Ninth UNCTAD Debt Management Conference
Geneva, 11 - 13 November 2013
Debt Sustainability:
After HIPC Initiative and the Global Crisis
by
Mr. Luc Everaert
Assistant Director
Monetary and Capital Markets Department
International Monetary Fund
The views expressed are those of the author and do not necessarily reflect the views of UNCTAD
Debt Sustainability:
After the HIPC Initiative
and Global Crisis
Luc Everaert
Assistant Director
Monetary and Capital Markets Department
Overview
I.
Developments
II.
Sustainability
III.
Challenges post HIPC
IV.
International Policy Responses
I. Debt Developments
90
80
Debt Levels by Income Level
On average, debt levels highest and
increased most among
higher-income economies
(as percent of GDP)
70
60
Since 2004, 23 EME and LIC first-time
Issuers or re-entries in market
50
2007
2011
40
2012
2013
30
20
10
0
HIPCs
Non-HIPC LIC
countries
Low Middle Income High Middle Income
Countries
Countries
High Income
High Income OECD
Countries
LICs and post-HIPCs speculative, noninvestment grade, or no rating
II. Debt Sustainability
Sustainable development requires sustainable debt
Drivers:
Growth
Yields
Starting Levels of Debt and Deficit
Refinancing/Liquidity Conditions
Growth and Debt
Low-income Countries: Growth and Debt Levels
160
ERI
Average Debt to GDP at t
140
120
GNB
100
Growth leads to
lower debt to GDP
ratios with a lag.
DRC
80
GIN
GMB
60
COM
BDI
KYR
KEN
CAF
RWA
40
MMR
HTI
20
BEN TCD MWI
NPL
BFA
MOZ
MDG MLI
SLE
KHM
TZA
NER
ETH
0
0
2
4
6
8
Average Growth Rates at t-2
(In Percent)
10
12
Growth Gap
Selected Countries: Growth Gap 1/
in percent
15.0
10.0
Baseline (current debt strategy)
100% External Debt
Baseline+15% FX depreciation
100% External+15% FX depreciation
First-time issuers
have to maintain
robust growth rates
to prevent the debt
ratio from raising.
5.0
0.0
-5.0
-10.0
Rwanda Honduras Tanzania Paraguay Mongolia Zambia Namibia
Bolivia
Source: Country desks and IMF calculations.
Note: Growth gap is the difference between the average expected growth rate and the required
(implied) growth rate that makes the debt stock remains constant at current level, over the
projection period .
Yields and Fiscal Deficit
Debt Decomposition, 2012–14
30
25
20
Primary deficit
Stock-flow adjustment
Interest rate–growth differential
Change in debt-to-GDP ratio
15
Strong spending growth
(e.g., public investment)
is pushing up debt ratios,
despite negative interest
rate–growth differentials.
10
5
0
-5
-10
-15
-25
NPL
CIV
BFA
MDA
LAO
GEO
VNM
MMR
GHA
KHM
TCD
UZB
BOL
MOZ
MDG
YEM
ETH
ZMB
SEN
COG
TZA
HND
ARM
UGA
CMR
-20
Source: Fiscal Monitor, April 2013
Note: Effective interest rate defined as interest payments at t divided by debt at t-1 in nominal terms.
Refinancing/Liquidity Conditions
First-time issuers. Rollover risk 1/
1.6
in percent of GDP
max =1.5
1.4
Maturity profile
without new bond
(period average)
1.2
1.0
average= 1.0
First-time bonds
falling due
(period average)
0.8
average= 0.7
average= 0.6
0.6
0.4
Refinancing risks…
0.2
0.0
…driven by
1/ Country sample includes Bolivia, Honduras, Mongolia, Namibia, Rwanda, Tanzania and Zambia.
First-time issuers. Redemption profile
4.00
principal payments, in percent of GDP
Deviation from average
Due amount
at maturity
3.00
Average 2007-2013
2.00
1.00
0.00
Honduras
Rwanda
Zambia
Mongolia
Source: Country desks and IMF staff calculations.
Tanzania
Bolivia
Namibia
amortization spikes
III. Challenges Post-HIPC
Pre- and Post-Completion-Point HIPCs Debt Levels
(as percent of GDP)
250
200
'At Completion Point '
'3 years post Completion Point'
Three years after
completion point,
six HIPCs show
higher debt than
at completion
point.
150
100
0
BDI
BFA
BOL
BRB
CAF
CIV
CMR
COD
COG
COM
ETH
GHA
GIN
GMB
GNB
GUY
HND
HTI
LBR
M…
MLI
MOZ
MRT
MWI
NER
NIC
RWA
SEN
SLE
STP
TGO
TZA
UGA
ZMB
50
Nonconcessional Debt in Post-HIPCs
HIPC Countries’ Reliance on Nonconcessional Debt Post-HIPC
(Change in Nonconcessional Share of external debt, from CP to 2011)
(2011 to HIPC CP's non-concessional external debt as percent of external debt)
40
30
20
Nonconcessional
external debt
increased significantly
for many
10
0
-10
-20
-30
ZMB
TGO
UGA
SLE
TZA
STP
SEN
RWA
NIC
NER
MRT
MOZ
MLI
MWI
LBR
MDG
HTI
HND
GNB
GUY
GHA
ETH
GMB
CAF
COG
BDI
CMR
BFA
BOL
BRB
-40
Post-HIPC life requires
more active debt management …
…as nonconcessional funding
is more expensive…
7
Average Yields for New External Credits Obtained by HIPCs
Official sector: average interest on
new external debt commitments
(as percent)
6
and maturities are shorter
Average Maturity of New External Debt Borrowings
(in years)
38
33
Private sector: average interest on
new external debt commitments
28
5
23
4
Private sector: Average Maturity on New External
Debt Commitments
18
Official Sector: Average Maturity on New
External Debt Commitments
3
13
2
8
3
1
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
2011
1989
2010
1987
2009
1985
2008
1983
2007
1981
2006
1979
2005
1977
2004
1975
2003
1973
0
1971
-2
Main Challenges
Mitigating higher risk of debt distress
Switching safely from official sector to private sector funding
Closely coordinating domestic policies
Overcoming domestic institutional fragmentation
Managing first international issuances
Deepening domestic capital markets
IV.International Policy Response
Risk
Assessments
Risk Sharing
Transparency
Regulation
Capacity
Building
Guidance on
Best Practices
Risk Assessments
Early Warning Indicators on Risk Sustainability
• Risk maps
• EWE/VEE analysis
• Debt stability reports
Risk measurement
Transparency
Creation of an Agency
•Database on sovereign outstanding obligations, payment patterns of various types of obligations, and
records of arrears and bad debt;
•Database on countries’ updated debt management strategies;
•Updates on new international issuances and terms across countries;
•Updates on grant/aid disbursements according to schedule; and evaluates its predictability/conditions
attached to the disbursements, etc.
Enhancing transparency on debt issuances to avoid unnecessary competition on
issuances
•Publication of a listing of countries’ bond issuances calendar;
•Publication of countries’ issuances with terms (yield, maturity, and allotments).
Building Capacity
• In-house training programs
• Long-term experts in the region to ensure continuous
training/follow-up
• Regional Training Centers with more course offering
[IMF-type or other]
• DMOs/Central Bank/MoFs collaboration, e.g., enhancing
countries’ bilateral exchanges on specific topics
• Courses/e-learning tools
Guidance on Best Practices
Guiding Practices
Manual on
Borrowing/Lending to
LICs
• Sequencing in accessing nonconcessional borrowing/lending;
• How to develop a local debt market: key factors,
preconditions, etc.;
• First debt issuances: key considerations, preconditions, etc.;
• Instruments and associated risk/cost characteristics;
• Key aspects when analyzing the terms of a loan/bond;
• Risk analysis tools of a debt portfolio.
Minimum best practice • Cost-benefit analyses of funding uses;
requirements to project • Closer monitoring on debt profiles;
related borrowing and • “Reasonable” terms comparable to other
lending with
economies/market conditions.
End-year budget
document should
include:
• Updated DSA with t-1 and t budgeted debt profiles;
• Updated debt management strategy with underlying
reforms’ strategy.
Regulation
Designing macroprudential policies in
financial centers
Risk weights on
exposures
Provisioning
mechanisms and
buffers
Risk Sharing
Provide credit enhancements
Support risk pooling
Sell default protection
Promote new instruments: GDP linked, contingent bonds
THANK YOU