The new debt trap External debt levels stable
The new debt trap?
External debt levels stable? External debt as proportion of GDP, low income and recently graduated, 2000 - 2014 (Source: World Bank) 80 70 60 % of GDP 50 40 30 20 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Slight increase in debt payments Debt service as proportion of exports, low income and recently graduated, 2000 - 2015 (Source: World Bank) 12 10 % of exports 8 6 4 2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Significant increase in lending in recent years External loan disbursements to low income and recently graduated, $ billion, 2005 2014 (Source: World Bank) 50 45 40 35 $ billion 30 25 20 15 10 5 0 2005 2006 2007 2008 Other governments 2009 Multilateral institutions 2010 Bonds 2011 2012 Other private lenders 2013 2014
Projections made in 2013/2014 for increasing debt payments
Nine countries most exposed to foreign lending • Significant net external debt (over 30% of GDP) • Significant projected future government external debt payments (over 15% of revenue) • Significant and sustained current account deficits (over 5% of GDP) Bhutan, Ethiopia, Ghana, Lao, Mongolia, Mozambique, Senegal, Tanzania, Uganda
Analysis of nine countries 1) Growing faster (average annual growth rate 4. 74% 2008 -2013, compared to 3. 64%) 2) Not reducing poverty faster. In five of the nine, people living in poverty increasing. Only Bhutan, Ghana and Mongolia reducing poverty at a faster rate than the average 3) Inequality increasing in eight of nine (Mozambique exception, but already most unequal) 4) Commodity export dependence has not fallen
Commodity dependence has not fallen
2005 M 1 2005 M 3 2005 M 5 2005 M 7 2005 M 9 2005 M 11 2006 M 3 2006 M 5 2006 M 7 2006 M 9 2006 M 11 2007 M 3 2007 M 5 2007 M 7 2007 M 9 2007 M 11 2008 M 3 2008 M 5 2008 M 7 2008 M 9 2008 M 11 2009 M 3 2009 M 5 2009 M 7 2009 M 9 2009 M 11 2010 M 3 2010 M 5 2010 M 7 2010 M 9 2010 M 11 2011 M 3 2011 M 5 2011 M 7 2011 M 9 2011 M 11 2012 M 3 2012 M 5 2012 M 7 2012 M 9 2012 M 11 2013 M 3 2013 M 5 2013 M 7 2013 M 9 2013 M 11 2014 M 3 2014 M 5 2014 M 7 2014 M 9 2014 M 11 2015 M 3 2015 M 5 2015 M 7 2015 M 9 2015 M 11 2016 M 3 Since 2014: Commodity price fall IMF Commodity Price Index 250. 00 200. 00 150. 00 100. 00 50. 00
Since 2014: dollar increase in value
Currency depreciations since start 2015 Ghanaian Cedi: Down 39% against the dollar Mozambique Metical: Down 47% against the dollar Tanzanian Schilling: Down 28% against the dollar Zambian Kwacha: Down 46% against the dollar
Ghana’s rapidly increasing debt
Who Ghana’s debt is owed to
Interest cost of the debt Interest rates: Eurobonds and other private external: 7. 9% - 10. 75% Cedi debt: 7% (average real interest rate) Other governments: 4. 5% estimated Multilateral institutions: 0% - 2%
95 96 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 20 20 20 21 20 22 20 23 20 24 20 25 20 26 20 27 20 28 20 29 20 30 20 31 20 32 20 33 20 34 20 35 19 19 19 % of revenue Projected Ghana government external debt payments Ghana government external debt service as proportion of revenue, 1995 -2035 (Source: IMF) 45 40 35 30 25 20 15 10 5 0
Assumptions for sustainability IMF view that external debt is sustainable based on assumptions: • $GDP growth averaging 8. 2% a year until 2035 • Government $ revenue grows in line with GDP • A fall in average interest rate on external debt from 5. 1% to 4. 1% • Continual primary budget surpluses
Real government spending projected to fall
External bond refinancing could be difficult Most recent Eurobond autumn 2015: • $1 bn borrowed at 10. 75% • But World Bank guaranteed $400 m • This implies cost would have been 16. 25% without guarantee • As long as government keeps paying interest until 2025, lenders will have made a profit
The elephant or iceberg in the room: Public-private partnerships
Conclusions • No widespread debt crisis yet, but some countries at or approaching • Countries most likely to be affected supposed star performers of high growth linked to high commodity prices • Question marks over how well lending has been used: call for more transparency and accountability from borrowers and lenders • Lack of debt restructuring mechanism, along with IMF bailouts, retains moral hazard, encouraging reckless lending during ‘boom times’
- Slides: 20