Poor Countries’ Debt Sustainability Releases
The IMF and World Bank after a lengthy review proposed revisions to the 5-year old debt sustainability analysis (DSA) format for low-income economies to further break from official external focus to domestic and private sector borrowing access. 75 countries have been covered to date, with almost all “distress” cases designated before the HIPC completion point and concentrated on laggard performers by the institutions’ internal rankings for capacity, growth and policy. The near-term projections have been based on sound methodology but upset by commodity, financial and trade shocks that can come from the broader region or globally. However the post-2008 crisis waves have not brought systemic risks as first feared, due in part to the activation of special development bank facilities that incorporated the DSA measures into design and implementation decisions. The most burdened applicants got grant-only packages, while beginning in 2010 international commercial loans were also allowed alongside bilateral and multilateral support on a selective basis. The shift recognized the “new non-concessional space” left by a decade of debt relief initiative as the domestic-external balance also evolves. The former now accounts for 30 percent of the average total outstanding, and the share has doubled for a dozen countries in recent years mainly to manage higher budget deficits. Rollover pressure can be severe with maturities rare out to 10 years and shallow markets as calculated by turnover and institutional investor participation. Ghana, Kenya and Vietnam have among the top local debt-GDP ratios, often excluding contingent liabilities from state-owned enterprises and public-private partnerships.
Remittances are important to the overall sustainability tally and should be factored into adjustments for lower present value thresholds as a fraction of exports and revenue, the paper suggests. The danger zone remains public debt-GDP in the 40-70 percent range, according to empirical studies. However only a few borrowers in the universe report sizable voluntary bonds and credits beyond 15 percent of GDP, even as the estimated annual infrastructure needs for Sub-Sahara Africa come to $100 billion. In the Caribbean, Dominica and St. Lucia are outliers and in Central Europe Georgia and Moldova exceed the norm. The Georgian President was congratulated for top reformer status in the World Bank’s Doing Business scorecard during a February Washington visit as sovereign debt was included in JP Morgan’s NEXGEM index. Bank of Georgia went to a full GDR London listing around the same time, and economic growth and inflation are both forecast at around 5 percent this year. With overseas commercial exposure at 25 percent of GDP, a full debt servicing assessment may be warranted earlier than the standard triennial timetable to scrutinize rosier views, the document implies.
