Addressing Liquidity Challenges: A conceptual framework
IISD's contribution to the Global Sovereign Debt Roundtable
In this publication, the authors offer an analysis of the liquidity challenges facing sovereign states. They identify three key perspectives: the distinction between liquidity and solvency, the implications of rollover risks, and the financing needs for vital long-term investments. By clarifying these concepts, the authors lay the groundwork for impactful contributions to the policy debate.
Liquidity challenges have emerged as a critical issue for sovereign states, significantly affecting their debt management capabilities. This commentary introduces a conceptual framework that delineates three essential interpretations of liquidity challenges.
The first interpretation focuses on the distinction between liquidity and solvency, highlighting why debt sustainability is paramount for sovereigns. The second examines rollover risks, analyzing factors that affect a country's capacity to refinance its debts. Finally, the commentary emphasizes the necessity of securing adequate financing for long-term investments, which are vital for development and climate resilience.
By engaging with these interpretations, this publication sets the stage for critical discussions among policy-makers and provides a roadmap for navigating the complexities of sovereign debt.
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