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Debt in low-income countries: A rising vulnerability

Patrick Kirby's picture
Download the January 2019 Global Economic Prospects report.

Since 2013, median government debt in low-income countries has risen by 20 percentage points of GDP and increasingly comes from non-concessional and private sources. As a result, interest payments are absorbing an increasing proportion of government revenues in these countries.

This increase in public debt exposes low-income countries to greater currency, interest rate, and refinancing risks. At present 11 low-income economies are in debt distress or at a high risk of debt distress, up from six in 2015. Even those low-income countries that are at low or moderate risk of debt distress face eroding safety margins.

To shield themselves from the risks associated with high debt, low-income countries urgently need to strengthen the effectiveness of domestic resource mobilization, public investment and other spending, and debt management.
 
Debt relief under the Heavily Indebted Poor Countries initiative and the Multilateral Debt Relief Initiative (MDRI) helped to reduce public debt among low-income countries from a median debt-to-GDP ratio of close to 100 percent in the early 2000s to a median of just over 30 percent in 2013. This downward trend reversed sharply thereafter, with the median debt ratio rising to above 50 percent by 2017. The rise was especially sharp for commodity exporters.

Rising debt raises fewer concerns about debt sustainability if it is used to finance investment that raises countries’ potential output, and therefore their ability to repay loans in the future. In some low-income countries, wider fiscal deficits were matched by higher public investment. For most low-income countries, however, a substantial part of the borrowing has been used to finance a rise in current consumption.
 
Gross low-income countries (LIC) government debt

The Middle East and North Africa outlook in five charts: Recovery after a weak 2017

Lei Sandy Ye's picture
Also available in: Français | العربية
Growth in the Middle East and North Africa region is estimated to have slowed sharply in 2017 and is forecast to recover to 3 percent in 2018. Regional activity is anticipated to strengthen gradually over the medium term in response to policy reforms and easing fiscal adjustments. A number of downside risks continue to cloud the outlook for the region, including geopolitical tensions and conflict, weakness in oil prices, and obstacles to reform progress. These are only partly offset by the possibility of stronger-than-expected Euro Area activity.
 
Regional growth tumbled last year, led by oil exporters

Growth in the Middle East and North Africa is estimated to have slowed sharply to 1.8 percent in 2017 from 5 percent the year before, driven by decline in growth among oil exporters. Growth declined among Gulf Cooperation Council and non-GCC oil exporters, with oil production cuts and continued geopolitical tensions contributing to the fall-off.
Growth

Are South Asian countries sinking into a debt trap?

Bidisha Das's picture
 

This blog is part of a series based on International Debt Statistics 2018.

The 2018 edition of International Debt Statistics (IDS 2018) which presents statistics and analysis on financial flows (debt and equity) for 123 low-and middle-income countries has just been released. One of the key observations of IDS 2018 is that net financial flows in 2016 to all developing countries witnessed a more than threefold increase over their 2015 level. This was driven entirely by net debt flows, which increased by $542 billion in 2016. Consequently, total external debt outstanding of all developing countries went up to $6.9 trillion, an increase of 4.1 percent over 2015. Interestingly, South Asia seems to deviate from this norm of IDS 2018.

External debt outstanding of South Asia contracted in 2016

South Asia is the only region that has shown a contraction in the total external debt outstanding in 2016. The total external debt stock of South Asia contracted by almost 2 percent as net debt flows into the region turned negative ($-7.7) for the first time in a decade. More specifically, this is the result of net long-term external debt flows turning negative (-$12.5 billion) implying that principal repayments by South Asia, on long-term external debt far exceeded disbursements.

Packing a library of knowledge in a carry-on: Attending the Public Debt Management Workshop in Vienna

Mario Augusto Caetano Joao's picture
© World Bank


I travel light. Usually a carry-on is all I need for business related travel. Attending the Government Debt Management Strategy Design and Implementation Workshops, organized by World Bank Treasury, was no different affair. The month was July, the location was JVI Facilities in Vienna, I thought I didn’t need more luggage!

I attended the workshop wearing two different hats: as a former senior economic advisor to the Angolan government and a macro economist, I was eager to find out what I could add to my information portfolio in terms of debt management know-how; as a World Bank Group Advisor to Executive Director, I was curious about how the Bank builds capacity through training for member countries.

International Debt Statistics 2018 shows BRICs doubled bilateral lending commitments to low-income countries in 2016 to $84 billion

World Bank Data Team's picture
The 2018 edition of International Debt Statistics (IDS) has just been published.

IDS 2018 presents statistics and analysis on the external debt and financial flows (debt and equity) of the world’s economies for 2016. It provides more than 200 time series indicators from 1970 to 2016 for most reporting countries. To access the report and related products you can:

This year’s edition is released less than 10 months after the 2016 reference period, making comprehensive debt statistics available faster than ever before. In addition to the data published in multiple formats online, IDS includes a concise analysis of the global debt landscape, which will be expanded on in a series of bulletins over the coming year.

Why monitor and analyze debt?

The core purpose of IDS is to measure the stocks and flows of debts in low- and middle-income countries that were borrowed from creditors outside the country. Broadly speaking, stocks of debt are the current liabilities that require payment of principal and/or interest to creditors outside the country. Flows of debt are new payments from, or repayments to, lenders.

These data are produced as part of the World Bank’s own work to monitor the creditworthiness of its clients and are widely used by others for analytical and operational purposes. Recurrent debt crises, including the global financial crisis of 2008, highlight the importance of measuring and monitoring external debt stocks and flows, and managing them sustainably. Here are three highlights from the analysis presented in IDS 2018:

Net financial inflows to low-and middle income countries grew, but IDA countries were left behind

In 2016, net financial flows into low- and middle-income countries grew to $773 billion - a more than three-fold increase over 2015 levels, but still lower than levels seen between 2012 and 2014.

However, this trend didn’t extend to the world’s poorest countries. Among the group of IDA-only countries, these flows fell 34% to $17.6 billion - their lowest level since 2011. This fall was driven by drops in inflows from bilateral and private creditors.

Are capital flows fickle? And does the answer still depend on type?

Poonam Gupta's picture

According to conventional wisdom, capital flows are fickle. They are fickle more or less independent of time and place. But different flows exhibit different degrees of volatility: FDI is least volatile, while bank-intermediated flows are most volatile.  Other portfolio capital flows rank in between, and within this intermediate category debt flows are more volatile than equity-based flows. 

The 2017 edition of International Debt Statistics is out

World Bank Data Team's picture

The 2017 edition of International Debt Statistics has just been published.

IDS 2017 presents statistics and analysis on the external debt and financial flows (debt and equity) for the world’s economies for 2015. This publication provides more than 200 time series indicators from 1970 to 2015 for most reporting countries. To access the report and related products you can:

This year’s edition of International Debt Statistics been reconfigured to offer a more con­densed presentation of the principal indicators, along with additional tables showcasing quar­terly external debt statistics and public sector debt to respond to user demand for timely, comprehensive data on trends in external debt in low middle and high income coun­tries.

By providing comprehensive and timely data that reflects the latest additions and revisions, and by expanding the scope of the data available online, we aim to serve the needs of our users and to reach a wider audience.

Weekly wire: The global forum

Roxanne Bauer's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

Even in Era of Disillusionment, Many Around the World Say Ordinary Citizens Can Influence Government
Pew Global

Signs of political discontent are increasingly common in many Western nations, with anti-establishment parties and candidates drawing significant attention and support across the European Union and in the United States. Meanwhile, as previous Pew Research Center surveys have shown, in emerging and developing economies there is widespread dissatisfaction with the way the political system is working. As a new nine-country Pew Research Center survey on the strengths and limitations of civic engagement illustrates, there is a common perception that government is run for the benefit of the few, rather than the many in both emerging democracies and more mature democracies that have faced economic challenges in recent years. In eight of nine nations surveyed, more than half say government is run for the benefit of only a few groups in society, not for all people.

Media Development and Countering Violent Extremism: An Uneasy Relationship, a Need for Dialogue
CIMA

This report looks at how media development practitioners are reacting to the rise of the Countering Violent Extremism (CVE) agenda, and its growing influence on their field. This influence is the cause of concern, not only because practitioners of CVE and media development have fundamentally different worldviews, but because the CVE agenda is seen to pose serious risks for southern media houses and the organizations that support them. Still, these risks are unlikely to be addressed without coordinated efforts from both sides. However uneasy the relationship, a dialogue between CVE and media development is needed.


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