Compensatory Aid and Debt Relief: A Case Study of Uganda

We propose a contingency financing framework to assist low-income countries in the achievement of debt sustainability. The framework relies on an accounting method to quantify external shocks to the balance of payments and provides compensatory financing to offset their impact. We apply the framework to the case of Uganda during the period 1988–2002 and find that it would have been highly effective in identifying and offsetting the adverse liquidity implications of shocks to the country's trade balance.