世界发展银行-Borrow-with-Sorrow_-The-Changing-Risk-Profile-of-Sub-Saharan-Africa_s-Debt_37页_692kb

Summary of "Borrow with Sorrow?" – The Changing Risk Profile of Sub-Saharan Africa's Debt

Core Content

This policy research working paper examines the evolving risk profile of public debt in Sub-Saharan Africa (SSA) over the past decade, focusing on the shift in debt composition and its implications for debt sustainability and economic stability.

Main Points

• Debt Levels and Risk Profile: Although the overall level of public debt in SSA is still below pre-debt forgiveness levels, the risk profile has increased significantly. The share of concessional debt has declined, while debt to private creditors and non-Paris Club bilateral creditors has risen.
• Debt Composition Changes:
  • The share of multilateral and concessional debt in public external debt has declined from around 80% in the 1990s to 59% by 2013-17.
  • Commercial debt and non-Paris Club debt have become more prominent in the region's debt portfolio.
• Domestic Currency Debt:
  • Domestic currency debt has grown faster than foreign currency debt.
  • Upper-middle-income countries (UMCs) have seen the most significant increase in domestic debt, driven by their more developed domestic financial markets.
• Debt Service Burden:
  • The increase in debt service has been substantial, especially for external debt.
  • Debt service costs in SSA have risen, with some countries experiencing over 15% of government revenue being spent on debt service.
• Sovereign Bond Issuances:
  • Following the global financial crisis, SSA countries increasingly turned to international bond markets for financing.
  • Between 2013 and 2018, the number of countries issuing bonds increased significantly, with several large issuances.
  • The average maturity of bonds has increased, with some countries issuing 30-year bonds.
• Credit Ratings and Market Conditions:
  • Several SSA countries experienced credit rating downgrades from 2016 onwards.
  • By the third quarter of 2018, none of the countries in the study held an investment-grade rating.
  • Market conditions worsened in late 2018 due to a stronger US dollar and trade tensions, leading to reduced demand for emerging market bonds.

Key Information

• Debt Trends:
  • Public debt in SSA was on a downward trajectory until 2012, when it began to rise sharply.
  • By 2018, the average public debt-to-GDP ratio had increased from 38% to 59%, with the median rising from 34% to 55%.
  • Excluding Nigeria, the weighted average debt-to-GDP ratio for the region reached 62% in 2018.
• Country-Specific Debt Increases:
  • Lower-middle-income countries (LMCs) experienced the largest average increase in public debt (26 percentage points of GDP).
  • Oil-abundant countries, such as Angola and the Republic of Congo, saw their debt levels more than double.
• Debt Management and Policy Recommendations:
  • The paper emphasizes the need for prudent fiscal policies, growth-enhancing reforms, and stronger debt management practices.
  • It advocates for a shift from debt management to balance-sheet management of the public sector.
  • Efficient public investment management and governance improvements are also highlighted to prevent misallocation of resources and ensure sustainable debt levels.
• Sovereign Bond Market:
  • Sovereign bond issuance has grown rapidly, especially among LMCs.
  • The weighted average coupon for bonds is 6.5%, and the average maturity is 20 years.
  • The region's bond issuance reached US$14.3 billion in the first half of 2018, surpassing the previous year's total.

Conclusion

The paper concludes that the increasing risk profile of public debt in SSA, driven by a shift toward non-concessional and private debt, and the rising debt service burden may lower the threshold for debt distress. Addressing these challenges requires a comprehensive policy approach that includes both fiscal discipline and improved public investment efficiency.