Download Overview Main Issues in Debt Management in African

Overview Main Issues in Debt Management
in African Countries
Greg Horman and Hans J. Blommestein
OECD Secretariat
Agenda
•
•
•
•
Economic environment
Debt stock and debt markets
Institutional considerations
Debt strategy
2
1
Favourable economic environment
• Economic growth is on track
8%
GDP growth, %
7%
6%
Mean
5%
Petroleum-exporting
4%
3%
Non petroleumexporting
2%
1%
0%
19972003
2004
2005
2006
2007
3
Falling inflation
• Growth is accompanied by falling inflation
14%
12%
Mean
Inflation, %
10%
8%
Petroleum-exporting
6%
Non petroleumexporting
4%
2%
0%
19972003
2004
2005
2006
2007
4
2
Trade balances
• Trade balances show a diverse picture but have improved for
some (groups of) countries
Trade balance, % of GDP
21%
18%
15%
Mean
12%
9%
Petroleum-exporting
6%
Non petroleumexporting
3%
0%
-3%
-6%
19972003
2004
2005
2006
2007
5
Improved budget balances
Budget balance, % of GDP
8%
6%
Mean
4%
Petroleum-exporting
2%
Non petroleumexporting
0%
-2%
-4%
19972003
2004
2005
2006
2007
6
3
External debt relief
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
ZMB
UGA
SLE
TZA
STP
SEN
NER
RWA
MOZ
MLI
MRT
MWI
MDG
GIN
GNB
GHA
ETH
GMB
CIV
COD
BEN
BFA
0
TCD
1,000
CMR
Cumulative debt relief, 2005, USD millions
• Many countries have benefited from external debt relief under
the HIPC initiative
7
In many countries debt levels are
a problem
• In many countries debt levels are a problem, especially in view
of structural vulnerabilities
• Also after debt relief, risk-based debt sustainability needs to
remain a focus of debt management strategy, supported by
overall macroeconomic policy
350%
300%
250%
200%
150%
100%
ZMB
UGA
TUN
ZAF
SWZ
NGA
NAM
MOZ
MAR
MUS
MLI
MRT
LSO
GIN
GNB
GMB
GAB
EGY
BDI
CPV
DZA
0%
ETH
50%
BWA
Government debt, 2005, % of GDP
400%
8
4
External debt predominates
• This is typically a consequence of a reliance on concessional
multilateral and bilateral funding and rudimentary domestic
markets
• A number of African countries have good access to international
capital markets and/or have begun to develop domestic markets
• Which policies and priorities for developing market-based
funding?
Domestic debt
External debt
350%
300%
250%
200%
150%
100%
ZMB
TUN
UGA
ZAF
SWZ
NGA
NAM
MOZ
MUS
MAR
MLI
MRT
LSO
GIN
GNB
ETH
EGY
BDI
CPV
DZA
BWA
0%
GMB
50%
GAB
Government debt, 2005, % of GDP
400%
9
Domestic debt is predominantly
short-dated
100%
90%
80%
70%
60%
50%
40%
30%
20%
ZMB
TZA
UGA
SEN
NGA
NAM
MOZ
MLI
MUS
MDG
LSO
KEN
GHA
GMB
CPV
BFA
BWA
BEN
0%
CMR
10%
AGO
Domestic securities maturing under 1 year,
2005, % of total
• But some countries successfully issue across the yield curve
and out to long tenors
• Issuance of domestic debt in some countries is erratic and in
small volumes, leading to problems in developing fungible and
liquid instruments and benchmarks
10
5
Local banks main holders of domestic
securities
• A reflection weaknesses in their commercial lending operations
or requirements to hold government securities?
• Some countries have relatively vibrant pension funds and other
institutional investors, which encourages more diverse
ownership
• Non-resident holdings are typically low
• What priority should be given to developing the domestic market
and domestic investor base?
• What is the appropriate sequencing of steps?
11
Interest payments on domestic debt often
consume a large share of revenues
External debt
35%
30%
25%
20%
15%
10%
ZMB
UGA
SEN
TZA
NGA
NAM
MOZ
MLI
MUS
MDG
KEN
LSO
GHA
CPV
GMB
BFA
BEN
BWA
0%
CMR
5%
AGO
Interest payments, 2005, % of revenues
Domestic debt
40%
12
6
Domestic debt is typically more costly
than external debt
• This reflects in part the availability of external funding on
concessional terms
• What is the appropriate balance between cost and risk?
Domestic debt
External debt
20%
15%
10%
ZMB
UGA
SEN
TZA
NGA
NAM
MOZ
MLI
MUS
MDG
KEN
LSO
GHA
CPV
BFA
BEN
BWA
AGO
0%
GMB
5%
CMR
Implicit interest rate, 2005, %
25%
13
Other components of the debt stock
• Quasi-government debt is a feature of many African countries
• Some central banks issue their own bills to manage liquidity or
implement monetary policy
• This may be a consequence of an absence of a sufficient supply
government securities
• Does the existence of central bank bills impede further
development of the government securities market?
• Are there pricing anomalies or fragmented liquidity when
government securities and central bank bills co-exist?
• Some debt of state-owned enterprises, other government
agencies, or the private sector is guaranteed
• But guarantees are often not well controlled or accounted for
14
7
Institutional issues and problems (1)
• African countries generally have explicit legal requirements
governing debt contracting and servicing
• But the framework is not always clearly defined and adequately
implemented
• Legal requirements for transparency and public disclosure are
often limited
15
Institutional issues and problems (2)
• Institutional responsibilities are often fragmented across front
and back office functions, across domestic and external debt,
and across agencies in African countries
• Middle office functions of debt strategy formulation and risk
management are often absent
• These factors impede implementing a holistic approach to debt
management
• Co-ordination between debt management and fiscal, monetary,
and macroeconomic policies is often weak
• Specific institutional structure for debt management is less
important than ensuring that that there is good governance and
that there are forward-looking policies focused on risk-based
debt sustainability
16
8
Institutional issues and problems (3)
• Resources available to debt management are constrained in
many countries
• This includes the quantity of staff, their skill levels, and
technological resources for managing the debt stock and new
debt issuance on a professional basis
17
Debt strategy
• A number of African countries have developed formal debt
strategies
• A formal strategy explicitly balances cost and risk, takes account
of demand constraints but often incorporates initiatives to
develop the market and new funding sources, and supports
macroeconomic stability and debt sustainability
18
9
Debt strategy is often ad hoc
• For many African countries debt strategy is ad hoc
• Range of funding sources is often narrow, and discretion in
terms of the risk characteristics of new debt may be limited
• But opportunities may be missed, at the margin, to improve the
structure of the debt or widen the range of funding sources
• For some countries that have benefited from debt relief, the lack
of a formal debt strategy raises the risk of return to an
unsustainable debt position in future
19
Final comments
• African countries are diverse in terms of their debt situation,
debt management practices, and government securities markets
• Debt management is key component of a correct policy mix
• Debt management alone cannot solve macroeconomic
imbalances or structural problems
• But an appropriate debt level and debt structure, as well as
healthy domestic markets, can contribute to reducing
vulnerabilities
20
10