Debt sustainability in Africa: state of play and future challenges by Agence Française de Développement

Authors Marin Ferry (Université Gustave Eiffel, DIAL) Benoît Jonveaux (AFD) Maxime Terrieux (AFD)

Macroeconomics & Development

MAY 2021 । No. 34

Debt sustainability in Africa: state of play and future challenges

Contents

1. Public debt in Africa (2012–2019): re-indebtedness and new creditors— is sustainability under threat?

3. Toward a new framework for the analysis and treatment of African public debt p. 25 p. 7

1.1 – Re-indebtedness affecting all African countries p. 8 1.2 – Significant diversification in the structure of external creditors of African countries p. 9 1.3 – A higher debt service burden that is threatening the sustainability of public debt in Africa

2. Unavoidable re-indebtedness despite past debt relief 2.1 – Causes of public indebtedness and over-indebtedness 2.2 – The uncertain effects of debt cancelations and relief on indebtedness trajectories and debt sustainability

p. 12

3.1 – Modernizing the tools for analyzing public debt

p. 26

3.2 – The DSSI: a response to the vulnerability of public debt to exogenous shocks

p. 27

3.3 – The Common Framework: an attempt at a more general approach to the treatment of debt that remains to be completed p. 29

Conclusion Bibliography

p. 17

p. 18

p. 31 p. 33

List of acronyms and other abbreviations p. 35 Annexes

p. 37

p. 21

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

Almost fifteen years after the last debt relief initiatives were implemented by the international community, some African countries have either recently defaulted on their public debt, subscribed to the Debt Service Suspension Initiative (DSSI) put in place by official lenders in 2020, or are making progress toward a possible restructuring of their debt under the aegis of the G20 and of the Paris Club, but also of so-called “emerging” and private creditors. All of this seems to validate the widespread idea that there is a new debt crisis in Africa. However, this is the result of a variety of factors that vary according to the economic and financial specific features of each African country. Several stylized facts emerge from the analysis of indebtedness trajectories over the last ten years at the continental level. First of all, public debt is one of the main sources for covering financing development needs, despite efforts made to strengthen domestic revenue mobilization. Given the importance and urgency to finance development, the profile of public debt has changed considerably over the past decade. In addition to the “traditional” bilateral and multilateral lenders from the international community, there are now new creditors from emerging countries and the private financial sector. This has allowed for more spending on development. However, the rise of these new creditors is leading to a change in public debt structures in Africa, on the one hand by increasing the stock of debt and debt service and, on the other, by complexifying analyses of the causes of debt crises.

Moreover, the public debt sustainability of most African countries has deteriorated significantly over the past decade. It has been argued that the debt distress and widespread liquidity and solvency crisis facing African countries is caused by weak governance or irresponsible practices on the part of creditors. However, the results of empirical analysis tend to show that African countries have a lower public debt tolerance and are more vulnerable to exogenous shocks, thus increasing the frequency of episodes of liquidity stress and solvency issues. The difficulties encountered in 2020 by a number of African countries, as a result of the global economic and financial crisis that has followed the health crisis, seem to support this view. While the direct health impact of the pandemic on the real economy is much less pronounced in Africa than in the rest of the world, this exogenous shock is nonetheless causing severe financial and fiscal tensions for a large number of countries.

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

This conclusion seems to call for the implementation of new models to finance development that can mitigate the exposure of borrowing countries to exogenous shocks—a prerequisite for reconciling the imperatives of development financing and public debt sustainability. Beyond this ambitious project, on which the international community has been working for several years (as evidenced, for example, by the 2017 G20 Operational Guidelines for Sustainable Financing), the issue to be addressed now is how to deal with African public debts in the short term. This question is at the heart of current thinking on the international financial architecture. The DSSI and the Common Framework for Debt Treatments are the most recent examples. The interest shown by China and the community of private creditors in participating in these exercises suggests that progress is being made to better take into account the reality of the new profile of African public debts. However, in the absence of a formalized procedure, which would entail a radical change in the paradigm of international financial cooperation, there is still uncertainty as to the effectiveness of the solutions currently being proposed by the international community.

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

1. Public debt in Africa (2012–2019): re-indebtedness and new creditors— is sustainability under threat?

Public debt in Africa (2012–2019): re-indebtedness and new creditors—is sustainability under threat?

1.1 – All African countries are experiencing re-indebtedness

This increase in public debt as a percentage of GDP can be seen both in domestic debt that is incurred with domestic creditors, and in external debt that is incurred with foreign creditors: domestic public debt thus increased on average from 15% of GDP in 2012 to 25% in 2019, while external public debt has increased from 21% to 32% of GDP over the same period. The increase in domestic public debt, whose share in total public debt remains relatively stable, is constrained by a relatively low level of domestic savings, by domestic capital markets that are less developed than in advanced economies, and by a more volatile and sometimes fragile domestic financial environment. Although the issue of domestic public debt is a concern in some African countries (especially in terms of financial and monetary stability and the crowding out of domestic private-sector financing), the level of external public debt, which is still high, is the main point of attention. Notably, beyond the average debt-to-GDP ratio, the stock of aggregate external public debt more than doubled in nominal terms between 2012 and 2019, from USD 232 billion to USD 546 billion.

% of GDP 80 70 60 50 40 30 2019

2018

2017

2016

2015

2014

2013

20 2012

Africa’s public debt burden rose from an average of 37% of GDP in 2012 [1] to 62% in 2019 (see Items 1A and 1B). Indeed, in most African countries, public debt is the main means of financing development. Despite the reforms undertaken over the past decade, domestic fiscal resources and taxes revenues are not sufficient to cover all the expenses that African countries have to face [2][3], whether to ensure the functioning of government services or to finance public investment. The resulting accumulation of public deficits naturally leads to re-indebtedness.

Figure 1A - Average public debt in Africa (2012–2019) by income level

Average public debt

Low-income countries (LIC)

Lower-middle-income countries (LMIC)

Upper-middle-income countries (UMIC) Source: World Economic Outlook (WEO), International Debt Statistics (IDS), authors' calculations.

Figure 1B - Average public debt in Africa (2012–2019) by region % of GDP 80 70 60 50 40 30

1 It was in 2012 that the public debt of African countries reached its lowest level as a percentage of GDP since the 2000s, because it was in that year that the

majority of states were able to benefit effectively from the debt cancelations and relief put in place by the international community.

2 According to IMF data, fiscal revenues increased significantly (that is, by more than 2 percentage points of GDP) between 2010 and 2019 in only 19 African countries. They declined over the same period in 17 others.

3 According to IMF data, the median and average public deficits of African

countries in the period from 2010 to 2019 are both equivalent to 3% of GDP. Only 5 countries had a budget surplus during this period.

2019

2018

2017

2016

2015

2014

2013

2012

Average public debt West Africa

Eastern Africa Central Africa

Southern Africa North Africa

Source: World Economic Outlook (WEO), International Debt Statistics (IDS), authors' calculations.

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

African countries show markedly different patterns of re-indebtedness: some countries have stabilized their debt-to-GDP ratio, while others have seen a sharp increase in the same ratio. For example, the increase in public debt remained below 10 percentage points of GDP in 10 African countries, while it was above 30 percentage points of GDP in 12 of them. The result is a high degree of heterogeneity in terms of the re-indebtedness trajectory. This last indicator does not, on its own, provide a sufficient basis for understanding the financial difficulties that states can encounter. For example, the public debt of sub-Saharan African countries rose from 25% of GDP in 2007 to 52% in 2019, while that of developed countries rose from 71% to 104% of GDP over the same period.

1.2 – Significant diversification in the structure of external creditors of African countries This dynamic of public re-indebtedness has been accompanied by—or even results from—a significant change in the structure of the external creditors of African countries, as well as in the financial terms associated to new types of debt. The emergence of private creditors (in particular Eurobond holders), and of new official creditors (primarily China, but also India and some of the Gulf countries) is significantly changing issues related to public debt in Africa. The breakdown of African’s external creditors display a relative stability between 2012 and 2019 (see Figure 2), with a predominance of multilateral lenders and still predominantly concessional financing. This can be explained by

Figure 2 - Breakdown of external public debt by creditors in Africa Low-income countries (LICs)

Lower-middle-income countries (LMICs)

Bilateral concessional

Bilateral nonconcessional

Bonds

Multilateral concessional

Private creditors

Bilateral nonconcessional

Bonds

Multilateral concessional

Private creditors

Multilateral non-concessional

Upper middle-income-countries (UMICs)

Average for Africa

Bilateral concessional

Bilateral nonconcessional

Bonds

Multilatéral concessionnel

Private creditors

Multilateral non-concessional

2012

Bonds

Private creditors

Bilateral nonconcessional

Multilateral concessional

Multilateral non-concessional

2019

Source: IDS, authors' calculations.

Public debt in Africa (2012–2019): re-indebtedness and new creditors—is sustainability under threat?

the high proportion of low-income countries (LICs) on the continent. Official creditors, both bilateral and multilateral, account for over 90% of LICs’ external public debt. However, the share they have has gradually declined over time, by 5 percentage points since 2012—a reflection of the beginning of a shift toward more private external creditors. At the same time, the degree of concessionality in official financing has been gradually cut back in favor of financing terms that are becoming more and more similar to those on the capital markets. In a way that is more pronounced, but fairly expected, given their more advanced development process, this diversification of external financing has been accentuated in lower-middle-income countries (LMICs). Those have gradually moved away from concessional financing and toward borrowing on less favorable, more market-oriented terms, as upper-middle-income countries (UMICs) had done before.

The increase in the share of this type of financing seems to be explained primarily by demand, i.e., by the scale of African countries’ financing needs. Private funding meets needs that are not covered by official funding, with no observable substitution effect between the two funding sources. Thus, in most African states, the increase in public debt owed to private creditors has been accompanied by a sharp rise in total external public debt. Although the strength of this positive correlation varies according to the income level of the debtor states, it is still invariably positive (see Figure 3).

Figure 3 – Correlation between the increase in external public debt and the rise in the weight of private creditors in Africa

Change in total external public debt 2012–2019 (in % points of GDP)

-10

-20 -5

Change in public external debt held by private creditors 2012–2019 (in % points of GDP) LIC

LMIC

UMIC

Source: IDS, authors' calculations.

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

Figure 4 – Share of external public debt in Africa by type of creditor (as a percentage of total external public debt) 100 90 80 70 60 50 40 30 20 10 2019

2018

2017

2016

2015

2014

0 2013

The breakthrough of private creditors into African debt has also been accompanied by that of so-called “emerging” creditors and particularly China. The share of China increased etween 2012 and 2019 by an average of 6 percentage points of the total external public debt of African countries (see Figure 4). China has become, by far, the largest bilateral lender in Africa overall, and is also the largest bilateral lender in the following individual countries: Angola, Congo, Djibouti, and Mozambique. It is undeniable that the increased recourse to loans from “emerging” lenders raises a number of questions, including the fragmentation caused by the involvement of different kinds of lenders, the opacity of financing and the conditions around it, and the collateralization of loans. However, there is no clear correlation between the share of financing that comes from these “emerging” lenders in external public debts, debt distress episodes or liquidity and solvency crises (see Section 2.1.). Nevertheless, according to World Bank data, Chinese debt service represents an average of 25% of external public debt service in Africa, and more than USD 49 billion for the period from 2021 to 2025 [5]. In some countries, Chinese debt service will exceed 40% of total external public debt

service (65% in Zimbabwe, 60% in Djibouti, 60% in Congo, 59% in Guinea, 53% in Angola, 42% in Ethiopia, and 40% in Togo).

2012

This shift toward foreign private creditors is illustrated by the increase in their share of external public debt, which rose from 12% of total external public debt in 2012 to 19% in 2019 (see Figure 4). This increase is due in part to the greater recourse to foreign currency issues on the international capital markets (Eurobonds): the share of international bonds rose from 4% of total external public debt to 10% over the same period [4]. As with less concessional (and often less conditional) official and private financing, issues on the international capital markets make it possible to diversify the profile of public debt, in particular by raising large amounts in foreign currency while extending maturities, without negotiating with a single creditor. However, attention must be paid to the contractual and legal clauses, the terms of repayment (especially at maturity), and the relatively higher cost of this type of debt.

Bilateral (excl. China) China

Multilateral

Private (excl. bonds)

Bonds

Source: IDS, authors' calculations.

4 These figures are even more striking if one considers the trend for the stock of public external debt at the overall continental level as well as over the

longer term: the proportion of lending by private creditors increased from 25% in 2006 to 40% in 2019, and the percentage represented by Eurobonds rose from 7% to 27% over the same period.

5 These data should be cited with caution, because it is difficult to obtain

reliable statistics that would allow for an accurate estimate of the debt owed by African countries to China.

Public debt in Africa (2012–2019): re-indebtedness and new creditors—is sustainability under threat?

1.3 – A higher debt service burden that is threatening public debt sustainability in Africa The increase in the level of public debt, combined with changes in the respective weight of African countries’ creditors, has been paralleled by a surge in external public debt service, which is becoming significantly burdensome and increases the level of exposure to exogenous shocks. External public debt service—that is, interest payments and the amortization of the principal of external public debt—thus increased from an average of 7% of fiscal revenues between 2012 and 2015 to an average of 14% between 2015 and 2019. Indeed, the increase in the share of private foreign creditors in total public debt has led to an costlier debt service, due to the non-concessional terms of private financing. This is putting pressure

on the public finances of debtor countries and potentially threatening their payment capacity in the short term (see Figure 5). Debt service is also more complicated to manage for countries that have recently borrowed on international capital markets. In these countries, the service of Eurobonds for the next few years will represent, on average, more than 30% of external public debt service, while the repayment of the principal at the end of the period sometimes weighs heavily for these countries. Eurobonds repayments will amount to at least 1.8% of GDP in Kenya in 2024, 2% in Ghana in 2023, 2.3% in Angola in 2025, 3% in Rwanda in 2023, 1% in Zambia in 2024, and as much as 7.9% in Gabon in 2024. This poses an additional risk for several reasons. First, the refinancing of these bonds is less certain (unlike in developed countries) due to both the volatility of the markets for this type of bonds and the required debt management capacity in relation to the issuance process. The volatility in

Figure 5 – Correlation between the increase in the stock of external public debt and the rise in interest on external public debt in Africa 25

Change in the stock of external public debt (average annual growth rate) 2012–2019

20 15 10 5 0 -5 -10 -15 -30

-20

-10

Change in the interest on external public debt (average annual growth rate) 2012–2019 LIC

LMIC

UMIC

Source: IDS, authors' calculations.

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

The growing burden of debt service and the over-indebtedness of some states may lead to severe short-term liquidity pressures in the event of an exogenous shock—as evidenced by the impact that the deterioration of the global economy had on some African countries in 2020 as a result of the COVID-19 health crisis. Between 2019 and 2020, debt-to-GDP ratios increased by an average of 7 percentage points of GDP, and by more than 10 points in 14 African countries. Moreover, in most cases public debts increased more in 2019 and 2020 than in the previous three years, in some cases wiping out efforts to stabilize the ratio. Thus, the public debts of 14 countries fell, as a percentage of GDP, between 2017 and 2019, only to rise again in 2019 and 2020 in Congo, Seychelles, Cape Verde, Gabon, Guinea, and Madagascar. This one-year rise is greater than the decline over the previous three years—a trend that undermines efforts at stabilization. On the other hand, for 16 other countries, and particularly in Zambia, Mozambique, South Africa, and Ghana, the increase in debt levels in 2019 and 2020 was faster than the cumulative increase during the 2017–2019 period.

100 90 80 70 60 50 40 30 20 10 2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

0 2008

I n t hi s co n t e x t , t h e q u e s t i o n of d eb t sustainability—i.e., the long-term solvency of a given state— once again becomes critical. Since 2006, the International Monetary Fund (IMF) and the World Bank have been developing the Low-Income Country Debt Sustainability Framework (LIC DSF) for external public debt[6] (see Section 3.1). According to the IMF, at the end of 2019, 50% of African LICs were at high risk of over-indebtedness or actually in debt distress, compared to just 21% in 2014 (see Figure 6).

Figure 6 – Risk of debt dibstress (LIC DSF) in Africa (as a percentage of LIC DSF countries in Africa)

2007

2020 and the levels of spreads on African bonds, which remained high by the end of the year, is a good proxy for the market risk evaluation. Second, the cost of Eurobonds is still high for African economies: issuances with maturities of between 10 and 15 years from 2018 to 2020 were made with a coupon of more than 7.5% on average. Even in a more favorable overall interest rates environment, these are still high, as illustrated by Benin’s issuance in January 2021 of a USD 300 million, 31-year bond at a rate of 6.875%, or that by Ghana in March 2021 of a USD 1 billion, 12-year tranche at a rate of 8.625%.

Low risk

Moderate risk High risk

Debt distress

Source: DSA, LICs (IMF), authors' calculations.

6 The DSF developed by the IMF and the World Bank is a tool that makes it

possible to analyze the vulnerabilities linked to debt and thus put in place the appropriate policies so that countries do not become overindebted. There are two methodological frameworks for debt sustainability analysis (DSA)

that are used, depending on the type of financial resources that countries draw on to cover their financing needs.

Public debt in Africa (2012–2019): re-indebtedness and new creditors—is sustainability under threat?

Finally, the 2020 shock to debt and sustainability trajectories is likely to last quite some time. The IMF anticipates that, by 2024, public debt will be more than 15 percentage points of GDP higher in 14 African countries than what was forecast before the crisis (see Figure 7), thus underscoring the lasting and significant effects of the health crisis. The situation is particularly worrisome for countries that will still have very high debt levels in 2024—notably Zambia, Cape Verde, Mozambique, Tunisia, Angola, Kenya, Ghana, and Congo. In addition, the trend for public debt in the 2020–2024 period shows different paths to 2024 (see Figure 8): 20 countries are expected to drive their public debt down to a level equivalent to

or lower than it was at the end of 2019. Of these, Chad, the Central African Republic, Ethiopia, the Gambia, São Tomé and Principe, and Sierra Leone are expected to do so as early as 2021. However, 20 other countries will have a level of debt in 2024 that will still be higher than it was in 2020, which suggests the difficulties involved in once again reducing the level of debt—difficulties that have been accentuated by the COVID-19 crisis. This is notably the case for Algeria, Malawi, Tunisia, and Zambia, where debt will increase by more than 10 percentage points of GDP between 2020 and 2024, and to a lesser extent for Ghana, the Comoros, and Rwanda, where the increase in debt will be between 5 and 10 percentage points.

Figure 7 – Impact of the COVID-19 crisis on the public debt-to-GDP ratio in Africa 150

Zambia

140 130 120 110 100 Public debt in 2024 (% of GDP)

Cape Verde

Mozambique South Africa

Egypt

80 70

Mauritius

Angola Marocco Congo Namibia

Tunisia Ghana

Algeria

Malawi

Rwanda Kenya Gabon São Tomé and Principe

60 50 40 30 20 10 0 -20

-10

Change (in percentage points of GDP) between public debts in 2024 as estimated before the health crisis and public debts estimated most recently Source: IDS, authors' calculations.

Legend: the y axis represents the level of

public debt in 2024 (as a percentage of GDP, as estimated by the IMF) and the x axis represents the difference between this level and the IMF's estimate before the health crisis. For example, the IMF estimated in April 2021

that Zambia's public debt would reach 140% of GDP by 2024, which is 45 percentage points of GDP more than

its estimate before the crisis. Colored dots represent risk according to the DSA (light blue = low risk; light green = moderate risk; dark blue = high risk; dark green = distress)

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

Figure 8 – Public debt trajectories in Africa, 2019–2024 180 170 160

Botswana

150

Algeria

140

Public debt (% of GDP) Base 100 = 2020 level

130

Malawi

Eswatini

120 Namibia

110

Comores

Zambia South Afr. Tunisia Ghana Rwanda

100 90 80 70 60 50 40 2019

2020

2021

2022

2023

2024

Source: WEO, authors' calculations..

Legend: 100 represents the level of public

debt (as a percentage of GDP) in 2020. For countries with a value of less than 100, debt is expected to be lower 2024 than in 2020. Conversely, for those with a value of more than 100, debt is expected to be higher.

Public debt in Africa (2012–2019): re-indebtedness and new creditors—is sustainability under threat?

Beyond the increase in debt ratios expressed as a percentage of GDP, the rise in financing needs, the decline in fiscal and export revenues, the slowdown in growth, and currency-depreciation movements meant that some states encountered difficulties in repaying or refinancing their external public debts in the course of 2020. These factors were a testament to their vulnerability to exogenous shocks. As with the stock of public debt, the servicing of external public

debt is expected to continue to weigh heavily on some African economies. It would thus represent an average of more than 5% of GDP per year over the next five years in Zambia, Angola, Mauritania, and Cape Verde, and more than 3% of GDP in Gabon, Djibouti, Mozambique, Senegal, and Congo (see Figure 9).

Figure 9 – Evolution of external public debt service in Africa

10 9 8 7 6 5 4 3 2 1

Zambia Angola Mauritania Cape Verde Gabon Djibouti Mozambique Senegal Congo Cameroon Ghana Kenya Lesotho Ethiopia Benin Gambia Guinea Bissau Rwanda Côte d'Ivoire Guinea Burundi Togo The Comores Mali São Tomé and Príncipe Sudan Chad Eritrea Uganda Sierra Leone Niger Burkina Faso Eswatini Malawi Tanzania South Africa Liberia Madagascar Botswana Central African Republic DR Congo Zimbabwe Nigeria

Average debt service 2021–2025 (% of GDP)

Average debt service 2010–2019 (% of GDP)

Source: IDS, authors' calculations.

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

2. Unavoidable re-indebtedness despite past debt relief

Unavoidable re-indebtedness despite past debt relief

Re-indebtedness and the deterioration of public debt sustainability in Africa over the past decade are not new, as African economies have repeatedly faced debt crises. Nevertheless, in order to avoid overindebtedness-debt relief cycles, the factors leading to public indebtedness and, in some countries, over-indebtedness need to be examined. This is the way to take stock and better tailor the creditor community’s response to the looming crisis in some countries.

2.1 – Causes of public indebtedness and over-indebtedness While most African countries have accumulated new debt—sometimes massively—over the past decade, not all of them are actually over-indebted. Empirical analysis shows the importance of the factors that cause over-indebtedness— first, the stock of debt as a percentage of GDP, but also twin deficits [7], the robustness of institutional governance and the efficiency of public investment, and the level of dependence on natural resources. Easterly’s approach (2002) is the standard reference on debt and over-indebtedness in developing countries (DCs). Using this model (see Table A1 in the Appendix) with data available for the 2012–2019 period gives an overview of the factors that caused over-indebtedness in 2019. This makes it possible to assess the degree of correlation between the average economic and institutional performance recorded by these countries in the 2012–2019 period, and their public debt-to-GDP ratio as at the end of 2019, at a given income level [8]. Estimates tell us that, similarly to and consistent with the underlying theories of development financing, current-account deficits are positively correlated with end-of-period over-indebtedness. As explained in the literature on the assessment of DCs’ financial needs and in particular the three-gap model developed by Bacha (1990), the lack of domestic savings, of foreign exchange, and of tax revenues leads to the accumulation of twin deficits (public and current-account deficits). This leads DCs to become indebted to external creditors. Thus, countries that have benefited

from the Heavily Indebted Poor Countries (HIPC) Initiative in the past and that are now considered to be at high risk of, or in actual debt distress, report—on average, over the 2012–2019 period—a higher current-account deficit than that seen in countries at low or moderate risk. Empirical analysis confirms that the level of indebtedness is a significant cause of public debt distress. That is not the case for the level of public debt that is incurred with private or “emerging” creditors. Table A3 (Appendix) shows that, at a given income level, countries that were in debt distress in 2019 experienced a larger increase in their stock of public debt relative to GDP, which rose by more than 10 percentage points than that observed, on average, among countries with no over-indebtedness. On the other hand, whereas the data up to that point suggested that over-indebtedness was also the result of a rise in public liabilities to non-resident private creditors, the situation is now more complex. Table A3 shows that, at a given income level, countries at high risk of debt distress in 2019 did not experience a significantly larger increase in the stock of foreign, privatelyheld debt than countries at low or moderate risk of debt distress. The same applies to the level of debt incurred with “emerging” lenders, particularly China. This calls into question the idea— which one might draw from the simultaneous trend of increased risk of debt distress in Africa and increased share of debt held by these creditors— that these creditors could, just like private creditors, be directly responsible for a deterioration of public debt sustainability in the countries they lend to. The increase in total government indebtedness, and the associated risk of debt distress over-indebtedness, are also driven by domestic debt, and thus need to be monitored regularly. To this end, improving the transparency of domestic debt, in the same way as is done with external debt (see Section 3), is a challenge that must be addressed.

7 I.e., the combination of a budget deficit and a current-account deficit. 8 I.e., by controlling for GDP at the beginning of the period.

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

Figure 10 – Re-indebtedness and natural resources in Africa percentage points of GDP

% of GDP 25

80 70

60 50

40 30

20 10

0 -10

0 COD

CIV

COM

GIN

MDG

TZA

MLI

BFA

UGA

MWI

BEN

GNB

TGO

NER

SEN

RWA

LBR

STP

ETH

CAF

TCD

BDI

MRT

GHA

CMR

GMB

SLE

COG

ZMB

MOZ

-20

Countries at low or moderate risk of debt distress in 2019

Countries in debt distress or at high risk of debt distress in 2019 Change in public debt, 2012–2019 (% of GDP)

Share of natural resources in GDP (right hand scale)

Source: IDS, World Development Indicators (WDI), authors' calculations.

Empirical analyses also make it possible to verify the importance of over-reliance on commodities when it comes to public debt sustainability. The pro-cyclical nature of these countries’ economies is a cause of vulnerability that leads to greater debt tolerance when the terms of trade are favorable; but debt becomes unsustainable when commodity prices collapse. The consensus in the literature on the causes of over-indebtedness in sub-Saharan African countries in the 1970s and 1980s is that heavy dependence on commodities, and the associated price fluctuations of these products, explain the trends around indebtedness during this period (Krumm 1985, Lancaster and Williamson 1986, Green 1989, Mistry 1991). Figure 10, and Items A1 and A2 (Appendix), show that the availability of foreign reserves, through the exploitation and export of natural resources, as well as the higher level of government revenues, were indeed significant causes of re-indebtedness in the 2012–2019 period. The figures in Table A3 (Appendix) strengthen this view, since, by controlling for income level, we can see that countries that have higher levels of government revenue and rents

Unavoidable re-indebtedness despite past debt relief

from natural resources—especially oil—also display higher debt-to-GDP ratios. The period in which commodity prices were favorable (2010–2014— see Graph A3, Appendix) coincides with increased recourse to foreign private creditors, access to whom was facilitated by the strengthening of budgetary and external policies (see Figures A1 and A2, Appendix). However, this greater dependence on commodities also exacerbates the vulnerability of these countries, which would, in the event of a fall in prices on the international markets, be more heavily exposed to liquidity problems and ultimately to debt distress. This diagnosis is supported by the estimated results that are obtained when the terms of trade are taken as a dependent variable (see Table A2, Appendix): between 2012 and 2019, countries experiencing debt distress had, on average, suffered a greater deterioration in their terms of trade. Similarly, the collapse of commodity prices may well have contributed to an increase in guarantees provided to banking sector debts or debts incurred by state-owned enterprises (Christensen 2016), thus increasing public debt.

Figure 11 – Debt and public institutions quality in Africa

Change in external public debt between 2012 and 2019 (GDP percentage points)

150

100

-50 2

2,5

3,5

Country Policy and Institutional Assessment (CPIA) public sector management and institutions cluster average 2012–2019 (1 = low; 6 = high) Countries in debt distress or at high risk of debt distress in 2019 Countries at low or moderate risk of debt distress in 2019

Source: IDS, World Development Indicators (WDI), authors' calculations.

Empirical analysis provides more uncertain results when it comes to the importance of institutional quality or financial governance on debt distress. For Easterly, the high level of political instability and weak financial governance (especially in terms of corruption) can only lead, once debt cancelation has been granted, to further large accumulations of public debt and thus to debt distress. That said, Easterly offers a nuanced reading of the impact of the HIPC initiative: he points out that, in cases where the conditions associated with these programs might allow for a change in the policies and practices of recipient states, the effects could be positive. However, in the reverse situation, states would, in his view, act in good faith only for as long as it takes to benefit from debt relief before turning back to the old policies that contribute to debt distress, thus going back and forth depending on the conditions offered under one or another program. Debt cancelation mechanisms therefore present fairly classic

cases of moral hazard. Since 2012, however, there has been no significant correlation between the over-indebtedness of African countries on the one hand, and the level of institutional quality or financial governance on the other, as measured by the World Bank’s CPIA public sector management and institutions cluster [9]. Figure 11 above, and the results shown in Table A2 (Appendix), suggest there is hardly any difference in re-indebtedness based on the quality of institutions, though institutional quality is correlated with lower re-indebtedness when controlling for income, especially in countries that have not benefited from debt-relief initiatives. On the other hand, when the quality of the economic and institutional environment is measured by other indicators, such as the World

9 Country Policy and Institutional Assessment. Differences between

overindebted countries and those at low or moderate risk, when it comes

to the mean for the other CPIA sub-indicators measured, are close to zero.

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Debt sustainability in Africa: state of play and future challenges

Bank’s Ease of Doing Business index, we recall the results from Easterly (2002) suggesting a greater propensity toward debt distress in the most institutionally-fragile states. Significantly, public debt is correlated, on average, with an increase in overall investment and particularly public investment. However, this has not translated into significantly higher economic growth, and that raises questions about the efficacy of indebtedness and therefore its sustainability. Indeed, Table A2 suggests that public capital expenditures between 2012 and 2019 were, on average, much higher among countries that were either at high risk of, or in debt distress, compared to average expenditure levels elsewhere. Nevertheless, this positive investment trend does not seem to have boosted growth in these debtor countries, since there is no observable difference between the countries that are over-indebted—or are at risk of becoming so—and the other countries on the continent. This result raises the question of the debt-absorption capacity of these states (Presbitero 2016) and their ability to maximize the productive potential of externally financed investments, an issue already at the heart of the issues of debt distress in the 1970s and 1980s (Green 1989).

2.2 – The uncertain effects of debt cancelation and relief on indebtedness trajectories and debt sustainability At the end of 2019, 8 countries in Africa were assessed by the IMF and the World Bank in debt distress, while 11 were at high risk of debt distress. Out of these 19 countries, 14 had benefited from the debt-cancelation initiatives put in place in the early 2000s. These initiatives—the HIPC initiative (which began in 1996 and was enhanced in 1999), and the Multilateral Debt Relief Initiative (MDRI, 2005)— aimed to significantly reduce the burden of official external public debt, namely that held by bilateral and multilateral creditors, in order to bring debt back to a sustainable level. This was supposed to promote economic activity in accordance with the predictions of the debt-overhang model (Krugman 1988, Sachs 1989), and ultimately to provide recipient states with the financial means they needed to reach the Millennium Development Goals. By the end of 2012, 29 of the 31 African countries eligible for the enhanced HIPC initiative (and the MDRI) had fully benefited from these debt reductions. While the

Unavoidable re-indebtedness despite past debt relief

main objective of reducing public debt to a sustainable level was achieved, there is still no consensus on the potential effect of these programs on the economic growth of recipient countries (Ferry and Raffinot 2019). Nevertheless, the academic literature has shown that these initiatives have allowed HIPC recipients to increase public investment (Cassimon et al. 2015, Djimeu 2018) and to strengthen their fiscal capacity (Ferry 2019). The impact of debt cancelations and relief in the early 2000s on the re-indebtedness trajectories of the years that followed is not entirely clear: at times it led to rapid re-indebtedness with all external creditors. It may be, then, that the HIPC and MDRI initiatives contributed to new non-concessional debt accumulation with external private creditors (Ferry et al. 2021). Indeed, debt cancelations theoretically send a mixed signal to private creditors. On the one hand, they highlight the inability of recipient states to meet their debt obligations and generate enough resources to ensure they can repay them. On the other hand, they make it possible to return to relatively low levels of debt and thus to restore significant borrowing capacity. In the literature on the cost of sovereign default episodes, there is an overall agreement over temporary exclusion from international financial markets (Aguiar and Gopinath 2006, Richmond and Dias 2008, Borensztein and Panizza 2009, Benczur and Ilut 2015). However, this exclusion is not accompanied by a revaluation of the risk premium in the long run, although this latter effect remains debatable and under dispute in view of the conclusions reached by Cruces and Trebesch (2013), which suggest an over-reaction in the form of post-default spreads. Nevertheless, these studies focus mainly on episodes of sovereign default in emerging countries (especially in the early 1980s), which are quite different from the “implicit” defaults resulting from debt-cancelation initiatives that were set up to benefit LICs. Indeed, unlike the defaults of the 1980s, which involved debts held by private creditors, the debt cancelations granted under HIPC and MDRI focused almost entirely on official debt—that is, debt owed to bilateral and multilateral lenders. As a result, the negative signal sent to international private creditors was very weak, if there even was a signal at all. Thus, these initiatives have had a more positive effect on external financing opportunities for HIPCs, since, by also benefiting from the international context after the financial crisis (2008–2009)—a context characterized by an abundance of liquidity—they were able to quickly borrow again from foreign and

Figure 12 – Growth rate (%) of African public debt stock held by each type of external creditor 16 14 12 10 8 6 4 2 0 2012

2013

Bilateral creditors

2014 Multilateral creditors

2015

2016

Private creditors

Total external public debt (right hand scale)

2017

2018

2019

Bondholders

Source: IDS, authors' calculations.

domestic private creditors (Arnone and Presbitero 2007, Cabrillac and Rocher 2009). This re-indebtedness certainly took place on less favorable terms than those available from public lenders, but not less favorable than those granted to other DCs. Indeed, the conclusions reached by Ferry et al. (2021) suggest that private creditors favored HIPCs because of their greater borrowing potential, at least in the short term, after the debt-cancelation initiatives.

For the 30 sub-Saharan African countries that benefited from the HIPC and MDRI initiatives, Figure 12 shows the contribution of debts with various creditors (bilateral, multilateral, private non-bond, bondholders) to the growth of external public debt over the 2012–2019 period. On average, the period after debts were canceled was characterized by a fairly marked re-indebtedness with traditional donors (bilateral and multilateral), and from 2013, with private creditors too. The 2013–2015 period was indeed marked by a significant increase in borrowing from foreign banks and private financial institutions, as well as by large bond issues [10].

10 Bonds were issued by Côte d’Ivoire, Ghana, Mozambique, Rwanda, Senegal, Tanzania, and Zambia in particular. In 2019, Ghana and Zambia were

categorized as being at high risk of debt distress, while Mozambique was categorized as being actually overindebted.

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Debt sustainability in Africa: state of play and future challenges

Figure 13 – Interest on external public debt by type of creditor in Africa HIPC countries at high risk of debt distress in 2019

HIPC countries at low or moderate risk of debt distress in 2019

Interest to bilateral creditors

Interest to private creditors

2019

2018

2017

Interest on total external public debt

2017

2016

2015

2014

2019

2018

2016

2015

2014

2013

2012

2013

% of fiscal revenues

2012

% of fiscal revenues

Interest to multilateral

Source: IDS, authors' calculations.

As noted earlier, the increased use of non-concessional debt from 2012 onwards for HIPC countries has led to higher debt service: Figure 13 highlights a clear acceleration in interest payments on external debt held by private creditors from 2015 onwards, shortly after the emergence of bond issues and direct financing from private creditors as the main sources of external debt growth (see Figure 12). However, the increase in the burden of external debt service for these countries is not solely due to interest paid to private creditors: interest owed to traditional—that is, bilateral and multilateral—lenders increased significantly, and took up an increasingly large share of government revenues between 2012 and 2019 (see Figure 13). Debt-cancelation initiatives have quickly given way to increased public debt serve.

Unavoidable re-indebtedness despite past debt relief

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Debt sustainability in Africa: state of play and future challenges

3. Toward a new framework for the analysis and treatment of African public debt

Toward a new framework for the analysis and treatment of African public debt

3.1 – Modernizing the tools for analyzing public debt The tools available to assess public debt sustainability have recently evolved to more effectively take account of new debt profiles, and the new risks and vulnerabilities arising from them. The Debt Sustainability Framework (DSF) is the benchmark used by the Bretton Woods Institutions for assessing debt sustainability in many countries. Developed in 2006 by the World Bank and the IMF in the wake of the aforementioned debt-relief initiatives, the DSF used for LICs is based on an econometric study by Kraay and Nehru (2006) that aimed to identify the causes of debt crises that DCs had gone through between 1970 and 2002. The DSF approach is based on theoretical debt ratio thresholds [11] beyond which the level of debt observed could be characterized as unsustainable. The risk of debt distress, and thus the degree of sustainability, is assessed based on the response of these indicators in various macroeconomic scenarios and stress tests. However, this approach has certain limitations, which Berg et al. (2014) have highlighted, stressing its highly conservative nature that puts a lot of weight on the probability that the highest risk will materialize. For example, the breach of a single theoretical threshold in a non-stressed macroeconomic scenario is enough to lead to the determination that there is a high risk of debt distress. For this reason, the authors take the view that the DSF overestimates the risk of debt distress. The authors also take the view that the variables used to estimate theoretical thresholds are averaged over a relatively long period, thus helping to minimize the burden of debt vulnerability and the specifics of the countries that were assessed in the LIC DSF—which also meant that the tool could not anticipate or predict certain debt crises. In this context, there was a significant revision of the analytical component of the LIC DSF, leading to reforms that were introduced in 2018. In particular, the new methodology includes (i) a revision of the measure of a country’s debt carrying capacity; (ii) a revision of the number and levels of the debt distress thresholds for external public debt; (iii) a reduction in the number of stress tests and a strengthening of the interactions between the main macroeconomic variables; (iv) the introduction of

11 There are five: (i) the present value of external public debt as a percentage of GDP; (ii) the present value of public debt as a percentage ofgovernment revenues; (iii) the present value of external public debt to exports; (iv)

external public debt service as a percentage of exports; and (v) external

country-specific stress tests (taking into account risks stemming from contingent liabilities, natural disasters, and a reversal in commodity prices); (v) a strengthening of the analysis of vulnerabilities related to domestic public debt and external market financing (refinancing risk on international markets for so-called “frontier” countries, which sometimes have market access); (vi) a higher level of granularity in the assessment of moderate risks of debt distress; and (vii) the enhancement of the indications allowing for the use of expert judgment. These amendments make it possible to better understand the specifics of public debt in LICs and to take account of the developments that have been observed over the past decade. Coordinating the community of international creditors—whether official or private— and seeing to the transparency of information on the stock and composition of public debt are a challenge in coming to a more integrated approach to debt distress risks. In order to prevent the risk of debt distress, the DSF is supplemented by rules defining quantitative debt ceilings for DCs with access to financing from international finance institutions, in particular the IMF and the World Bank. The World Bank’s Non-Concessional Borrowing Policy (NCBP) was introduced in 2006 following the debt relief provided under the HIPC and MDRI initiatives. It has a specific objective: to prevent debt relief or concessional financing (through the World Bank’s International Development Association (IDA) window). from creating an opening for non-concessional debt and ultimately, debt distress. In 2019, in its most recent review of the NCBP, the World Bank found that it had had mixed success. While the NCBP may have encouraged dialog with DCs on public debt sustainability, it did not prevent the increase in vulnerabilities that was discussed above. The World Bank points up several shortcomings of the NCBP: the limited number of countries covered, too heavy a focus on non-concessional debt levels rather than on total public debt, and non-compliance with requirements regarding transparency of information. Together with changes in the international sovereign financing landscape in recent years— such as the rise in the number of countries at high risk of, or in debt distress, the increased involvement of private creditors in sovereign debt, greater access to international markets, and the scarcity of concessional resources—these limitations have led to a revision of the NCBP. Since mid-2020, this has been replaced by the Sustainable Development Financing Policy (SDFP), which attempts to address

public debt service as a percentage of government revenues.

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Debt sustainability in Africa: state of play and future challenges

the main shortcomings of the NCBP through three mechanisms: it (i) expands its coverage from 40 to 75 countries; (ii) increases the financial incentives for the countries concerned through a reduction in the IDA country envelope if steps in favor of debt sustainability are not taken; and (iii) improves coordination among creditors. Similarly, the IMF’s Debt Limits Policy (DLP), which has been in place since the 1960s, aims to support the achievement of the main macroeconomic objectives of IMF programs and to preserve the sustainability of public finances. Just like the World Bank’s views on the NCBP, the IMF has mixed views on the success of the DLP, finding that it focused too much on external public debt and not on total public debt. Similarly, Ahokpossi et al. (2014) show that the DLP had no impact on the level of countries’ non-concessional debt. Since its revision in 2014, however, the latest DLP has apparently helped contain risks to public debt sustainability in several IMF program countries. But it is not immune to the general observation that the international financing landscape is changing and it is confronted with its own limitations: (i) the difficulty in preventing debt-related risks from migrating off public balance sheets; (ii) conditions that are too harsh for some countries and ill-suited for others, and (iii) fairly slow progress by countries in managing their public debt. To address this, and to ensure consistency with the World Bank’s SFDP, the DLP is being revised again in 2021. The focus is now on increasing transparency to the IMF regarding the debt profile and the type of creditors. The new DLP also focuses on strengthening tailor-made approaches to the implementation of conditions for taking on public debt, particularly for LICs that issue bonds in international markets, and on improving the definition and calculation of concessionality. Creditor coordination—at a minimum between the IMF and the World Bank—will be key to the success of both the SFDP and the new LDP. These elements also echo the 2017 G20 operational guidelines for sustainable financing.

3.2 – The DSSI: a response to the vulnerability of public debt to exogenous shocks The DSSI for poor countries, launched in response to the economic and financial impact of the COVID-19 health crisis, partially addresses Africa’s public debt vulnerability to exogenous shocks. Indeed, the theory and empirical analysis of trends in re-indebtedness as well as of causes of debt sustainability show, among other things, that African countries public debt is highly vulnerable to exogenous shocks. In this respect, the COVID-19 health crisis was a symmetrical global external shock of unprecedented magnitude, with a high impact on the causes of debt sustainability (including a slowdown in economic activity, the collapse of foreign-currency receipts, increased commodity prices volatility , and larger fiscal deficits). Debt-service relief can therefore mitigate this vulnerability to avoid deteriorating solvency in the longer term. The DSSI became official in April 2020: G20 creditors decided to grant all the world’s poorest countries—that is, all those with access to the World Bank’s concessional window, as well as Angola—a suspension of debt-service payments, initially on maturities due between May and December 2020. This period was then extended twice to cover all maturities in 2021. More than 70 countries are eligible for the DSSI which is intended to free up fiscal space to better address health and social costs arising from the pandemic. The DSSI is therefore primarily a response to a liquidity problem: it makes it possible to increase emergency spending, in a context where there is pressure on the financing of such new spending. Indeed, if a majority of DCs continue to depend primarily on external financing from official creditors, those who had diversified their financing sources found themselves in 2020 facing the risk of being shut out of international capital markets. In this respect, the DSSI is a success. Combined with emergency financing from the IMF (Rapid Credit Facility and Rapid Financing Instrument) and the World Bank, the initiative has enabled relief to be provided to the public finances of more than 45 countries, for a total of USD 6 billion—largely by the Paris Club (PC) and China in almost equal measure. At the same time, it has allowed for a delay, notably by giving creditors more time to take the measure of, and absorb, the effects of the crisis, thus facilitating the reopening

Toward a new framework for the analysis and treatment of African public debt

of financial markets to certain countries (such as through the issuance of Eurobonds by Côte d’Ivoire at the end of 2020). The DSSI also, and perhaps most importantly, strengthened coordination among international official creditors: for the first time, the PC, China, and other G20 official creditors formally coordinated a near-common response. Lastly, it has helped improve data sharing and debt transparency, notably through the creation of a public web platform. On the other hand, the DSSI was quickly plagued by several pitfalls and criticisms, mainly because of the low amounts that were suspended. Indeed, the total relief at this stage of USD 6 billion should be put into perspective: in 2020, the external public debt service of all middle-income countries was estimated, according to the IMF and the World Bank, at more than USD 420 billion. Similarly, in 2021, the external public debt service of countries that are eligible for the DSSI is estimated at USD 42 billion. The limited impact of the DSSI appears in fact to be caused by four elements. First is the narrow scope of countries eligible for the initiative: since emerging countries aren’t eligible, the DSSI does not relieve the public finances of many countries that would seem to need it too. In Africa, Tunisia, Gabon and South Africa (to a lesser extent) are such examples. The second element is the non-participation of private creditors: the terms of the DSSI called for private creditors to participate in the moratorium on a voluntary basis. Despite numerous calls to participate, uncertainties about the pandemic, the role of ratings agencies (which threatened possible sovereign ratings downgrades of debtor countries applying for the DSSI), and the general reluctance of private creditors seem to have won out. Some observers justify the non-participation of these creditors by suggesting that a restructuring would send a negative signal to international investors that might in turn result in the exclusion of DSSI-recipient states from the international capital markets. As mentioned earlier, the academic literature offers a nuanced reading of the consequences of restructuring debt held by private creditors. In particular, studies of debt cancelation for poor countries, especially in Africa, show that, although the claims of some private creditors were canceled during the HIPC initiatives, this had no impact on the borrowing countries’ subsequent access to financial markets because of the application of the principle of the comparability of treatment (Ferry et al. 2021). Similarly, Lang et al. (2021) note that

the announcement of the DSSI did not contribute to increasing spreads for these countries. On the contrary, the debt service moratorium appears to have led to much lower risk premiums being offered to DSSI beneficiary states than to states that did not participate. At the same time, the non-participation of multilateral creditors, primarily the IMF and the World Bank, is explained by the traditional role of “lender of last resort” that these creditors play within the international architecture. Their participation in the DSSI could have been interpreted as a sign of erosion of their preferred-creditor status, underpinned by the implicit priority given by the international community to the repayment of their claims. This preferred-creditor status is one of the factors that allowed multilateral creditors to access the international financial markets on favorable terms (reflecting a limited risk premium). That, therefore, had the effect of prioritizing the provision of new concessional liquidity to the countries eligible for the DSSI, even though net financing flows (disbursements net of repayments) to DCs, have not necessarily increased significantly, for example in the case of the World Bank (Morris, Sandefur and Yang, 2021). Lastly, there is the limited role that China plays: it has indeed taken part in the DSSI, but only for a relatively small number of debtor countries. Moreover, it seems that China has been insufficiently transparent in sharing information. While the success of the DSSI should therefore be put into perspective, it should not be forgotten that the initiative was intended only to provide a temporary response to a liquidity issue. Solvency issues, which already existed before the crisis, will have to be addressed by the Common Framework.

3.3 – The Common Framework: an attempt at a more general approach to debt treatment that remains to be completed The Common Framework for Debt Treatments is the logical continuation of the DSSI: the initiative makes it possible to take over from the provision of liquidity allowed by the DSSI to start tackling the structural issues of public debt distress, which the COVID-19 crisis has only exacerbated. The principles of the Common Framework are based in essence on those that shape PC debt treatments, namely (i) a case-by-case approach; (ii) the for an IMF program to be in place; and (iii) the comparability of treatment, which implies that a country receiving debt relief from its official

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Debt sustainability in Africa: state of play and future challenges

creditors (PC and now other G20 members) should obtain at least equally favorable terms from its other creditors. In addition to the focus on solvency issues, the Common Framework differs from the DSSI in that it follows a country-specific approach, as opposed to the standardized approach taken under the DSSI. But the real novelty of the Common Framework is its ability to replicate past PC debt treatments, by including new official bilateral creditors that are not members of the PC, including China. China’s participation in the process could be much greater than in the DSSI, given that the comparability-of-treatment clause provides a strong assurance that private and official creditors will be treated equally. China would thus be more inclined to take part if official creditors are not the “payers of last resort” for private creditors this time around. Nevertheless, the participation of new creditors in debt-treatment negotiations will necessarily complicate the process. In this respect, coordination among official creditors will have to be increased. This will require enhanced information-sharing, especially transparency on debt data. The DSSI has thus laid the groundwork for better creditor coordination and for greater transparency. The Common Framework will need to build and expand on this. However, formal official coordination between official and private creditors will also be key. Indeed, while the comparability of treatment principle is not new, its replication and use on a broader scale seem to raise questions, particularly in the context of a changing creditor landscape, with a decline in the role of bilateral creditors and the rise of private ones. The formation and running of creditor committees with the joint participation of official and private creditors in a single committee (or with the formation of two separate committee types), the role of certain Chinese creditors that China regards as both private and official, and the level of transparency with which information will be shared, are still unknown at this point. Increased coordination between official and private creditors therefore seems essential to the success of the Common Framework in order to ensure a real easing of the budgetary constraints of African states. In the absence of genuine creditor coordination, with rules established in advance that apply to all debts that are to be treated, the outcome of these restructurings will remain uncertain at best.

In this context of a new wave of debt treatments that will require greater coordination among a growing number of creditors, the question of solutions complementary to the Common Framework may arise. Indeed, current debt-treatment mechanisms are sometimes criticized for doing “too little, too late” (Guzman et al. 2016) to address in a lasting way the issues around public debt sustainability. One reason for this is that, unlike private companies, which in many jurisdictions can go into bankruptcy, public debts do not have the benefit of an orderly, predictable, and rapid resolution mechanism. All too often, over-indebted states postpone debt restructuring until the last minute (for fear, among other things, of being shut out of various sources of financing). They are implicitly encouraged to do this by creditors who are looking to maximize their return on investment and thus avoid losses. Graf von Luckner et al. (2021) show that, on average, two restructurings were needed before the default episodes in DCs in the 1930s and 1980s[12] were resolved in a sustainable manner and their debt trajectory became sustainable once again. In the sample under consideration, a default thus takes an average of 10 years to resolve, with insufficient intermediate restructurings that do not have the desired effect. There is thus reason to fear that the multiplicity of creditors involved, and the difficulties in reaching a consensus on ambitious restructurings, will further increase the length of default episodes, and thus the scale of their economic and social consequences. Applying a bankruptcy mechanism to sovereign debts could remedy this problem of debtor and creditor incentives. For debtor countries, it would provide an incentive to restructure public debt and get it back onto a sustainable path more quickly than has been possible with the various relief mechanisms that have thus far been tried. For creditors, it would minimize losses and increase the return on investment, compared to the expected return on defaulted debt. Such a sovereign debt restructuring mechanism (SDRM) was considered and proposed by IMF staff in the early 2000s (Krueger 2002). It opened the debate within the international financing community, but in the end it did not win the endorsement of the IMF board, mainly for political reasons: the United States, which is not in favor of an international bankruptcy regime, vetoed it, while several

12 Both of these periods were marked by waves of defaults that were spread over a large number of countries, following two severe recessions.

Toward a new framework for the analysis and treatment of African public debt

emerging countries, which are major borrowers on the financial markets, were worried about a negative reaction from markets. Abandoning the idea of creating an SDRM has allowed creditors and debtor countries to continue relying on a contractual, case-by-case approach. Progress has been made over the last 15 years in enhancing coordination among creditors and avoiding the risk of a veto by a minority, in particular by strengthening collective-action clauses in financing contracts. However, the Eurozone crisis in the early 2010s, particularly in the case of Greece, rekindled the debate about an SDRM (Destais et al. 2019). While political constraints will not disappear, further reflections on the design of such a mechanism, or on the role that the IMF might play in it (Bolton and Skeel 2010), might be worth reopening in the wake of the Common Framework.

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Debt sustainability in Africa: state of play and future challenges

Conclusion The re-indebtedness of African economies over the

past decade is an undeniable reality and a response to the needs of these countries for development financing.

This re-indebtedness has been paralleled with a transformation of the profile of public debt and a diversification

of external creditors. It has also been accompanied by a gradual deterioration in overall public debt sustainability, and this in turn has led to a high risk of debt distress for a

number of countries in 2019, but also to severe fiscal and

financial pressures that have been brought to light by the global crisis in 2020. These reflect both the lower public debt tolerance in Africa (where public debt relative to

GDP is often much lower than in the major emerging and

developed economies) and the vulnerabilities—which vary from country to country—to exogenous shocks.

The observation that Africa is rapidly, and in some

cases worryingly, becoming re-indebted is not new. It

has been at the core of the international community’s considerations in recent years. However, the update of

the debt-analysis framework and the tools for coordination among creditors have not been enough to prevent

the difficulties that some countries have encountered and that were exacerbated in 2020. The central question now

is how to respond to these short-term difficulties, and in particular what debt treatments can be put in place for

those countries that will need them. The principles of the “Common Framework for Debt Treatments,” proposed by

the G20 in 2020, partly address this issue. While they draw

on evaluations of past debt relief initiatives such as the HIPC and MDRI, and on the experience of the Paris Club, these

principles have yet to prove their effectiveness. Indeed, African countries will have no choice but to continue to

rely on external debt from all the international creditors who will be willing to support them, posing new challen-

ges to public debt sustainability. The treatment of African public debts from now and into the future thus represents

an opportunity for the international community to lay the groundwork for strong principles that will make it possible to reconcile, in the long term, debt sustainability and the imperative of development financing.

Conclusion

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Debt sustainability in Africa: state of play and future challenges

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CASSIMON, DANNY, BJORN VAN CAMPENHOUT, MARIN FERRY, and MARC RAFFINOT (2015). “Africa: Out of Debt, into Fiscal Space? Dynamic Fiscal Impact of the Debt Relief Initiatives on African Heavily Indebted Poor Countries (HIPCs).” International Economics 144, 29–52. CHRISTENSEN, BENEDICTE (2016). “L’Afrique face aux défis liés à la faiblesse des prix des produits de base.” BIS Papers 87. https://www.bis.org/publ/bppdf/ bispap87_fr.pdf. CHRISTENSEN, BENEDICTE, and JOCHEN SCHANZ (2018). “Les banques centrales et la dette: des risques émergents pour l’efficacité de la politique monétaire en Afrique?” BIS Papers 99. https://www.bis.org/publ/ bppdf/bispap99_fr.pdf. CRUCES, JUAN, and CHRISTOPH TREBESCH (2013). “Sovereign Defaults: The Price of Haircuts.” American Economic Journal of Macroeconomics 5, no.3, 85–117. DESTAIS, CHRISTOPHE, FREDERIK EIDAM, and FRIEDRICH HEINEMANN (2019). “The Design of a Sovereign Debt Restructuring Mechanism for the Euro Area: Choices and Trade-Offs.” CEPII Policy Brief 25. http://www.cepii. fr/PDF_PUB/pb/2019/pb2019-25.pdf. DJIMEU, ERIC (2018). “The Impact of the Heavily Indebted Poor Countries Initiative on Growth and Investment in Africa.” World Development 104, 108–127. EASTERLY, WILLIAM (2002). “How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief.” World Development 30, no.10, 1677–1696. FERRY, MARIN (2019). “The Carrot and Stick Approach to Debt Relief: Overcoming Moral Hazard.” Journal of African Economies 28, no. 3, 252–276. FERRY, MARIN, and MARC RAFFINOT (2019). “Curse or Blessing? Has the Impact of Debt Relief Lived up to Expectations? A Review of the Effects of the Multilateral Debt Relief Initiatives for Low-Income Countries.” The Journal of Development Studies 55, no.9. 1867–1891. FERRY, MARIN, MARC RAFFINOT, and BAPTISTE VENET (2021). “Does Debt Relief ‘Irresistibly Attract Banks as Honey Attracts Bees’? Evidence from Low-Income Countries’ Debt Relief Programs.” International Review of Law and Economics 66.

GRAF VON LUCKNER, CLEMENS, JOSEFIN MEYER, CARMEN REINHARDT, and CHRISTOPH TREBESCH (2021). “External Sovereign Debt Restructurings: Delay and Replay.” Let’s Talk Development, The World Bank. https:// blogs.worldbank.org/developmenttalk/externalsovereign-debt-restructurings-delay-and-replay GREENE, JOSHUA (1989). “The External Debt Problem of Sub-SaharanAfrica.” IMF Economic Review 36, no.4, 836–874. GUZMAN, MARTIN, JOSÉ ANTONIO OCAMPO, and JOSEPH STIGLITZ, EDS, (2016). Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises. New York: Columbia University Press. KRAAY, AART, and VIKRAM NEHRU (2006). «When Is External Debt Sustainable?» The World Bank Economic Review 20, no.3.

PRESBITERO, ANDREA F. (2016). “Too Much and Too Fast? Public Investment Scaling-up and Absorptive Capacity.” Journal of Development Economics 120, 17–31. SACHS, JEFFREY D. (1989). “Conditionality, Debt Relief, and the Developing Country Debt Crisis.” In Developing Country Debt and Economic Performance vol.1. Chicago: University of Chicago Press. STIGLITZ, JOSEPH, and HAMID RASHID (2013). “SubSaharan Africa’s Subprime Borrowers.” Project Syndicate 6. https://www.project-syndicate.org/ commentary/sub-saharan-africa-s-subprimeborrowers-by-joseph-e--stiglitz-and-hamidrashid-2013-06.

KRUEGER, ANNE (2002). “A New Approach to Sovereign Debt Restructuring.” International Monetary Fund. https://www.imf.org/external/pubs/ft/exrp/sdrm/ eng/sdrm.pdf. KRUGMAN, PAUL (1988). “Financing vs. Forgiving a Debt Overhang.” Journal of Development Economics 29, no.3, 253–268. KRUMM, KATHIE L. (1985). “The External Debt of SubSaharan Africa: Origins, Magnitude, and Implications for Action.” Staff working paper 741, The World Bank. https://documents1.worldbank.org/curated/ en/958551468768269528/pdf/multi0page.pdf. LANCASTER, CAROL, and JOHN WILLIAMSON (1986). “African Debt and Financing,” Special Reports, 5, Institute for International Economics. LANG, VALENTIN F., and ANDREA F. PRESBITERO (2018). “Room for Discretion? Biased Decision-Making in International Financial Institutions.” Journal of Development Economics 130, 1–16. LANG, VALENTIN F., DAVID MIHALYI, and ANDREA F. PRESBITERO (2020), “Borrowing Costs after Debt Relief,” SSRN 3708458. MISTRY, PERCY S. (1991). “African Debt Revisited: Procrastination or Progress?” African Development Review 3, no.2. MORRIS, SCOTT, JUSTIN SANDEFUR, and GEORGE YANG (2021). “Tracking the Scale and Speed of the World Bank’s COVID Response: April 2021 Update.” Center for Global Development Note: https://www.cgdev. org/publication/tracking-scale-and-speed-worldbanks-covid-response-april-2021-update.

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

List of acronyms and other abbreviations PC

Paris Club

CPIA

Country Policy and Institutional Assessment

DLP

Debt Limits Policy

DSA DSA DSF

Debt Sustainability Framework

DSSI

Debt Service Suspension Initiative

G20

Group of Twenty

GDP

Gross domestic product

HIPC

Heavily Indebted Poor Country

IDA

International Development Association

IDS

International Debt Statistics

IMF

International Monetary Fund

LIC

Low-income country

LMIC

Low-to-middle-income country

MDG

Millennium Development Goal

MDRI

Multilateral Debt Relief Initiative

NCBP

Non-Concessional Borrowing Policy

Developing country

RCF

Rapid credit facility

RFI

Rapid Financing Instrument

SDFP

Sustainable Development Financing Policy

SDRM

Sovereign debt restructuring mechanism

UMIC

Upper-middle-income country

WDI

World Development Indicators

WEO

World Economic Outlook

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

Annexes Figure A1 – Risk of debt distress, external debt and exports percentage points of GDP

% of GDP

30 25

GIN

BFA

MWI

MLI

COM

NER

LBR

COD

UGA

TZA

TGO

MDG

RWA

BEN

CIV

GNB

SEN

COG

SLE

BDI

GMB

MRT

ETH

STP

CAF

CMR

MOZ

0 GHA

-5 ZMB

TCD

Countries at low or moderate risk of debt distress in 2019

Countries in debt distress or at high risk of debt distress in 2019

Change in public external debt owed to the private sector 2012–2019 (% of GDP) Exports as % of GDP (right hand scale)

Source: IDS, World Development Indicators (WDI), authors' calculations.

Figure A2 – Risk of debt distress, domestic debt and fiscal revenues % pts of GDP

% of GDP

25 20

-5

Countries in debt distress or at high risk of debt distress in 2019

COD

CIV

COM

LBR

SEN

RWA

TZA

UGA

MDG

GIN

MLI

BEN

NER

MWI

BFA

TGO

GNB

MRT

CMR

ETH

CAF

STP

MOZ

TCD

GHA

SLE

GMB

ZMB

BDI

COG

Countries at low or moderate risk of debt distress in 2019

Change in domestic public debt 2012–2019 (% of GDP)

Average fiscal revenues as % of GDP (right hand scale)

Source: IDS, WDI, authors' calculations. 37

Figure A3 – Commodity prices trends Fossil fuels

Commodities

Index (2016 = 100)

250

230

210

190

170

150

130

110

2012

2013

2014

2015

2016

2017

2018

2019

2012

2013

2014

2015

2016

Crude oil

Grains

Cotton

Coal

Coffee

Wood

Natural gas

Cocoa

2017

2018

2019

Rubber

Metals and minerals Index (2016 = 100) 250 230 210 190 170 150 130 110 90 70 50

2012

2013

2014

2015

2016

Zinc

Gold

Copper

Uranium

Aluminium

2017

2018

2019

Iron ore

Source: Primary Commodity Price System (IMF), authors' calculations.

Macroeconomics & Development – May 2021

Debt sustainability in Africa: state of play and future challenges

Econometric analysis Emulating Easterly’s approach (2002) to a sample of African countries, 2012–2019 In his 2002 article “How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief,” Easterly attempts to statistically identify the economic and institutional factors that led HIPCs to become over-indebted, ultimately allowing them to benefit again from major restructurings of their external public debt. To this end, Easterly carries out numerous econometric regressions to capture differences in macroeconomic performance over the pre-HIPC period, both on average and between future HIPC countries and those, also classified as LICs, that would not benefit from the HIPC initiative. These regressions thus allow him to see whether, on average, over the 1980–1997 period, those countries that would become HIPCs would perform differently— economically and institutionally—from countries whose debts are sustainable. These differences could at least partly explain the massive accumulation of public debts incurred with foreign creditors, whether public or private. Easterly’s empirical approach therefore focuses on all 77 countries defined as LICs between 1980 and 1997. He then regresses the average value of each of these macroeconomic and policy/institutional indicators (the average per country between 1980 and 1997) on the level of income observed at the beginning of the period (in order to obtain differences in averages, at a given level of development), and on a dummy variable identifying future HIPC countries. Formally, the model looks like this: Y̅ i = α + βHIPC i + γPIB initial i + ε i Where Y i represents the average of indicator Y over the 1980–1997 period for country i (such as the average fiscal deficit, expressed as a percentage of GDP) and the variable GDP initiali represents the value of the GDP for country i at the beginning of the period—i.e., that which was recorded in 1980.

The coefficient associated with the dummy variable HIPCi (a dichotomous variable that is equal to 1 if country i is a future HIPC, and that is otherwise equal to 0) thus captures the difference in Y̅ that is observed, on average, between future HIPCs and other LICs (e.g., the average fiscal deficit of HIPCs over the 1980–1997 period, versus that recorded in other LICs, also on average). Based the analyses conducted above, we have emulated Easterly’s approach on a sample of African countries observed between 2012 and 2019 in order to find out whether countries that have been found to be at high risk of debt distress in the 2019 DSA have different macroeconomic and institutional characteristics than countries found to be at low or moderate risk. We replaced the HIPCi dummy variable with a variable that identifies countries that are at high risk of debt distress. Our model is written out as follows: Y̅ i = α + βH/DD i + γPIB initial i + ε i Where H/DDi is the dichotomous variable equal to 1 for African countries that were found in 2019 to be at high risk (H) or debt distress (DD). InitialGDPi captures the level of GDP (in constant dollars and expressed logarithmically) of country i at the beginning of the period—that is, in 2012. With this model, we can therefore assess, through the β coefficient, the differences in means recorded, on average, between these countries and those at low (L) or moderate (M) risk according to several macroeconomic and institutional indicators. In parallel, and given the make-up of the group of H/DD countries, most of which are former HIPCs, we have also evaluated different forms of the last model: an alternative form in which the dichotomous variable is broken down according to participation in the HIPC and MDRI initiatives, and that is written out as follows: Y̅ i = α + βH/DD(PPTE) i + θH/DD(Non.PPTE) i + γPIB initial i + ε i

We include a dichotomous variable identifying non-HIPCs at low or moderate risk in a second form of the previous model, thus allowing us to have as a reference the group of HIPC countries at low or moderate risk. The academic literature has highlighted the spillover effects of debt-cancellation initiatives on re-indebtedness, and this second version will therefore allow us to identify the factors that could explain the higher debt trajectory of HIPCs that are currently overindebted, against former HIPCs with sustainable debt. Formally, the model looks like this: Y̅ i = α + βH/DD(PPTE) i + θH/DD(Non.PPTE) i + ρL/M(Non.PPTE) i + γPIB initial i + ε i

Tables A1, A2, and A3 below show the results of the estimates. Table A1 presents these means on the variables also existing in the Easterly (2002) study, while Tables A2 and A3 extend the analysis to other measures of macroeconomic and institutional performance. Finally, it is important to understand that these results represent only simple correlations (at a given initial level of GDP) and should not be interpreted as causal relations due to the data availability and a low number observations (45 countries at most).

Macroeconomics & Development – May 2021

45 L/M

HIPC L/M

0.459

(0.003)

L/M

Reference country

L/M

35 HIPC L/M

0.057

(0.656)

-1.116

L/M

0.214

(0.103)

0.702+

(0.008)

-2.090***

0.755

HIPC L/M

0.266

(0.036)

1.384**

(0.004)

-2.969***

(0.283)

L/M

0.051

(0.457)

-0.735

2.757

L/M

0.070

(0.584)

-0.564

(0.898)

-0.223

(0.228)

1.864

HIPC L/M

0.099

(0.594)

0.807

(0.360)

-1.991

(0.437)

-1.024 -4.528

L/M

0.263

(0.007)

10.998***

(0.440)

9.302

(0.342)

1.658

HIPC L/M

0.354

(0.759)

1.504

(0.079)

21.540*

(0.617)

L/M

0.006

(0.722)

0.052

(0.836)

-0.032

L/M

0.006

(0.698)

0.056

(0.892)

-0.054

(0.862)

-0.026

HIPC L/M

0.030

(0.456)

0.121

(0.716)

-0.143

(0.640)

-0.074

CPIA (QUALITY OF PUBLIC INSTITUTIONS)

L/M

0.236

(0.005)

11.793***

(0.854)

M2 (% OF GDP)

(0.743)

-0.076

(0.444)

L/M

0.016

0.745

L/M

0.332

(0.193)

-1.425

(0.115)

21.944+

(0.640)

2.754+

HIPC L/M

-0.656

L/M

0.057

(0.559)

-0.141

(0.480)

0.462

(0.255)

0.371

(0.050)

-4.508**

(0.072)

25.918*

(0.109)

HIPC L/M

0.189

(0.139)

0.609

(0.505)

-0.505

(0.056)

-1.145*

TERMS OF TRADE (Y.O.Y., %) -0.373

L/M

0.078

(0.842)

-0.207

(0.155)

6.116

INFLATION (Y.O.Y., %)

Notes: The row "Reference country" indicates the group of countries for which the correlation coefficients shown in this table should be interpreted. L/M means that the reference group is made up of countries that were subject to low or moderate risks in 2019. HIPC L/M indicates that the reference group is made up of countries that benefited from HIPC and MDRI, and that were at low or moderate risk in 2019. Data: IDS and WDI. The p values are given in parentheses below the estimation coefficients. ***, **, *, and + indicate the level of significance of the differences in means: 1%, 5%, 10%, and 15% respectively.

0.052

(0.253)

(0.224) 0.052

-1.963

(0.801)

-2.012

-0.608

0.389 (0.827)

0.775 (0.859)

1.051

2.002 (0.295)

0.854

(0.803)

1.199+ (0.141)

FDI (INFLOWS, % OF GDP)

L/M

0.049

(0.236)

0.513

(0.789)

REAL INTEREST RATE

Obs.

R²

Log GDP const.

Non-HIPC H/DD

HIPC H/DD

H/DD

DEPENDENT VARIABLE AVERAGE (2012–2019)

45 L/M

Reference country

0.459

(0.000)

0.458

(0.000)

(0.094) 4.106***

(0.050) 4.244***

4.190***

-3.701*

(0.180)

(0.121) -3.879**

-2.846

-2.936+

0.365 (0.629)

(0.046)

PRIMARY FISCAL BALANCE (% OF GDP)

-3.175**

CURRENT ACCOUNT (% OF GDP)

Obs.

R²

Log constant GDP

Non-HIPC H/DD

HIPC H/DD

H/DD

DEPENDENT VARIABLE AVERAGE (2012–2019)

Tableau A1 - Regressions on macroeconomic indicators by sub-category of African country (2012–2019)

Debt sustainability in Africa: state of play and future challenges

Macroeconomics & Development – May 2021

HIPC L/M

L/M

0.185 HIPC L/M

0.192

(0.297)

HIPC L/M

0.227

(0.317)

-2.255

(0.291)

2.850

(0.939)

0.130

L/M

0.022

(0.905)

0.261

L/M

0.108

(0.681)

0.915

(0.131)

-5.378+

(0.140)

5.999+

HIPC L/M

0.111

(0.640)

1.739

(0.164)

-6.440

(0.117)

5.462+

L/M

0.107

(0.400)

0.426

(0.834)

-0.612

(0.114)

2.195+

HIPC L/M

0.114

(0.415)

0.776

(0.700)

-1.077

(0.169)

2.083

L/M

0.236

(0.010)

5.139**

(0.365)

2.623

L/M

0.270

(0.009)

5.516***

(0.459)

-2.281

(0.227)

4.287

HIPC L/M

0.271

(0.088)

6.020*

(0.448)

-2.930

(0.116)

3.959+

OIL (RENT, % OF GDP)

L/M

0.045

(0.680)

0.221

(0.364)

1.281

PUBLIC INVESTMENT (% OF GDP)

L/M

0.252

(0.006)

4.087***

(0.397)

5.571

(0.015)

6.815**

HIPC L/M

0.279

(0.007)

6.074***

(0.655)

2.747

(0.064)

5.498*

L/M

0.142

(0.084)

2.947*

(0.166)

-3.825

L/M

0.166

(0.144)

2.632+

(0.954)

0.268

(0.092)

-5.213*

HIPC L/M

0.174

(0.536)

1.425

(0.725)

1.824

(0.135)

-4.427+

DOING BUSINESS INDICATOR

L/M

0.251

(0.006)

4.037***

(0.012)

6.629**

TOTAL INVESTMENT (% OF GDP)

45 L/M

Reference country

0.185

(0.004)

-0.604

(0.468)

(0.559) -0.799***

-0.797***

-0.524

-0.273

(0.570)

(0.635)

(0.379)

(0.558) -0.437

3.116 -0.310

L/M

0.061

(0.186)

0.991

(0.521)

-1.326

(0.291)

-1.909

NATURAL RESOURCES (RENT, % OF GDP)

L/M

0.060

(0.182)

1.025

-0.300

Obs.

R²

Log constant GDP

Non-HIPC H/DD

HIPC H/DD

H/DD

L/M

0.547

(0.278)

3.501

REAL GDP GROWTH RATE (%)

L/M

Reference country

DEPENDENT VARIABLE AVERAGE (2012–2019)

0.470

(0.000)

(0.000) 0.455

7.282***

(0.663)

(0.145)

7.047***

1.569

(0.062)

(0.657) -3.627+

3.721*

1.059

-1.752 (0.273)

0.052

CURRENT PUBLIC EXPENDITURES (% OF GDP)

(0.981)

FISCAL REVENUES (% OF GDP)

Obs.

R²

Log constant GDP

Non-HIPC H/DD

HIPC H/DD

H/DD

DEPENDENT VARIABLE AVERAGE (2012–2019)

Tableau A2 - Regressions on macroeconomic indicators by sub-categories of African countries (2012–2019), controlling for income (continued)

Debt sustainability in Africa: state of play and future challenges

Tableau A3 - Regressions on the evolution of public finance by sub-category of African country (2012–2019), controlling for income and initial level of debt DEPENDENT VARIABLE AVERAGE (2012–2019) H/DD

CHANGE IN PUBLIC DEBT (IN % PTS OF GDP) 13.679+

2.716

(0.125)

(0.572)

HIPC H/DD Non-HIPC H/DD Initial constant GDP (log)

CHANGE IN DOMESTIC PUBLIC DEBT (IN % PTS OF GDP)

12.573*

10.880+

10.859+

7.851**

7.686**

6.592**

(0.064)

(0.108)

(0.118)

(0.025)

(0.029)

(0.044)

16.939

13.589

13.512

-16.290

-16.653

-19.939*

(0.555)

(0.645)

(0.668)

(0.252)

(0.266)

(0.097)

6.368*

6.117*

8.716*

8.721*

1.118

2.456

2.751

3.698

(0.070)

(0.072)

(0.060)

(0.077)

(0.622)

(0.279)

(0.463)

Initial Debt

0.002 (0.994)

R²

0.104

0.106

0.111

(0.282) 0.608*** (0.005)

0.017

0.258

0.421

Obs.

Reference country

L/M

HIPC L/M

L/M

HIPC L/M

VARIABLE DÉPENDANTE MOYENNE (2012-2019) H/DD

CHANGE IN EXTERNAL PUBLIC DEBT (IN % PTS OF GDP) 2.861

3.194

(0.448)

(0.156)

HIPC H/DD Non-HIPC H/DD Initial constant GDP (log)

CHANGE IN PUBLIC DEBT HELD BY BILATERAL CREDITORS (IN % PTS OF GDP)

2.743

0.372

1.431

3.284

2.362

4.092*

(0.545)

(0.935)

(0.729)

(0.260)

(0.354)

(0.083)

3.207

-1.482

0.675

2.927

1.103

2.715

(0.569)

(0.813)

(0.929)

(0.167)

(0.711)

(0.361)

2.363

2.336

5.974**

6.436**

1.686*

1.706+

3.121

3.724+

(0.215)

(0.241)

(0.043)

(0.037)

(0.085)

(0.115)

(0.166)

Initial Debt

-0.136 (0.498)

R²

0.042

0.093

0.113

(0.104) -0.305** (0.016)

0.104

0.130

0.261

Obs.

Reference country

L/M

HIPC L/M

L/M

HIPC L/M

VARIABLE DÉPENDANTE MOYENNE (2012-2019) H/DD

CHANGE IN PUBLIC DEBT HELD BY MULTILATERAL CREDITORS (IN % PTS OF GDP) -1.741

1.408

(0.320)

(0.443)

HIPC H/DD Non-HIPC H/DD Initial constant GDP (log)

CHANGE IN PUBLIC DEBT HELD BY PRIVATE CREDITORS (IN % PTS OF GDP)

-2.045

-2.522

-2.497

1.504

0.533

0.083

(0.300)

(0.278)

(0.285)

(0.514)

(0.811)

(0.971)

-0.844

-1.789

-1.653

1.125

-0.796

-2.803

(0.750)

(0.573)

(0.619)

(0.559)

(0.776)

(0.348)

-1.023

-1.092

-0.360

-0.384

1.700**

1.722**

3.212*

2.148

(0.323)

(0.302)

(0.817)

(0.812)

(0.025)

(0.040)

(0.078)

(0.264)

Initial Debt

-0.023

0.432**

(0.828) R²

(0.025)

0.042

0.045

0.053

0.054

0.079

0.114

0.173

Obs.

Reference country

L/M

HIPC L/M

L/M

HIPC L/M

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