Robbing Peter to Pay Paul? Understanding Who Pays for Debt Relief

SummaryThis paper analyzes the distributional impacts of recent debt relief initiatives among four groups of countries: the heavily indebted poor countries (HIPCs), the other IDA-eligible countries, the non-IDA developing countries, and the industrialized countries. The distributional impacts are subject to two major questions: (a) is debt relief additional to donors’ traditional aid budgets? and (b) will donors make reallocations of their traditional aid budgets to HIPCs due to debt relief provided to them? The paper’s analytical framework then establishes certain benchmark scenarios for the two previous questions which allows to approximate some realistic outcomes and to draw some policy recommendations.