Lessons learnt from 20 years of debt relief

Transcription

1 International Monetary Fund Strategy, Policy and Review Department Lessons learnt from 20 years of debt relief Hervé Joly DMF stakeholders forum 2011 Overview Debt relief initiatives: what has been achieved? Remaining challenges What have we learnt on debt relief? What have learnt on preventing debt crises? 2 1

2 HIPC/MDRI status Largely implemented: 90 percent of HIPCs past decision point, 80 percent past completion point 4 countries in the interim period (Chad, Comoros, Cote d Ivoire, Guinea) 4 countries pre-decision point (Eritrea, Kyrgyz Republic, Somalia, Sudan) + 3 not interested (Bhutan, Laos, Nepal) 3 HIPC/MDRI achievements (I) 160 Post-Decision-Point HIPCs Debt Stock at Different Debt Relief Stages (In billions of U.S. dollars, in end-2009 NPV terms) Before traditional debt relief 44.5 After traditional debt After HIPC Initiative relief debt relief 36.7 After additional bilateral debt relief After MDRI 6 Interim Countries 30 Completion-Point Countries Sources: HIPC Initiative country documents, and IDA and IMF staff estimates. 4 2

3 HIPC/MDRI achievements (II) Average Poverty Reducing Expenditure and Debt Service in HIPCs 1/ Percent of GDP Debt service before MDRI Debt service after MDRI Poverty Reducing expenditure e 2010p 2011p 2012p 2013p 2014p Sources: HIPC documents; and IMF staff estimates. 1/Prior to 2009, figures represent debt service paid, and thereafter, projected debt service. 5 HIPC/MDRI remaining challenges Bring interim and pre-decision point HIPCs to completion point Sudan s partition raises new issues. Zimbabwe faces an unsustainable debt situation that will need to be addressed Full financing of the Initiative Full participation of all creditors 6 3

4 Lessons from 20 years of debt relief Debt relief has restored debt sustainability and created fiscal space. Commensurate increase in poverty reducing spending, although causality difficult to establish Debt relief works better when comprehensive and coordinated. Broad participation (and avoiding litigation) requires sustained efforts and time Debt relief is costly; from a creditor perspective, it requires using scarce budgetary resources, which can otherwise go to new aid Debt relief restores sustainability only for a while. Maintaining sustainability requires sustained prudence 7 Debt sustainability outlook post debt relief The debt situation has been less impacted by the crisis in LICs and EMs than in AEs In AEs, large deterioration across the board Debt ratios have often increased in LICs; however, no systemic debt problems expected About a third of LICs with higher debt vulnerabilities; require close monitoring 8 4

5 Government Debt Over 15 Years General Government Gross Debt Ratios (Percent of GDP; 2009 PPP-GDP weighted averages) Advanced Economies Emerging Economies Low-Income Economies Preventing future crises Recent crisis showed the value of policy buffers. Used policy buffers need to be reconstituted, taking into account country circumstances Need to address higher debt vulnerability situations early on, and in a sustained fashion Need to address infrastructure gap in LICs in a sustainable way Improving further capacity to detect early debt vulnerabilities (better DSAs) 10 5

6 Two DSA Frameworks Standard framework for countries with significant market access Adopted in Summer 2002 Refined in 2005 Framework for low-income countries developed jointly with World Bank Both are currently under review Adopted in Spring 2005 Reviewed in 2006 and 2009 Reflects special characteristics of LICs external debt 11 Improving DSAs Fiscal sustainability issues have gained in prominence Long-term spending pressures (AEs), various contingent liabilities In LICs, increasing reliance on domestic markets Improving fiscal sustainability analysis is an important objective of the review: Realism of fiscal and macroeconomic projections Coverage of fiscal risks Better stresstesting Short-term (liquidity) risks 12 6

7 Thank you! 13 Critical aspects of Initiatives Debt relief from multilaterals for the first time Coordination among all creditors involved with equitable burden sharing Clear framework and rules, but also flexibility in implementation Link between provision of debt relief and the debtor s policy performance, capacity to use debt relief, and poverty reduction efforts 14 7

8 Progress in past 4 years Post-Completion Point Interim-Period Ring - Fenced Did not wish to avail of HIPC Other Benin Bolivia Burkina Faso Cameroon Ethiopia Ghana Guyana Honduras Madagascar Malawi Mali Mauritania Mozambique Nicaragua Niger Rwanda Senegal Sierra Leone Tanzania Uganda Zambia Burundi Chad Republic of Congo Dem. Rep. of Congo Gambia Guinea Guinea-Bissau São Tomé & Príncipe Central African Rep. Comoros Cote d Ivoire Eritrea Haiti Kyrgyz Republic Liberia Nepal Somalia Sudan Togo Bhutan Lao, PDR Sri Lanka Afghanistan Myanmar Zimbabwe Higher debt vulnerability However, substantial variance across LICs and across EMs: About a third of LICs with higher debt vulnerabilities. EMs with high external vulnerabilities before crisis remain exposed. For some, fiscal vulnerabilities emerged too. Higher debt vulnerabilities need to be reduced No one-size-fits-all solution But close monitoring required in all cases 16 8

9 How To Address Higher Vulnerabilities? Unsustainable cases: HIPC or HIPC-like For post-completion point HIPCs and non-hipcs, a range of measures could reduce debt vulnerabilities On the borrower side: Growth enhancing policies Improvements in policies and institutions to raise a country s capacity to carry debt Fiscal consolidation On the creditor/donor side: Better terms on new financing 17 Post HIPC/MDRI issues LICs (including former HIPCs) have higher debt vulnerabilities. Debts not unsustainable, stainable but reducing vulnerabilities will take time and sustained efforts Some may need debt relief if hit by a shock Traditional mechanisms, to be effective, would require full participation of all creditors Policy buffers play an important role (cf. last crisis) and should be reconstituted 18 9

10 Debt crisis resolution in LICs Historically, the main instruments were: Paris Club (official bilateral creditors) London Club (commercial banks) Bilateral ODA debt forgiveness Buybacks of commercial debt through the IDA debt reduction facility Then came debt relief initiatives (HIPC and MDRI) 19 Debt sustainability in LICs (Distribution of DSA risk ratings) Low, 38% Moderat te, 29% High, 21% Distress, 12% Low,, 31% Moderate, 26% High, 11% Distres ss, 31%

11 Lessons from the crisis Policy buffers in LICs Current account deficit adjusted for FDI/GDP Previous crises Fiscal deficit/gdp Reserve coverage (months of imports) (RHS axis) Inflation (in percent) (RHS axis) External public debt/gdp