Ninth UNCTAD Debt Management Conference

Transcription

1 Ninth UNCTAD Debt Management Cnference Geneva, Nvember 2013 The Debt Sustainability: After HIPC Initiative and the Glbal Crisis by Mr. Ellias Ngalande Executive Directr Macrecnmic and Financial Management Institute (MEFMI) The views expressed are thse f the authr and d nt necessarily reflect the views f UNCTAD

2 DEBT SUSTAINABILITY AFTER HIPC INITIATIVE AND THE GLOBAL CRISIS: RESULTS AND PROSPECTS IN EASTERN AND SOUTHERN AFRICA Presented at the 9 th UNCTAD Debt Management Cnference 11 th -13 th Nvember 2013, Geneva, Switzerland

3 Discussin Outline Intrductin Recent trends in public debt in the MEFMI cuntries Key drivers f debt trends Prspects fr debt sustainability in the regin Plicy actins fr lng term debt sustainability

4 Intrductin The HIPC and MDRI debt relief reduced the public external debt burdens f mst highly indebted pr cuntries frm the late 1990s t the mid 2000s; Hwever, maintaining debt sustainability remains a challenge fr pst HIPCs less than a decade after benefitting frm debt relief; Hw d gvernments meet develpment needs withut accumulating debt t unsustainable levels? There are large infrastructure gaps, pverty levels still high, health & educatin indicatrs belw required standards. 4

5 Intrductin (ii) Lcal resurces are far less than the financing requirements, implying: Cntinued reliance by mst pst HIPCs n grants Nt adequate but als declining after the glbal crisis Cntinued brrwing frm bth dmestic and external surces Traditinal surces f credit are shrinking and new ptins with harder terms emerging Svereign bnds, dmestic debt, new bilaterals, cmmercial lenders, etc 5

6 Evidence f Reliance n Grants The heavy reliance n grants is unsustainable Cuntries will resrt t much heavier brrwing as grants dwindle. Surce: IMF article IV dcuments But what are the trends in pst HIPC debt build up? 6

7 Trends f Debt in MEFMI Regin Debt relief reduced external debt in MEFMI HIPCs frm an average f 53% f GDP in 2005 t 18% f GDP in Cnsequently, ttal public debt was reduced frm an average f 65% in 2005 t 31% f GDP in 2006 Hwever, there has been a marked increase in ttal public debt since then, with ttal public debt estimated at 36% f GDP as at end-2011 in the MEFMI pst HIPCs. Bth external and dmestic debt have increased during this perid: External debt has increased t 22% f GDP in 2011 frm 18% f GDP in Dmestic debt increased frm an average f 12% f GDP in 2005 t 14% f GDP by Nevertheless, the increase has been significant in sme cuntries e.g. Malawi, Tanzania and Uganda as illustrated in chart 6. 7

8 Public Debt in MEFMI Pst HIPCs 70 Chart 2: Public debt in MEFMI pst HIPCs, in % f GDP Percentage Dmestic External Surce: IMF Article IV & DSA dcuments 8

9 All the pst HIPCs have registered increases in external debt in nminal terms and as a rati f GDP; The increase has been prnunced in cuntries such as Tanzania, Mzambique and Uganda. External Debt Trends Tanzania s public external debt reached an all-time high f US$8.9 billin (29.4 percent f GDP) in 2012frm US$2.6 in 2006 (17.3 percent f GDP) External debt US$5.4 billin (40.1 percent f GDP befre debt relief in 2005 (see figure belw) Amunt in US$ billin Chart 3: Tanzania's External Debt Surce: Tanzanian Authrities

10 External Debt Trends in ther pst HIPCs Similar trends are bserved in ther cuntries: Malawi, Mzambique, Rwanda and Uganda: 8.0 Chart 4: External debt trends in MEFMI pst HIPCs, in US$ billins Amunt Malawi Mzambique Rwanda Tanzania Uganda Zambia Surce: Wrld Bank Glbal Develpment Finance & cuntry debt reprts In Mzambique and Tanzania the level f debt is already higher than the pre-hipc levels 10

11 Surce f Cnslatin The GDP grwth f mst pst HIPCs in Eastern and Suthern Africa has been very gd. Therefre, the debt t GDP ratis remain within sustainability threshlds. Increases are evident but they are nt t dramatic, except fr a few cases. Percent f GDP 95.0 Chart 5: General Gvernment Debt t GDP Rati Malawi Mzambique Rwanda Tanzania Uganda Zambia Zimbabwe Malawi Mzambique Rwanda Tanzania Uganda Zambia Zimbabwe Surce: IMF WEO database 11

12 Dmestic Debt is als rising Dmestic debt has als been increasing in abslute amunts, as a prprtin f ttal public debt and as a rati f GDP. In sme cases, dmestic debt is already in the critical range f percent f GDP e.g. Malawi, Tanzania and Zambia while Uganda is clser t this range. A key feature f dmestic debt in the MEFMI regin is its shrt term maturity structure, which entails rllver risks Percentage Chart 6: Dmestic debt in MEFMI Pst HIPCs, in % f GDP Critical level Surce: Cuntry debt reprts and IMF DSA & Article IV dcuments 12

13 The Rising Dmestic Debt Case f Malawi Chart 7: Malawi s Dmestic & External Debt Trends, in US$ billin % Chart 8: Malawi s Cmpsitin f Public Debt, in % f ttal 90% Amunt Reductin in external debt due t debt relief Dmestic debt greater than external debt during Rati 80% 70% 60% 50% 40% 30% 83% 49% 51% 39% 61% 45% 55% 59% 41% 0.50 Dmestic debt reduced in 2012 due t massive devaluatin 20% 10% 17% % External Dmestic Dmestic External Surce: Malawi Debt Reprts 13

14 Key Drivers f Debt Accumulatin in MEFMI Pst HIPCS Budget deficits Other factrs The Key drivers 14

15 Key Drivers f Debt Accumulatin External debt relief under MDRI was the main factr driving the reductin in public debt in MEFMI regin in 2005 and After 2006, there was: Increased fiscal space that allwed increased brrwing. The need t invest in develpment activities that address MDG targets, implying the need t brrw. Other dynamics such as high dmestic interest rates and cntingent liabilities. But new lenders have als emerged with less stringent cnditinalities. 15

16 Factrs Driving Debt Increase in Tanzania Each bar represents the cntributin f each factr t the annual change in the debt-t- GDP rati (represented by the dtted black line). A psitive value means that a given factr cntributed t an increase in the debt-t- GDP rati while a negative value means that a given factr cntributed t a decrease in the rati Percentage Chart 9: Tanzania Public Debt Dynamics, in % f GDP Residual Other identified debt-creating flws Cntributin frm real exchange rate depreciatin Cntributin frm real GDP grwth Cntributin frm average real interest rate Primary balance Change in debt-t-gdp rati Public debt-t-gdp rati (right scale) Surce: IMF and Cuntry DSA Reprts

17 Rle f New Surces f Financing New bilaterals have emerged, prviding alternative surces f freign lans t lw incme cuntries. These include China, India etc. The new lenders are attractive because they prvide relatively larger amunts f financing withut plicy and ther related cnditinalities. The bnds issued are large and are likely t drastically increase external debt. This may cmprmise the gains n debt sustainability. Access t Internatinal capital markets enabled by the debt relief and imprved credit ratings have created mre pprtunities as frmer HIPCs are nw issuing svereign bnds e.g. Ghana, Zambia, and Rwanda. Zambia was the first MEFMI pst- HIPC t issue a svereign bnd in the glbal capital market in September 2012, raising US$750m fllwed by Rwanda in April 2013 (US$400m); Other cuntries like Tanzania and Kenya are expected t fllw. 17

18 The Status f Debt Sustainability Given the rapidly rising public debt des it remain sustainable? 18

19 Debt Sustainability in the MEFMI Regin Recent debt sustainability analyses indicate that mst cuntries in MEFMI regin have lw risks f debt distress e.g. Uganda, Tanzania and Zambia. Table 1: Prjected Present value f external debt t GDP rati Cuntry Threshld Malawi Mzambique Rwanda Zambia Tanzania Uganda Surce: IMF and Cuntry DSA Reprts Mderate Risk f debt distress Lw Risk f debt distress 19

20 Debt Sustainability in the MEFMI Regin Hwever, a few ther cases have mderate risk f debt distress (Malawi, Mzambique, and Rwanda). The relevant threshlds are breached in case f shcks t the ecnmy. Table 2: Prjected PV f external debt t exprts rati in case f shck Cuntry Threshld Malawi Mzambique Rwanda Surce: IMF and Cuntry DSA Reprts Only Zimbabwe is in debt distress in the MEFMI regin but it has never received debt relief. It is still pursuing available debt relief ptins. 20

21 Risks t Debt Sustainability The DSA results fr the regin shw that public debt ratis are highly sensitive t: Shcks in GDP grwth and higher primary deficits; Exchange rate shcks especially resulting frm currency depreciatin; Less favurable terms n new public sectr lans; and Sme cuntries such as Rwanda, Malawi and Mzambique have sensitivity t exprts shcks. Rwanda, Malawi and Mzambique are als vulnerable t shcks t real GDP grwth. These results highlight the fact that maintaining high grwth rates amng the frmer HIPCs and macrecnmic stability are imprtant in ensuring cntinued public debt sustainability. 21

22 What Needs t be Watched One f the key risks t debt sustainability is brrwing n less favurable terms. Yet a number f cuntries are having declining ratis f multilateral and bilateral debt but increasing levels f cmmercial debt. See cases f Kenya and Tanzania: Table 4: Kenya External Debt Table 5: Tanzania External Debt US$ Billin Share f Ttal Debt (%) Multilateral Bilateral Cmmercial Banks Ttal US$ Billin Share f Ttal Debt (%) Multilateral Bilateral Cmmercial Banks Ttal Hw shuld cuntries and develpment partners address the risks t sustainability? 22

23 Plicies fr Lng Term Debt Sustainability Maintaining debt sustainability in lw incme cuntries requires plicy actins at cuntry and internatinal level. At the glbal level, there is need t cnsider the fllwing: Cuntercyclical aid is critical fr develping cuntries. Develpment partners shuld ensure smth aid flws even in times f crisis rather than cut it. Aid dependent lw incme cuntries are particularly vulnerable t reduced aid flws, based n the fiscal utcmes during the recent glbal financial crisis. Therefre, dnrs shuld meet their aid cmmitments made thrugh several initiatives, including the Paris Declaratin. 23

24 Glbal Actins fr Debt Sustainability Develpment partners shuld supprt exprts grwth in develping cuntries thrugh: Imprved market access fr prducts frm LICs: This is an ld stry, but still relevant tday as trade barriers still exist, thus inhibiting exprts; Aid fr trade initiatives need t be encuraged. Develpment partners shuld cntinue supprting capacity building in lw incme cuntries t ensure sustenance f analytical and surveillance capacity. The supprt fr capacity building shuld g beynd the traditinal debt management spheres int areas that cause cntingent liabilities such as the Public Private Partnerships and prject management skills. 24

25 Cuntry Level Actins At cuntry level, there is need fr the authrities t: Prmte grwth riented plicies, including exprts sectr; Mderate cmmercial brrwing and explre alternative means f financing, including Public Private Partnerships, deepening dmestic markets and maximizing brrwing frm cncessinal and semi-cncessinal surces; Maintain sund fiscal plicies t avid rapid accumulatin f public debt; Implement sund exchange rate plicies timeusly as large exchange rate adjustments wuld lead t significant wrsening f public debt ratis. There have been a few slip ups in the regin in the last decade. Put in place mechanisms t clsely mnitr cntingent liabilities and ther debt creating flws. 25

26 Cnclusin Debt relief under the HIPC and MDRI Initiatives was a majr milestne fr heavily indebted lw incme cuntries. While the current analysis indicates that there is lw t mderate risk f debt distress, public debt has started increasing at a pace that has t be keenly watched. The fact that the traditinal surces f brrwing fr lw incme cuntries (LICs) have been adversely affected by the glbal crisis makes it wrse as LICs have t resrt t mre expensive surces f lans. 26

27 Thank Yu! 27