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Recent events have shown that sovereigns, just like banks, can be subject to runs, highlighting the importance of the investor base for their liabilities. This paper proposes a methodology for compiling internationally comparable estimates of investor holdings of sovereign debt. Based on this methodology, it introduces a dataset for 24 major advanced economies that can be used to track US$42 trillion of sovereign debt holdings on a quarterly basis over 2004-11. While recent outflows from euro periphery countries have received wide attention, most sovereign borrowers have continued to increase reliance on foreign investors. This may have helped reduce borrowing costs, but it can imply higher refinancing risks going forward. Meanwhile, advanced economy banks' exposure to their own government debt has begun to increase across the board after the global financial crisis, strengthening sovereign-bank linkages. In light of these risks, the paper proposes a framework-sovereign funding shock scenarios (FSS)-to conduct forward-looking analysis to assess sovereigns' vulnerability to sudden investor outflows, which can be used along with standard debt sustainability analyses (DSA). It also introduces two risk indices-investor base risk index (IRI) and foreign investor position index (FIPI)-to assess sovereigns' vulnerability to shifts in investor behavior.

The data and analysis presented in this edition of global development finance are based on actual flows and debt related transactions for 2010 reported to the World Bank Debtor Reporting System (DRS) by 129 developing countries. The reports confirm that in 2010 international capital flows to developing countries surpassed preliminary estimates and returned to their pre-crisis level of $1.1 trillion, an increase of 68 percent over the comparable figure for 2009. Private capital flows surged in 2010 driven by a massive jump in short-term debt, a strong rebound in bonds and more moderate rise in equity flows. Debt related inflows jumped almost 200 percent compared to a 25 percent increase in net equity flows. The rebound in capital flows was concentrated in a small group of 10 middle income countries where net capital inflows rose by an average of nearly 80 percent in 2010, almost double the rate of increase (44 percent) recorded by other developing countries. These 10 countries accounted for 73 percent of developing countries gross national income (GNI), and received 73 percent of total net capital flows to developing countries in 2010. The 2010 increase in net capital flows was accompanied by marked change in composition between equity and debt related flows. Over the past decade net equity flows to developing countries have consistently surpassed the level of debt related flows, reaching as high as 97 percent of aggregate net capital flows in 2002 and accounting for 75 percent of them ($509 billion) in 2009. However, periods of rapid increase in capital flows have often been marked by a reversal from equity to debt.

The World Bank's Debtor Reporting System (DRS), from which the aggregates and country tables presented in this report are drawn, was established in 1951. The debt crisis of the 1980s brought increased attention to debt statistics and to the World debt tables, the predecessor to Global development finance. Now the global financial crisis has once again heightened awareness in developing countries of the importance of managing their external obligations. International capital flows to the 128 developing countries reporting to the World Bank Debtor Reporting System (DRS) fell by 20 percent in 2009 to $598 billion (3.7 percent of Gross National Income (GNI), compared with $744 billion in 2008 (4.5 percent of GNI) and a little over half the peak level of $1,111 billion realized in 2007. Private flows (debt and equity) declined by 27 percent despite a rebound in bond issuance, portfolio equity flows, and short-term debt flows. Both foreign direct investment (FDI) flows and bank lending fell precipitously. By contrast, the net inflow of debt-related financing from official creditors (excluding grants) rose 175 percent as support was stepped up to low- and middle-income countries severely affected by the global financial crisis.

The history of debt relief goes back several decades. It reveals that a country's accumulation of unsustainable debt stems from such factors as deficiencies in macroeconomic management, adverse terms-of-trade shocks, and poor governance. Debt-relief initiatives have provided debt-burdened countries with the opportunity for a fresh start, but whether the benefits of debt relief can be preserved depends on transformations in a country's policies and institutions. In 1996, the Heavily Indebted Poor Countries (HIPC) Initiative was launched as the first comprehensive, multilateral, debt-relief framework for low-income countries. In 2005, the Multilateral Debt Relief Initiative was established, which increased the level of debt relief provided to HIPCs. As of early 2009, assistance through these two initiatives had been committed to 35 countries and amounted to US$117 billion in nominal terms, or half of the 2007 GDP of these countries. 'Debt Relief and Beyond' assesses the implications of debt relief for low-income countries and how its benefits can be preserved and used to fight poverty. The chapter authors bring unique operational experience to their examination of debt relief, debt sustainability, and debt management. Several key questions are addressed, including, what consequences does debt relief have for poverty-reducing expenditures, growth, and access to finance? Can debt relief guarantee debt sustainability? How can debt management at all levels of government be improved? What lessons can be learned from countries that have experienced debt restructuring? Finally, this book provides sound empirical evidence using current econometric techniques.

This paper examines the channels through which external debt affects growth in low-income countries. Our results suggest that the substantial reduction in the stock of external debt projected for highly indebted poor countries (HIPCs) would directly increase per capita income growth by about 1 percentage point per annum. Reductions in external debt service could also provide an indirect boost to growth through their effects on public investment. If half of all debt-service relief were channeled for such purposes without increasing the budget deficit, then growth could accelerate in some HIPCs by an additional 0.5 percentage point per annum.

This paper builds a model of a sovereign borrower that has access to credit from private sector creditors and an IFI. Private sector creditors and the IFI offer different debt contracts that are modelled based on the institutional frameworks of these two types of debt. We analyze the decisions of a sovereign on how to allocate its borrowing needs between these two types of creditors, and when to default on its debt to the private sector creditor. The numerical analysis shows that, consistent with the data; the model predicts countercyclical IFI debt along with procyclical commercial debt flows, also matching other features of the data such as frequency of IFI borrowing and mean IFI debt stock.

The paper examines the evolution of public sector debt levels and structures in 12 emerging market countries around the time of financial crises. In particular, it focuses on whether the debt situation of sovereign borrowers became more vulnerable in the aftermath of crises. The principal findings are that (i) debt levels tend to increase significantly post-crisis, and (ii) countries often experience more rigid debt structures following such events, with an increase in the share of external public debt to multilateral creditors and a greater exposure of the domestic banking system to sovereign debt.

The little data book on external debt, a pocket edition of Global Development Finance (GDF) 2010: external debt of developing countries, contains statistical tables on the external debt of the 128 countries that report public and publicly guaranteed external debt under the debtor reporting system. It also includes tables of selected debt and resource flow statistics for individual reporting countries as well as summary tables for regional and income groups. It is the culmination of a year-long process that requires extensive cooperation from people and organizations around the globe-national central banks, ministries of finance, major multilateral organizations, and many departments of the World Bank. The little data book on external debt provides a quick reference for users of the GDF 2010 book, CD-ROM, GDF online, and electronic subscription database. The economic aggregates presented in the tables are prepared for the convenience of users. Although debt ratios can provide useful information about developments in debt-servicing capacity, drawing valid conclusions from them requires careful economic evaluation.