One of the legacies of the last decade's debt relief is a new commitment to improving the way developing countries manage their debt. Having been released from the burden of accumulating arrears and unsustainable debt, HIPCs are looking to use debt more strategically to finance vital programmes and play a pivitol role in their economic management.
Without effective coordination and oversight, debt cannot be effectively managed and government borrowing can quickly spiral out of control. Some of the most important steps in debt management therefore involve creating an effective legal and institutional structure to coordinate and control debt.
The HIPC and multilateral debt relief initiatives provided vital relief to overburdened economies. But low income countries are continuing to borrow and now have access to a wider range of potential sources of finance. To minimise the cost and risk associated with these debts, both low and middle income countries must adopt a more strategic approach to credit. The question is what should a debt strategy look like?
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Evaluation of debt relief to Nigeria
As a result of the Paris Club debt relief operation in 2005, Nigeria – the second biggest economy in Sub-Saharan African – saw its foreign debt virtually disappear, while the creditor nations got back more than they expected. This evaluation shows how this worked.