Geneva, 23th – 25th November 2015

Exogenous Shocks and Debt

by

Mr. John Panzer Director

Global Practice for Macroeconomics & Fiscal Management The World Bank Group

The views expressed are those of the author and do not necessarily reflect the views of UNCTAD

Exogenous Shocks and Debt In Developing Countries

John Panzer

Director Global Practice for Macroeconomics

& Fiscal Management

Outline

3

• Development and Poverty Reduction

• Debt in Developing Countries (LICs)

• Outlook and Vulnerabilities

• Policy Options

4

Era of unprecedented growth

Source: World Bank Global Monitoring Report

0

1

2

3

4

5

6

7

World Emerging Markets andDeveloping Countries

Sub-Saharan Africa Low Income DevelopingCountries

Ave

rage

Re

al G

DP

Gro

wth

(%

)

2001-2008 2009-2012 2013

Real GDP Growth by Country Group

Positive but Uneven Outcomes in Twin

Goals Economic developments leading to IDA17

World

IDA

IDA FCS

IDA [SERIES NAME]

0%

10%

20%

30%

40%

50%

60%

70%

198

1

198

4

198

7

199

0

199

3

199

6

199

9

200

2

200

5

200

8

201

0

201

1

201

2

Povert

y R

ate

Average

-6

-4

-2

0

2

4

6

8

10

12

14

Bo

livia

Ta

nzan

ia

Cam

bo

dia

Con

go

, R

ep.

Nep

al

Bh

uta

n

Vie

tna

m

Ta

jikis

tan

Kyrg

yz R

ep

ub

lic

Mo

ldova

Nic

ara

gu

a

Rw

an

da

Hon

du

ras

Mo

zam

biq

ue

Uga

nd

a

Pa

kis

tan

Sri

La

nka

Ma

li

Ba

ng

lade

sh

Lao

PD

R

Se

ne

ga

l

Nig

eri

a

Eth

iop

ia

Ma

law

i

To

go

Ma

da

ga

sca

r

In p

erc

ent*

Income growth of bottom 40% Income growth of total population

Source: World Development Indicators.

* Average annual growth in mean income/consumption per

capita during a 5-year period between 2002-2012.

Source: PovCal Net, The World Bank.

Strong (but uneven) progress against twin goals

Convergence in poverty reduction Growth inclusive in IDA countries

Benign external environment

Source: World Development Indicators, DSAs

LIC commodity exporters

80

90

100

110

120

130

140

150

0

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Exp

ort

s

Index (

100=

2001)

Co

mm

od

ity P

rice

s a

nd

FD

I In

de

x (

10

0=

20

01

)

Commodity Price index FDI Exports

7

LICs able to diversify financing

Debt disbursements to Low Income Countries by type

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Multilateral Bilaterals Other Private Commercial Banks Bonds

8

Broader access to global bond markets

Global Bond Issuances – Sub-Saharan Africa (Excl. SA)

0

1

2

3

4

5

6

7

2009 2010 2011 2012 2013 2014 2015

Bill

ions (

US

D)

Angola Cote d'Iviore Ethiopia Gabon Ghana

Kenya Mozambique Namibia Nigeria Rwanda

Senegal Seychelles Tanzania Zambia

Source: World Development Indicators

9

HIPC gains sustained A

vera

ge E

xte

rnal D

ebt to

GD

P

DP = HIPC Decision Point

Change in External Debt After HIPC

0

20

40

60

80

100

120

140

160

180

Average 25 Percentile 75 Percentile

10

15 16 17 19 22 23 24 23 22 20

18 18 19 22

22 22 24 29

30 34

26 26 26 24 22 23 20

16 19 19

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Low Moderate High/In Debt Distress

Until very recently, reduced risks of debt distress

Number of Countries by Risk Rating and Year

Changing Context

Source: World Economic Outlook, April 2014 and October 2015, IMF.

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

2016 2017 2018 2019

CA

B in p

erc

ent

of G

DP

Higher Current Account Deficits

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2016 2017 2018 2019

Gro

ss p

ublic

debt

in p

erc

ent

of

GD

P

Larger and Increasing Projected Debt

0

20

40

60

80

100

120

140

160

180

2016 2017 2018 2019

Index (

2005=

100)*

Lower Projected Commodity Prices

*Commodity Price Index includes both Fuel and Non-Fuel Price Indices

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2016 2017 2018 2019Annual perc

enta

ge c

hange

Lower Projected Growth

Outlook in April 2014 Outlook in October 2015

A more challenging global outlook

Transitioning into headwinds

12

• Country specific

• Oil and commodity exporters vs. diversified economies

• Buffers and vulnerabilities

13

Oil Exporters

1) Fiscal

2) External

Commodity Exporters

1) External

2) Fiscal

Diversified

1) Fiscal

Transitioning into headwinds - vulnerabilities

14

Transitioning into headwinds – external sector and

erosion of buffers Change in FX Reserves and Depreciation Since 2014

Source: World Bank Survey of Commodity Exporters

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

-30%

-25%

-20%

-15%

-10%

-5%

0%

Ch

an

ge

in

LC

U v

alu

e a

ga

inst U

SD

Ch

an

ge

in

Re

se

rve

s

Change in FX Reserves (%) Change in FX vs. USD

15

• Speed of adjustment a function of policy space • Market debt

• Reserves

• IFIs

• If possible, support domestic demand

• In the longer run: • Debt risk management

• Diversification (RER, structural reforms)

Policy options in an era of headwinds

Policy options in an Era of “Headwinds”

• Efficiency in Public Finance

o Domestic Resource Mobilization and its cross-cutting effects

o Public Investment and debt management to sustain

infrastructure development

o Human capital

But external financing is critical

• Relentless focus on productivity/transformation

o Ambition in policy reforms in agriculture, resource

management and infrastructure

• Importance of Equity and Measurement

o Constantly checking and measuring progress

How we are helping countries transition and increase gains

Policy options in an era of “headwinds”