country governments as they now seek to emerge from the crisis.