Can GDP-Linked Official Lending to Emerging Economies and Developing Countries Enhance Risk Management and Resilience?

This paper considers whether GDP-linked official external public debt can help address some of the challenges that developing countries face when managing international financial flows. GDP-linked official debts are financial instruments that make debt repayments contingent on economic conditions in the debtor nation. The paper builds on a growing body of research examining how state-contingent borrowing can help governments better manage their debt commitments and contribute to improved welfare outcomes, by linking debt repayment to their ability to pay, which is often shaped by external factors that are beyond their control.