DEBT SUSTAINABILITY ANALYSIS WORKSHOP APRIL, 7 TOKYO DEBT SUSTAINABILITY ANALYSIS CASE OF LAO P.D.R. (5 ARTICLE IV CONSULTATION) KOTARO ISHI INTERNATIONAL MONETARY FUND Paper presented at the Workshop: Debt Sustainability Analysis Workshop Organized by the International Monetary Fund (IMF) April, 7 Tokyo, Japan The views expressed in this paper are those of the author(s) only, and the presence of them, or of links to them, on the IMF website does not imply that the IMF, its Executive Board, or its management endorses or shares the views expressed in the paper.
Debt Sustainability Analysis Case of Lao P.D.R. (5 Article IV Consultation) April, 7 Kotaro Ishi International Monetary Fund 1
Outline Background Medium-term macroeconomic framework Debt sustainability outlook (baseline and alternative scenarios) Multilateral debt relief initiatives 2
Background Lao P.D.R. is a heavily indebted lowincome country. Lao P.D.R.: External Public Debt Indicators Indicative Threshold End-4 NPV of debt in percent of GDP 3 55 Exports 199 Revenues 495 Debt service in percent of Exports 15 8 Revenues 25 19 3
External public and publicly-guaranteed debt stock declined in recent years... Nominal External PPG Debt (percent of GDP) Total 8 6 Multilateral 4 Bilateral Commercial 1999 1 2 3 4 4
...but the external debt service burden increased. 25 15 5 External Public Debt Service 1 2 3 4 5 9 8 7 6 5 4 3 2 1 Percent of Revenue (left scale) Percent of Exports (right scale) Percent of GDP (right scale) 5
Medium-term macroeconomic framework (Baseline scenario) Assuming that economic reform continues, the mediumterm macroeconomic outlook will remain favorable. Lao P.D.R.: Key Macroeconomic Assumptions (In percent, unless stated otherwise) Period average 1 5 6 11 25 Real GDP growth 6.2 6.5 5. Export growth 7..4 7. Revenue (% of GDP) 11.8 12.4 13.6 Gross public borrowing (% of GDP) 6.1 5.5 4. 6
Most importantly, fiscal consolidation will gradually continue, while external current account deficit will shrink. 25 23 21 19 Lao P.D.R.: Medium-Term Fiscal Outlook (In percent of GDP) Overall balance deficit (RHS) Gross financing requirements (RHS) Revenue and grants (LHS) Expenditure (LHS) 18 16 14 8 7 6 Lao P.D.R.: Medium-Term Current Account Deficit Projections In millions of U.S. dollars (LHS) In percent of GDP (RHS) 15 17 Projections 12 5 15 4 13 11 9 8 6 4 3 5 7 2 5 4 5 6 7 8 9 4 5 6 7 8 9 7
Debt outlook (Baseline scenario) The baseline scenario suggests that achieving long-term debt sustainability is feasible, with debt ratios falling toward indicative thresholds... NPV of Debt-to-GDP Ratio NPV of Debt-to-Exports Ratio 55 185 5 45 165 4 145 35 125 3 25 Indicative threshold 5 85 Indicative threshold 15 65 5 7 9 11 13 15 17 19 21 23 25 45 8 5 7 9 11 13 15 17 19 21 23 25
...and debt service ratios remain well under the thresholds. Debt Service-to-Exports Ratio Debt Service-to-Revenues Ratio 18 3 Indicative threshold 16 Indicative threshold 25 14 12 8 15 6 4 2 5 5 7 9 11 13 15 17 19 21 23 25 5 7 9 11 13 15 17 19 21 23 25 9
Alternative scenario However, the outlook is susceptible to several risks Lower GDP growth and exports growth; Weaker revenue performance and larger borrowing Run the DSA again under alternative assumptions GDP and export growth rates: 1 percent lower than baseline Revenue will stay at 11 percent of GDP Gross public borrowing will stay at 6 percent of GDP
Under the alternative scenario, the debt outlook is significantly less benign. NPV of Debt-to-GDP Ratio NPV of Debt-to-Exports Ratio 55 185 5 45 4 165 145 35 125 3 25 Baseline Indicative threshold 5 85 Indicative threshold 15 Alternative Scenatio 5 7 9 11 13 15 17 19 21 23 25 65 45 Baseline Alternative Scenatio 5 7 9 11 13 15 17 19 21 23 25 11
Multilateral debt relief initiative Lao P.D.R. was eligible for debt relief under HIPC Initiative and the MDRI in 4. Ratio of NPV of debt to exports 199 percent at the end of 4 > HIPC Initiative Threshold 15 percent 12
If Lao P.D.R. had decided to take HIPC/MDRI, debt stock would be significantly reduced. 5 4 3 Lao P.D.R.: Potential impact of debt relief (NPV of debt) Pre debt relief (end-6) Post debt relief In percent of exports In percent of revenue In percent of GDP 13
And, long-run debt burden would be significantly lower. NPV of Debt-to-GDP Ratio NPV of Debt-to-Exports Ratio 55 185 5 165 45 4 35 145 125 3 5 25 15 Baseline Alternative Scenatio MDRI 5 7 9 11 13 15 17 19 21 23 25 85 65 45 Baseline Alternative Scenatio MDRI 5 7 9 11 13 15 17 19 21 23 25 14
However, the impact on net resource flows remained unclear, because IDA allocation and access to concessional loans from bilateral donors could be significantly lower. At the time of 5 Article IV consultation, Lao P.D.R. government decided not to avail itself of debt relief under HIPC and MDRI. 15
Thank you very much 16