***NEW*** Contributions to Navigating a fragmenting global trading system: insights for central banks (with other members of the IRC Workstream on Trade Fragmentation), ECB Occasional Paper, European Central Bank, December 2024
In light of recent global economic and geopolitical shocks threatening trade openness, this report aims to shed light on geoeconomic fragmentation and develops a rich set of new tools to assess its economic effects and implications for central banks. The report shows that, although global trade integration has largely withstood recent disruptions and the rise of inward-looking policies, selective decoupling between few trading partners (United States vis-à-vis China, western economies vis-à-vis Russia) and for specific products (such as advanced technologies) is occurring. Survey data show that, although European firms are reorganising supply chains critical foreign dependencies persist. A firm-level stress test reveals that sudden disruptions in the supply of critical inputs from high-risk countries would lead to significant, albeit very heterogeneous, economic losses across firms, regions and sectors. Addressing foreign dependencies with broadbased protectionism policies, however, is self-defeating. In an extreme counterfactual scenario involving prohibitive and across-the-board trade barriers between geopolitical blocs, global GDP could decline by up to 9% coupled with an increase in global inflation of 4 percentage points in the first year, with the impact persisting for at least five years. It is conceivable that trade fragmentation will unravel over the course of a number of years, with supply disruptions becoming more frequent and severe than in the past. If this process should ultimately lead to a less interconnected global economy, countries might suffer from increased volatility and price pressures, as shocks cannot be easily diversified away through trade. The report concludes that geoeconomic fragmentation significantly increases the complexity and unpredictability of the operating environment for central banks; in addition, it emphasises the need for improved analytical tools and a better understanding of supply chains and trade interdependencies using granular data. [ASSA 2025 Annual Meeting presentation]Sovereign debt restructuring in frontier markets: progress, problems, and possibilities for reform (with Romanie Peters), Berne Union Yearbook, December 2024, pp. 24-27
Transparency, the anchoring of expectations, and creditor coordination represent three reforms that will transform the speed and quality of sovereign debt restructuring. [The BUlletin]De-risking European trade with China: implications for Belgium (with Kristel Buysse and Emiel Marchand), Economic Review, National Bank of Belgium, September 2024
To inform the public debate, this article maps Belgium’s key trade exposures to China and the associated vulnerabilities. Belgian direct import and export exposure to China is – in relative terms − lower than the EU’s and Germany’s in particular. However, the composition of Belgian imports from China has evolved in recent years, away from textiles and toys towards more sophisticated goods such as electronics and electric vehicles. On the exports side, the growing share of chemicals in Belgian exports to China is noteworthy. A systematic product-level analysis reveals that while China is the main extra-EU supplier of strategic goods to the EU by far, this is not the case for Belgium. Nonetheless, Belgium is strongly dependent on China for some 50 out of 200 strategic imports – ranging from vitamins and industrial precursors to steel bars, LED lamps and permanent magnets. On the other hand, most of Belgium’s exports for which extra-EU demand is highly concentrated tend to go elsewhere, notably the UK, the US and India, with some exceptions for certain goods such as chemical catalysts.We look beyond Belgium’s direct trade with China at the macroeconomic level to detect other pockets of vulnerability. The value-added data indicate that Belgian sectors like textile manufacturing, electronics and base metals are indirectly exposed to China through international supply chains. Due to the presence of many multinationals in Belgium and in the broader context of the single market, trade flows between other EU Member States and China are relevant for Belgium, too. In addition, more detailed firm-level analysis reveals that exposure to potential disruptions in the supply of critical Chinese inputs varies enormously − across geographic regions, (sub)sectors and individual firms within the same sector − suggesting the need for well‑targeted de-risking measures.[NL Digest] [FR Digest]The resurgence of industrial policy to achieve greater strategic autonomy, improve competitiveness and accelerate the green transition, Box in Chapter 1, Annual Report, National Bank of Belgium, April 2024
In recent years, there has been an intensification of geopolitical tensions and a reshuffling of the competitive balance between the world’s various economic blocs. Advanced countries are increasingly turning to “industrial policy”, i.e. targeted public support aimed at stimulating strategic sectors, in order to strengthen their competitiveness and resilience. While industrial policy can help to remedy certain forms of market failure, it is not a silver bullet.[NL version] [FR version] [NL video teaser]Critical raw materials: From dependency to open strategic autonomy? (with Kristel Buysse), Economic Review, National Bank of Belgium, November 2023
It’s just like Madonna sang, back in the eighties: we are living in a material world. And here in Europe, securing access to those materials, and more specifically, to so-called ‘critical raw materials’ (CRMs), is vital if we are to meet our ambitious climate and digital objectives. Take copper, for example, which is used in all clean energy technologies and often for electric wiring. Or lithium, nickel, and cobalt, which are used to produce electric vehicle batteries. Meanwhile, exotic sounding ‘rare earth elements’ such as neodymium are crucial for the permanent magnets found in wind turbines, the engines of electric vehicles and computer hard drives. Global demand for these and other CRMs is projected to grow rapidly. On the supply side, the extraction of CRMs is often dominated by a handful of countries and/or a few large mining companies. The refining of many CRMs is even more intensely concentrated, frequently in a single country – namely China. This implies considerable supply chain risks, including the possibility that CRMs are used as geopolitical leverage. In response, the European Commission recently proposed a Critical Raw Materials Act. The act sets EU-level capacity benchmarks for the extraction, processing, and recycling of CRMs by 2030 – goals Europe intends to meet through the selection of strategic projects for which permit issuance procedures are streamlined and financing facilitated. The overall feasibility and ultimate effectiveness of Europe’s ambitious CRM-related policies remains unclear. Re-shoring CRM extraction and processing to Europe would be extremely challenging: this would take a substantial amount of time and is bound to be very costly. The continent may not be able to afford the required patience and resources. Any successful European CRM strategy will have to be global. In line with the ‘open strategic autonomy’ mantra, the EU needs to remain open and cooperative without being naïve. The EU will need to back up strategic partnership agreements with CRM-producing countries with substantial amounts of financial support, while remaining sensitive to partners’ domestic ambitions and concerns. Wherever possible, synergies will need to be sought with other, like-minded CRM importers, to shoulder together the financial burden of investing in global CRM supply chains and to set common transparency, environmental, and social standards for CRM businesses.[NL Digest] [FR Digest] [College of Europe presentation]The US Inflation Reduction Act and Europe’s response, Bank- en Financiewezen / Revue bancaire et financière, Belgian Financial Forum, September 2023
This article discusses the landmark 2022 United States Inflation Reduction Act (IRA) and the EU’s response so far. First, it lays out the main clean energy provisions of the US IRA, their underlying objectives, and the projected impacts. Second, the article examines the EU’s concerns with the IRA and assesses the resulting policy initiatives of the European Commission proposed under the umbrella of the Green Deal Industrial Plan. While US and EU preferences and policy choices are clearly different, more international cooperation − between them and with others − will be needed for a successful green transition. Do all roads lead to Paris? Climate change mitigation policies in the world’s largest greenhouse gas emitters (with Flore De Sloover and Thomas Stoerk), Economic Review, National Bank of Belgium, July 2023
Our daily lives are being increasingly affected by climate change and government policies to cut greenhouse gas (GHG) emissions. With that in mind, what commitments have the world’s largest GHG emitters made in terms of climate change mitigation? Are their ambitions sufficient to keep global warming well below 2 °C or, preferably, 1.5 °C by the end of the century, in accordance with the Paris Agreement targets? Which countries are on track to turn their ambitions into reality and which are lagging behind? What types of price and non-price policy instruments are being used?One way of assessing the adequacy of major emitters’ climate mitigation targets and actions is to look at the expected level of warming if those targets and actions were to be implemented at a global level. When viewed from this perspective, the current targets of China and India are insufficient and incompatible with the objective of limiting the global rise in temperatures to 2 °C. That being said, these countries are expected to exceed their relatively unambitious targets. In the US and Japan, on the other hand, targets are sufficiently ambitious but more concrete policy measures and actions are needed to realise them. Only in the EU and the UK are both targets and the implementation of climate mitigation policies deemed compatible with a maximum 2 °C rise in temperatures.This article explains that, despite the progress made thus far, the world as a whole is not on track to meet the temperature objectives of the Paris Agreement. Climate mitigation ambitions and policy mixes and implementation vary widely from country to country. International cooperation is key to moving forward, particularly given that the window to avoid the worst effects of climate change is rapidly closing.[NL Digest] [FR Digest] [Bank- en Financiewezen / Revue bancaire et financière]Contributions to The EU’s Open Strategic Autonomy from a central banking perspective: Challenges to the monetary policy landscape from a changing geopolitical environment (with other members of the IRC Workstream on Open Strategic Autonomy), ECB Occasional Paper, European Central Bank, March 2023
Over the past decade, geopolitical developments – and the policy responses to these by major economies around the world – have challenged economic openness and the process of globalisation, with implications for the economic environment in which central banks operate. The return of war to Europe and the energy shock triggered by the Russian invasion of Ukraine in 2022 are the latest in a series of episodes that have led the European Union (EU) to develop its Open Strategic Autonomy (OSA) agenda. This Report is a broad attempt to take stock of these developments from a central banking perspective. It analyses the EU’s economic interdependencies and their implications for trade and finance, with a focus on strategically important dimensions such as energy, critical raw materials, food, foreign direct investment and financial market infrastructures. Against this background, the Report discusses relevant aspects of the EU’s OSA policy agenda which extend to trade, industrial and state aid measures, as well as EU initiatives to strengthen and protect the internal market and further develop Economic and Monetary Union (EMU). The paper highlights some of the policy choices and trade-offs that emerge in this context and possible implications for the ECB’s monetary policy and other policies.Are we entering an era of deglobalisation? (with Kristel Buysse), Economic Review, National Bank of Belgium, November 2022
References to “deglobalisation” are rife today, in press reports, company earnings calls and even central bank communications. Of course, given the disruptions caused by the COVID-19 crisis and other recent adverse events, it should come as no surprise that businesses and governments are seeking ways to make supply chains more resilient to shocks. But to what extent is active disengagement from international trade and global value chains part of the equation? Should we expect true deglobalisation to become a reality in the near future or is the era of deglobalisation already upon us?Even before the COVID-19 crisis, globalisation had been levelling off. Several factors driving the spectacular rise of global value chains since the mid-80s had run their course, including the ICT and transportation revolutions, wage gaps between advanced and emerging economies, and the general appetite for trade liberalisation. Somewhat against the odds, global value chains overall demonstrated relative resilience during the pandemic. Supply chain pressures nevertheless surged to record levels, particularly in some industries, and have remained high ever since due to new shocks. To deal with supply chain vulnerabilities, firms have so far resorted primarily to changes in inventory management and to supplier diversification rather than extensive reshoring or nearshoring, i.e. bringing supply chains back or closer to home. In addition, as a result of the war in Ukraine and the associated sanctions, Western firms have scaled back or even completely ceased Russian business dealings.The future of globalisation will be shaped by at least three key forces: new digital and other technologies, the climate agenda and, arguably most importantly, geopolitics. While the effects of the first two factors may be ambiguous, policymakers’ growing geopolitical considerations − including strategic sectors/products, national security concerns and national competitiveness − will undoubtedly adversely affect trade volumes and value chains going forward. Nonetheless, rapid deglobalisation does not seem to be in the cards for now, barring severe, long-lasting geopolitical shocks. Rather than the end of globalisation we expect to see a reconfiguration of global trade and value chains, definitely involving more careful risk management and perhaps more regionalism and friendshoring.[NL Digest] [FR Digest]Should we fear China's brave new digital world? (with Kristel Buysse), Economic Review, National Bank of Belgium, May 2022
China has become the world’s principal manufacturing powerhouse and exporter of ICT goods. It is also home to several internationally renowned digital innovators, such as Alibaba, Tencent and Huawei. A closer look reveals that, overall, China’s ICT sector is catching up quickly with that of most advanced economies but does not (yet) rank among the global front runners. We discuss two case studies to illustrate China’s mixed success in its development of a strong digital economy. On the one hand, China is clearly a pace setter in the provision of digital financial services (digital wallets, BigTech credit) and the development of a central bank digital currency (the digital renminbi or e-CNY). On the other hand, it has not yet mastered the cutting-edge technologies needed to produce the most advanced semiconductors, leaving China dependent on foreign suppliers of such critical technologies.China has high ambitions to become the world’s leading (digital) innovator and is confident that it can win the race with its unique approach to industrial policy. Acknowledging its strategic importance, the Chinese government is increasingly taking control over the digital economy. Yet, some of China’s plans and policies are met with hostility in the US and the EU, prompting them to take countermeasures such as the implementation of investment screening mechanisms, as well as restrictions on the export of sensitive technologies to China in the case of the US. Moreover, both the US and EU are stepping up their own digital and technological ambitions.[NL Digest] [FR Digest]Contributions to The IMF’s role in sovereign debt restructurings (with other members of the IRC Task Force on IMF and Global Financial Governance Issues), ECB Occasional Paper, European Central Bank, September 2021
The global recession caused by the COVID-19 pandemic and the resulting deterioration in many countries’ public finances have increased the risk of sovereign debt crises. Although crisis prevention remains paramount, these developments have made it imperative to re-examine the adequacy of the current toolkit for crisis management and resolution, in a context where changes in the creditor base and in the composition of public debt instruments have brought about new challenges in terms of reduced transparency and additional barriers to achieving inter-creditor equity. This report focuses on the international architecture for sovereign debt restructurings (SODRs), as seen through the lenses of the International Monetary Fund (IMF or “the Fund”) and with a special attention to the role that the Fund can play in facilitating orderly restructuring processes. It provides a set of findings and recommendations in relation to certain key elements of the Fund’s lending framework that have important ramifications on SODR processes, namely debt sustainability assessments (DSAs), the exceptional access policy (EAP) for financing above normal access limits, and the criteria for lending to countries with payments arrears to private creditors (LIA) or official bilateral creditors (LIOA). It also considers other indirect channels through which the Fund can affect SODRs, including its support for enhancing the transparency and public disclosure of sovereign debt information, its collaboration with the Paris Club and the G20 debt-related initiatives, the promotion of contractual standards for sovereign debt, and the monitoring of relevant legislative developments.Indebtedness around the world: Is the sky the limit? (with Flore De Sloover and Kristel Buysse), Economic Review, National Bank of Belgium, June 2021
The COVID-19 pandemic has left the world a legacy of sky-high debt. Public debt to GDP ratios now match those observed at the end of World War II for advanced economies, and exceed the previous records of the late 1980s for emerging economies. Moreover, for both country groups, non-financial corporate debt ratios have never been higher. In this context, the article addresses questions such as: What are the key drivers of global indebtedness, especially since the global financial crisis, and what has been the impact of COVID-19? How is debt linked to the low interest rate environment and economic growth? What are the various disadvantages and risks associated with high debt levels? How do these risks vary across country, sector or firm characteristics? And what are the policy options to reduce public and corporate debt burdens, or at least keep them under control?[NL Digest] [FR Digest]The world economy under COVID-19: Can emerging market economies keep the engine running? (with Kristel Buysse), Economic Review, National Bank of Belgium, September 2020
A decade ago, EMEs succeeded in weathering the global financial crisis (GFC) rather well and were driving the subsequent global recovery. Will EMEs again be the world economy’s locomotive this time around? The article concludes that, despite greater-than-usual uncertainty about future growth paths, EMEs will most likely not play the same supportive role for the world economy throughout the COVID-19 crisis as at the time of the GFC. First of all, the COVID-19 crisis is fundamentally different from the GFC, or other large crises for that matter. The pandemic-induced global recession is projected to be the deepest since World War II and the most synchronised ever. With the notable exception of China, nearly all major EMEs are expected to experience strongly negative growth in 2020, unlike in 2009. This is the combined result of the severe direct impact the spread of coronavirus and associated containment measures have had on economic activity in EMEs, as well as of the multiple external shocks that have hit them more indirectly. Second, certain structural characteristics of EMEs, including weaker health systems and relatively large informal sectors, are making it more difficult for these countries to bring and keep the pandemic under control and are contributing to the economic damage it is wreaking. Third, major EMEs were already suffering from idiosyncratic stress factors, macroeconomic vulnerabilities, and slowing economic growth before the COVID-19 crisis struck. In fact, if one excludes China and India, EMEs’ percentage point contribution to world economic growth had shrunk considerably in recent years, compared to its post-GFC highs. Fourth, while EMEs have resorted to countercyclical monetary and fiscal stimulus, often exceeding their policy responses during the GFC, overall their support to the economy remains several times smaller than the rescue packages that advanced economies have unleashed. EMEs will depend to a large extent on the policy actions of advanced economies for their recovery, including a resumption of demand for their exports and a continued accommodative monetary policy stance by advanced economy central banks. Finally, while the summer projections at the time of writing still assume a relatively swift recovery and positive contribution of EMEs to world growth in 2021, bringing and keeping the virus under control is a necessary condition for such a scenario to materialise. In addition, high and rapidly rising sovereign and corporate debt levels will require deleveraging at some point, weighing on growth over the medium term.[NL Digest] [FR Digest] [SUERF Policy Note] [Bank- en Financiewezen / Revue bancaire et financière]Does the EU convergence machine still work? (with Evelien Vincent and Patrick Bisciari), Economic Review, National Bank of Belgium, April 2020
The prospect of higher living standards has been a major attraction of EU membership and is arguably an antidote against rising EU scepticism. But does the EU “convergence machine” still work? Have initially poorer European countries and regions succeeded in catching up with the income levels of their richer peers? And what has been the relative performance of countries and regions in Western Europe, including Belgium? The article finds evidence of relatively strong convergence of incomes across countries and regions in the EU over the long term. However, the process has not always been smooth. While the EU “convergence machine” has worked most of the time and for most regions, sometimes and for some places it has sputtered. Convergence has been strongest during high-growth periods, during the early stages of EU integration among the old Member States, and around the accession of the Central and Eastern European countries. Crisis periods were marked by slowing convergence or even divergence. The global financial crisis and European sovereign debt crisis heralded a period of severe economic underperformance in much of Southern Europe.EU-wide convergence of regional incomes since 1996 has benefited from convergence of incomes between countries, while within-country income disparities remain substantial and have even widened slightly over time. Metropolitan regions – and even more so capital regions – have grown faster than average, thereby contributing to regional convergence across EU countries but also to within-country disparities. Agglomeration effects, such as a concentration of higher-productivity activities and innovation, have likely played a role here.[NL Digest] [FR Digest] [SUERF Policy Note] [Bank- en Financiewezen / Revue bancaire et financière] Cheating tiger, tech-savvy dragon: Are Western concerns about 'unfair trade' and 'Made in China 2025' justified? (with Kristel Buysse), Economic Review, National Bank of Belgium, September 2019
China is often accused of not playing by the rules governing world trade and of being ruthless in its push for technological leadership. But to what extent are such concerns supported by the data? And how has the EU attempted to address the challenges posed by China’s trade and investment practices?Many Western observers believe that China has not fully lived up to the commitments it made upon joining the World Trade Organisation (WTO) in 2001, while since then the Chinese economic and political system has not seen the hoped-for convergence to a Western-style liberal market economy. Moreover, Europe and the US are increasingly feeling the heat of China’s vigorous pursuit of technological leadership, best captured by the ambitious Made in China 2025 policy plan. Tensions between China and its main trading and investment partners have risen as a result.One should not be naive. When the complaints that Western policymakers and companies have voiced about China’s trade and investment practices are compared with the available data, it is evident that several of those concerns are indeed justified. On various occasions, WTO rulings in dispute cases have found China guilty of implementing unwarranted import and export restrictions and other discriminatory measures. Also, European and US firms face much more restrictive FDI regulations in China than vice versa, mostly because of foreign equity limitations. SOEs are still very much present in China’s strategic industrial sectors and, together with politically connected ‘private’ firms, continue to benefit from subsidies, low-interest loans and other government support, which distorts competition with other domestic and foreign companies. Some of China’s current policies aimed at international technology transfer seem to be problematic too, as they tend to ‘force’ rather than simply ‘nudge’ Western companies into sharing their know-how with Chinese partners. Involvement of Chinese nationals in industrial espionage and cybertheft, even without the knowledge of the Chinese government, is unacceptable. Meanwhile, a significant part of Chinese outward FDI into the EU does target strategic assets or valuable new technologies, which thus risk falling into the hands of the Chinese government, at the expense of European companies and consumers.In contrast to the confrontational, unilateral approach of the present US administration to trade with China, the EU has chosen the path of multilateralism for now. It has already made various proposals to reform the WTO, including a thorough update of the existing, rather minimal WTO rules on issues such as SOEs, government subsidies and (forced) technology transfers, and greater enforcement of notification obligations, for example with respect to reporting on new subsidies. The EU also seeks solutions to the crisis surrounding the WTO’s Appellate Body. On the investment front, the most notable initiative has been the establishment of a common EU framework for FDI screening, which is above all a platform for the exchange of information on FDI that could negatively impact security or public order in one or more member states. However, individual member states retain the final say on whether or not to screen and/or eventually block an investment in their territories.Going forward, continued engagement with China will be necessary, given that the country represents a market that is simply too large to be ignored, is already embedded in numerous multinational value chains, and is poised to become an indispensable partner in solving various global challenges. Since China can no longer be considered a developing country, it is reasonable for the EU and other advanced economies to demand greater reciprocity from China in its trade and investment relations. At the same time, China’s policies should not be seen only in a negative light. Provided the strategies are adapted to be better suited to Europe’s economic and political system, the EU can certainly learn from China, for example, in terms of the development of a clear long-term vision and the expansion of its industrial base and innovative capacity.[NL Digest] [FR Digest]Can China escape the middle-income trap? (with Kristel Buysse and Evelien Vincent), Economic Review, National Bank of Belgium, June 2018, pp. 63-77
China's economic development is the success story of recent decades, but the growth of the Chinese economy has lost momentum in the past few years. Such a slowdown is a normal phenomenon as a country becomes richer, and the question is therefore whether China can maintain its rapid convergence towards the advanced countries’ standard of living, or, in other words, whether China can avoid what is known as the “middle-income trap”.The concept of the “middle-income trap” originated from the observation that a number of countries remained in the middle-income category for a long period on the basis of their GDP per capita, and did not join the group of rich, advanced countries. This shows that the transition from a middle-income country to a high-income country is much more difficult than the first development phase from low- to middle-income country. The underlying reason is that the initial development strategy based on labour-intensive production and the attraction of foreign technologies and capital runs out of steam after a while, whereas the new growth strategy, driven by productivity gains, is often difficult to establish.Apart from the normal growth slowdown that accompanies economic convergence, correction of the unbalanced composition of expenditure and production, high debt levels and rapid population ageing will depress China’s future growth. Measures are necessary to avoid a financial crisis and curb the accumulation of additional debts, without jeopardising the growth potential. The challenge consists in finding the right balance in which rebalancing goes hand in hand with industrial upgrading. Demographic trends are also working to China’s disadvantage: never before has a country had to contend with population ageing at such an early stage of economic development.Nonetheless, in other respects China has a sound basis for achieving future growth driven by productivity gains, such as its specialisation in relatively sophisticated export products, a modern infrastructure and substantial investment in human capital and R&D. The technological upgrading of the Chinese economy also opens up new opportunities. The strategy adopted aims at a continued growth of Chinese high-tech exports, on-shoring, the acquisition of technologies abroad via outward foreign direct investment, and the establishment of a domestic innovation policy. However, each of these strategies has its limitations: protectionist responses to a further growth of Chinese exports, legal restrictions (in the United States and a number of European countries) on the purchase of technology in strategic sectors by Chinese State-aided enterprises, and potential institutional obstacles concerning innovation.In view of the many uncertainties, it is hard to say for sure whether China will avoid the middle-income trap. The authors conclude that their analysis allows to be cautiously optimistic on that score.[NL version] [FR version]The global financial safety net: In need of repair? (with Evelien Vincent), Economic Review, National Bank of Belgium, September 2017, pp. 87-112
Financial integration holds opportunities for advanced and emerging market economies alike, by making investment and consumption smoothing easier, for instance. Nonetheless, it also exposes them to the vagaries of volatile capital flows and, occasionally, financial crises. The adoption of sound domestic policies, though important, may not be sufficient to resist such external shocks; hence the need for a “global financial safety net” (GFSN) that provides countries with financial support for crisis prevention and resolution and aids them in making the necessary adjustments. The aim of this article is twofold. First, it reviews the current state of the GFSN and its four main layers, i.e. countries’ stock of self-accumulated international reserves, bilateral swap lines between central banks, regional financing arrangements (RFAs), and the facilities of the IMF. Next, the article takes up recent discussions on reforms to the GFSN, aimed at improving, respectively, the functioning of the global reserve system, the coordination of bilateral central bank swaps, and IMF-RFA cooperation.The GFSN has grown significantly over the past few decades and has become increasingly multi-layered, owing to a large build-up in the stock of international reserves and, since the global financial crisis, relatively larger roles for central bank swaps and RFAs. The different layers of the safety net each exhibit their own strengths and weaknesses, suggesting a degree of complementarity between them, rather than substitution. International reserves ensure their holder of quick and flexible access to liquidity, but their accumulation can be costly and may increase global systemic risks. Central bank swaps typically bear much lower costs, but they have been granted very selectively, primarily to serve the interests of their providers. RFAs tend to have wider ownership and more region-specific knowledge than the IMF, but they typically lack the latter’s surveillance and monitoring capacities. The IMF, in turn, seems best-placed to engage in global risk-sharing and encouraging good and multilaterally consistent policies, but still carries stigma, related to its past handling of crises, which is thought to have been a key driver of the development of the other layers of the GFSN.The article’s discussion of current GFSN reform proposals suggests the following. First, changes to the way the IMF’s special drawing rights (SDRs) are allocated and exchanged could be helpful in supporting a move towards a more balanced global reserve system, but only if the amount of SDRs in circulation is substantially increased. In the meantime, the US dollar is likely to remain the world’s principal reserve currency. Second, while it may be useful to establish a loose, common framework for sharing information and harmonisation of bilateral swap terms between central banks, there are strong reservations about transferring decision-making powers on central bank swaps to the multilateral level, say to the IMF, as this conflicts with the independence and domestic mandates of central banks. Third, there are gains to be made, in terms of a more effective and efficient use of available resources, from stepping up IMF-RFA cooperation. Given RFAs’ heterogeneity and in line with their preferences and comparative advantages, the collaboration with the IMF could be structured along different models of engagement, ranging from information sharing, cooperation in the field of technical assistance and/or monitoring, to actual co-financing.All in all, recent years have already seen considerable improvements in the way the GFSN is working. Although full integration of its different layers seems neither feasible nor desirable, in view of their complementarities, there is still ample room for enhanced cooperation between them.[NL version] [FR version]Sovereign debt workouts: Quo vadis? (with Danny Cassimon and Karel Verbeke), AfricaGrowth Agenda, AfricaGrowth Institute, February 2017
The existing framework for sovereign debt workouts is often described as a ‘non-system’, a loose mix of Paris Club arrangements for official debts, voluntary renegotiations with commercial creditors, and more ambitious but, ultimately, temporary schemes for debt relief such as the Heavily Indebted Poor Country (HIPC) initiative (which is now nearing its end). With sovereign debt crises looming in a range of countries, from advanced economies to former HIPCs, the question of how such crises should be confronted is again growing louder. Whereas most would agree that the current framework for sovereign debt workouts needs reform, opinions on the design of the reform diverge widely. This policy brief outlines a number of initiatives that are currently under way or on the table and discusses their main advantages and drawbacks. [BeFinD brief]The changing face of Rwanda's public debt (with Danny Cassimon and Karel Verbeke), ACROPOLIS-BeFinD Working Paper, November 2016
In 2005-2006 Rwanda benefitted from massive external debt cancellation by the international community under the enhanced Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI). As a result, the country’s public debt sustainability was effectively restored and the Rwandan government was given a clean slate, on which a new, hopefully more successful debt policy could be written. This paper reviews how Rwandan public debt has evolved in the aftermath of debt relief and which priorities were put forward in the debt policy of the Rwandan government. We pay particular attention to public debt instruments which are new or of growing importance in the Rwandan context, i.e., non-traditional donor loans, the 2013 Eurobond, and longer-term local currency bonds. We also shed light on the implications of the post-relief debt accumulation for Rwandan debt management and for future debt sustainability. Finally, we consider the interaction between traditional donor finance and public debt in Rwandan by looking into the impact of the donor aid suspension of 2012 on public debt composition and on various fiscal and macroeconomic indicators. We conclude that, overall, Rwanda has been prudent in re-accumulating debt and in diversifying its sources of public finance, although the transition to a well-balanced equilibrium debt portfolio has not been without problems. The 2012 aid suspension, for example, had important implications for the development of the domestic debt market, next to broader fiscal and macroeconomic ramifications.The IMF-World Bank Debt Sustainability Framework: Procedures, applications and criticisms (with Danny Cassimon and Karel Verbeke), Development Finance Agenda, Chartered Institute of Development Finance, September 2016
At the completion of the Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI), eligible countries’ public debt sustainability was restored. In view of large development needs (and limited tax revenues), it is only rational that former HIPCs accumulate new debt. Indeed, the purpose of debt relief was not to keep debt ratios forever at their post-relief lows, but rather to provide new borrowing space. While the HIPC/MDRI initiatives provided beneficiary countries with a ‘clean slate’ at exit, irresponsible borrowing (and lending) policies could well derail debt again. To monitor the debt sustainability of low-income countries (LICs) over the longer term, the World Bank and IMF jointly developed the Debt Sustainability Framework (DSF). In this policy brief we explain how the DSF works, discuss the different creditor policies the output of the DSF informs, and highlight a number of critiques on the framework.[BeFinD brief]What to do after the clean slate? Post-relief public debt sustainability and management (with Danny Cassimon and Karel Verbeke), Report commissioned under the ACROPOLIS Initiative of the Belgian Directorate-General for Development Cooperation (DGD), April 2015
Coming to terms with reality: evaluation of the Belgian debt relief policy (2000-2009) (with Danny Cassimon, Lode Berlage, François-Xavier de Mevius, Paul Reding, Robrecht Renard, Björn Van Campenhout and Karel Verbeke), Report commissioned by the Special Evaluation Office of the Belgian Directorate-General for Development Cooperation (DGD), October 2011
Overview of debt relief policies, debt size and lessons from debt swaps for education (with Danny Cassimon), In: Debt swaps and debt conversion development bonds for education, Report for UNESCO Advisory Panel of Experts on Debt Swaps and Innovative Approaches to Education Financing, June 2011, pp. 13-30
What potential for debt-for-education swaps in financing Education For All? (with Danny Cassimon and Robrecht Renard), Background document for the UNESCO 35th General Conference and UNESCO 10th Meeting of Education for All Working Group, October 2009