Debt Limits Review: Main Findings and Options for Reform

Transcription

1 Debt Limits Review: Main Findings and Options for Reform Reza Baqir Division Chief, Debt Policy Division Strategy, Policy, and Review Department April 2013

2 Key Features of Current Policy 2 Debt limits quasi-universal Take the form of restrictions on nonconcessional borrowing (NCB) Design depends on extent of vulnerabilities and capacity ( concessionality matrix ) Focus on terms, not volume Borrowing unconstrained in 80% of programs Contrasts with practice in market-access countries

3 Main Findings of Review reform broadly met its goal At end-2012, 13 out of the 32 program countries had room for NCB DSA rating improved or stable in 9 out of 10 LICs since 2009 but design and implementation issues remain Terms vs. volume of borrowing Binary assessment of concessionality arbitrary and distortive Project-level scrutiny inefficient and intrusive Compounding impact of discount rate methodology

4 Key Review Objectives 4 Strengthen safeguards Preserve debt sustainability while allowing access to adequate external financing Increase flexibility Increase room for managing borrowing policy within a borrowing envelope consistent with debt sustainability Preserve incentives Ensure that countries continue to receive favourable terms on their financing Increase predictability Provide for more stable concessionality assessments and address unwarranted tightening of DSF

5 Strengthen safeguards Nominal Limit on Aggregate Borrowing 5 Tighter integration with debt sustainability framework Consistent with practice in emerging market and advanced economies Lack of strong evidence for excluding concessional borrowing Role of concessional debt in debt reaccumulation in post-hipcs

6 Increase flexibility Country-Specific Concessionality Target 6 Target derived from DSA Signals appropriate financing mix Implementation issues: visibility in borrowing plans, other? Focus on overall financing strategy and macro impact

7 Preserve incentives Interaction of Nominal Limit and Concessionality Target 7 Ensures consistency with DSA debt path Incentivizes to borrow on more favorable terms Ensures credibility of target

8 Increase predictability Unique and Stable Discount Rate 8 Unique rate in DSF and concessionality calculator LT average of underlying benchmark rate to correct unwarranted fluctuations Keep rate fixed until next review of the DSF (18 months)

9 Country authorities Traditional and emerging donors CSOs and other stakeholders Outreach Discount rate Joint Fund-Bank Board paper on DSF discount rate Modification of the concessionality calculator Next Steps 9 Informal discussion in summer Board discussion Formal discussion by year-end Early 2014 at the earliest Implementation Reform could be phased in

10 Thank you! 10

11 Debt Limits Review: Stylized Debt Trends 11 Improved debt outlook DSA risk rating has improved or remained stable in 9 out of 10 LICs since 2009 Debt is increasing in some countries External debt-to-gdp ratios broadly stable, but have started picking up in some countries, particularly early HIPCs Role of concessional debt In 5 early HIPCs where debt accumulation has been the fastest, concessional debt was the main driver

12 Size of Non-Zero NCB Limit as of December Untied Debt Limit KEN, 4.4% 35 Mixed Debt Limit Tied Debt Limit 2011 GDP (Billions of US$) BEN, 0.7% MDA, 1.1% MLI, 0.9% CIV, 0.4% SEN, 4.1% RWA, 4.1% UGA, 5.7% MOZ, 11.9% TZA, 11.3% -5 LSO, 11.0% External Non-concessional Borrowing Ceiling (Billions of US$)

13 Deriving the PV Target 13 Macro framework DSA Assumptions Borrowing needs Financing terms PV of debt

14 Designing the concessionality target 14 Macro framework DSA Assumptions Borrowing needs Financing terms Concessionality target + PV of debt

15 Concessionality Matrix as of December Extent of debt vulnerabilities Lower Minimum average concessionality requirement applied to external or total public borrowing; for most advanced LICs, no concessionality requirements and overall nominal debt limit if needed Higher Overall limit on the PV of external or total public debt; for most advanced LICs, ceilings on nominal external or total public debt Higher Armenia Georgia Kenya Moldova Mozambique Rwanda Capacity Minimum concessionality requirement applying debt by debt, with flexibility on nonconcessional external debt (e.g., untied nonzero limits, if consistent with maintenance of low debt vulnerabilities) Minimum concessionality requirement applying debt by debt, likely higher than 35 percent, with limited or no room for nonconcessional borrowing Lower Bangladesh Malawi Afghanistan Benin Mali Burundi Burkina Faso Mauritania Comoros Central African Rep. Niger Gambia, The Cote d'ivoire Senegal Grenada Guinea Sierra Leone Haiti Guinea-Bissau Solomon Islands São Tomé & Príncipe Kyrgyz Rep. Tanzania Lesotho Uganda Liberia