Transcript Mr. Léonce Ndikumana

External Debt: Developments
and Remaining Issues
LEONCE NDIKUMANA
[email protected]
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Four main points in the 2002
Monterrey Agreement
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Preventing debt crisis must be shared burden
by debtors and creditors (paras 47, 51)
Technical assistance to strengthen capacity
for appropriate macroeconomic policy and
monitoring/management of debt (para 47)
Key role of debt relief; additional to aid
resources (paras 48, 49, 51)
Debt sustainability in relation with impact of
debt relief on MDGs.
2
External debt has declined but it
remains high
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Debt levels have started to decline, although they
remain high (see Fig 1 for trend)
But private debt still increasing, an important
concern; ex: Africa: $92bn in 1999 to $110bn in
2007.
The decline in debt stocks is driven by debt relief
initiatives (HIPC, MDRI) (Figure 2)
 But HIPC not enough (esp. not enough coverage)
But economic cost of debt service remains a heavy
burden on debtor economies.
For example: in 2003, African countries spent 3.4% of GDP
on debt service compared to 2.5% on health.
3
HIPC Coverage is Low
HIPC Status for African countries
Pre-decision point
(8 countries)
Decision point
(7 countries)
Completion point
(18 countries)
Central African Republic,
the Comoros, Côte
d’Ivoire, Eritrea, Liberia,
Somalia, Sudan and Togo
Burundi, Chad,
Democratic Republic of
Congo, Republic of
Congo, Gambia, Guinea,
Guinea-Bissau
Benin, Burkina Faso, Cameroon,
Ethiopia, Ghana, Madagascar,
Malawi, Mali, Mauritania,
Mozambique, Niger, Rwanda,
Senegal, Sierra Leone, Tanzania,
Uganda, Zambia, Sao Tome and
Principe
Note: in color = conflict
and recently post-conflict
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Trends in debt for Africa
Debt (bn dollars)
200
120
100
80
60
40
20
0
150
100
50
0
1980
1985
1990
Total debt
Interest payments/exports
1995
2000
Interest/XGS (%)
African Debt, 1980-2007
2005
Private debt
Debt/GDP
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Debt relief a major factor in
decline in debt stocks
Fig 2: Debt - Africa total & official debt for HIPC's
Debt (bn dollars)
200
150
100
50
0
1980
1985
1990
Total debt
1995
2000
2005
HIPC official debt
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The developing world remains a
“net creditor” to the industrialized
world!
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Net transfers on debt remain substantially
negative, despite decline in debt, due to high
interest payments
Official net transfers have increased recently,
thanks in part to debt relief
Illicit capital flows (esp. capital flight) amplify
the paradox of international capital flows,
whereby the developing world is a creditor to
the developed world.
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Net transfers to Africa
Net transfers on debt and official net transfers
million dollars
20000
10000
0
-10000
-20000
1990
1992
1994
1996
1998
Net transfers on debt
2000
2002
2004
2006
Official net transfers
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Domestic debt is a concern

Domestic financing of government
deficits poses problems of
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Sustainability of debt
Crowding-out of private investment
(discouraging private lending)
Particularly a problem for conflict
countries
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Debt relief, debt sustainability
and the MDGs

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It is agreed that debt relief can boost country’s
progress towards the MDGs
At the moment, many LDCs (and the majority of
African countries) are not on track to reach the MDGs
An increase in the volume and the scope (coverage)
of debt relief is needed to accelerate progress
towards the MDGs.
Sustainability of progress towards MDGs requires that
debt relief is not accompanied by new cycle of
unsustainable borrowing.
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Does debt relief pose a problem
vis-à-vis macroeconomic policy?
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The allocation of resources is as important as
(if not more than) volumes of resources
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Harnessing supply effects of debt relief
Enhancing crowding-in effects of debt relief on domestic
revenue: direct and indirect effects (through higher growth
and higher income/tax base)
Crowding-in of debt relief on domestic
revenue helps to:
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Prevent new cycles of debt crisis
Ensure sustainability of public expenditure programs
(economic development policy in general)
Increase government control over economic policy
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Recommendations
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R1: Preventing a new cycle of debt crisis
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Responsible lending practices
Transparent international banking system
Accountable borrowing and debt management
R2: Addressing negative transfers of resources
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Increasing non-debt generating external financing
More concessional loans
Preventing capital flight; establishing mechanisms for capital
flight repatriation
 Broaden and deepen support to the Task Force/Leading
Group on Illicit International Financial Flows
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Rx (cont’d)
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R3: Increasing domestic resource mobilization
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Higher tax revenue: better tax administration; broadening
tax sources
Savings mobilization by the financial system: addressing
shortcomings of the financial system (risk, competition,
rural-urban bias, regulatory environment for intermediation).
R4: Special condition of post-conflict countries

Support to post-conflict reconstruction, especially when
there is a signed peace accord
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Rx (cont’d)

R5: Macroeconomic policy: flexibility and
sustainability
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Flexible macroeconomic framework to absorb higher
resources
Dilemma: it is difficult to advocate for flexibility in the
presence of low policy credibility, weak capacity and weak
institutional environment
Thus need for assistance in strengthening capacity for
designing and conducting prudent yet pro-growth
macroeconomic policy
R6: Growth-supporting “Global Funds”

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Beyond emergency “Global Funds”
“Global Funds” to support growth-generating programs; e.g.,
energy global fund; infrastructure global funds
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