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About the Bulletin

This is the second of a series of Debt Bulletins for 2019 to be published online, at regular intervals, over the course of the year. Their aim is to provide users with analyses of developments in respect of external and public debt in individual countries and regional groups, with primary emphasis on low- and middle-income countries, and to keep them abreast of debt-related issues and initiatives.

• To this end the bulletins will:
  • Complement the summary overview of borrowing trends in 121 low- and middle-income countries information presented in International Debt Statistics (IDS 2019), published in November 2018 with regional and country specific analyses on the composition and characteristics of external debt stocks and flows. The analyses will be underpinned by the detailed loan-by-loan data on stocks, transactions (commitments, disbursements and debt service payments) and loan terms captured by the World Bank Debtor Reporting System (DRS);
  • Draw from the high-frequency, Quarterly External Debt Statistics (QEDS) and quarterly Public Debt Statistics (PSDS) databases to provide users with syntheses of emergent trends in external and public debt, including borrowing patterns and current debt levels in both high-income countries and low- and middle-income countries;
  • Provide users with short information briefs on current issues and ongoing initiatives aimed at improving external and public debt measurement and monitoring, filling data gaps, and enhancing the coverage and harmonization of international datasets and related data dissemination.

Feature Story: Measuring Public Debt in Low- and Middle-Income Countries

When debt crises occur attention invariably centers on data deficiencies and information gaps regarding the extent and composition of public debt liabilities. These are routinely cited as one of the key underlying causes of unsustainable debt levels. The absence of high frequency data was deemed critical at the time of the Asian crisis in the late 1990s and led to establishment of the Quarterly External Debt System (QEDS) by the IMF and the World Bank in 2004. Similarly, the launch of the Quarterly Public Sector Data (QPSD) in 2010 was a response to the global effort to fill key financial data gaps that impeded rapid policy response to the 2008 global economic and financial crisis. More recently the increase in the number of low-income, Å·ÃÀÈÕb´óƬ-eligible countries now assessed at high risk of debt distress, including several that benefitted from extensive HIPC and MDRI debt relief, has put the spotlight on the extent of potentially ¡®hidden¡¯ debt and generated calls for greater transparency in respect of public debt liabilities by both borrowers and creditors.

What are ¡®public debt¡¯ liabilities?

• Put simply, public debt comprises the debt related liabilities, domestic and external, of the public sector. The public sector comprises several components, specifically:
  • Central government: ministries of state and all government-controlled tax-funded agencies responsible for carrying out policy;
  • General government: the central government plus subnational entities i.e. state and local government and municipalities;
  • Non-financial public sector: the general government plus all government owned non-financial corporations;
  • Overall Public sector: the non-financial public sector plus government owned financial corporations and the central bank.

• public debt may therefore be defined in a variety of ways: most narrowly, as only the liabilities of the central government, or at its broadest, and most comprehensive measure, the debt liabilities of the entire public sector.

Debt reporting obligations of IBRD and Å·ÃÀÈÕb´óƬ borrowers

Å·ÃÀÈÕb´óƬ Debtor Reporting System (DRS), governed by Operational Policy 14.10, obligates all IBRD and Å·ÃÀÈÕb´óƬ borrowers to provide detailed, loan-by-loan information on their external public debt, on a quarterly basis for new commitments and an annual basis for transactions (stocks and flows) for all outstanding loans. The DRS takes a comprehensive approach and defines public sector debt as obligations of the state and local governments, obligations of any public sector entity in which the government holds a fifty percent or more share (whether, or not, the obligation relates to a loan guaranteed by the state) and any obligations of private sector entities that have benefited from a guarantee by the state.

Currently, most DRS reporters provide comprehensive, timely information on the external borrowing of the central government. Reporting regarding explicit contingent liabilities, in the form of state guarantees of repayment, in the event of default, extended to external borrowing by public and private sector entities, is also good. Under-reporting of borrowing by state and local governments is a deficiency of DRS reporting in select borrowers, but the overall extent and impact of such under-reporting is assessed as limited as in many low- and middle-income countries state and local governments are not permitted to borrow externally. By far the most significant omission in DRS reports relates to borrowing by state-owned enterprises on their own account, without benefit of a government guarantee. There have been a few widely reported instances of countries that have deliberately masked the extent of their public debt liabilities. But, in most instances any omission in reporting does not signal any unwillingness to report, but rather, reflects the legal framework that governs contracting, measuring and monitoring public debt at the national level, and the mandate of the public debt office.

Practice at the national level varies considerably but the authority of most public debt offices does not extend to oversight of the non-state guaranteed borrowing activities of state-owned enterprises or the collation of comprehensive information on their outstanding debt. Thus, complying fully with DRS reporting requirements will the debt office to liaise with other relevant government agencies, or directly with state-owned enterprises. Additional legislation may be required to ensure a regular and timely information flows particularly regarding powerful state-owned oil and mining companies or national airlines. Although non-guaranteed borrowing by state-owned enterprises constitutes only an implicit contingent liability there is a general expectation the government will step in if a default occurs and empirical evidence confirms this to be the case. The government is also called on for liability clean-up of state-owned entities being privatized.

Another category of contingent liabilities that is growing rapidly and poses a potential risk to the debt portfolio is the guarantees given in the context of public-private partnerships or external liabilities issued through off-shore or off-balance sheet mechanisms by both public and private domestic entities. Governments are often obligated to guarantee above average income streams to attract private investors and the scope of guarantees offered to make PPPs look viable may be substantial, including loan repayments, guaranteed rates of return, minimum income streams, guaranteed currency exchange rates and compensation, should new legislation affect an investment¡¯s profitability. Some of the guarantees associated with PPPs are explicit and stated in contractual agreements but more often they are implicit contingences which may translate into financial obligations: the timing and magnitude depends on the occurrence of a future event outside the control of the government. Measurement problems are compounded by the fact that current account practice permits governments to keep the costs and liabilities associated with PPPs off-balance sheet, thus circumventing budgetary constraints and obfuscating scrutiny by the national legislature.

External Debt Trends in 2018

1. I.Trends in Low- and Middle-Income Countries

   In 2018 low- and middle-income countries¡¯ top ten borrowers recorded a 3.3 percent increase in external debt stocks from the end-2017 level. This is according to the information reported to the Quarterly External Debt Database (QEDS) and reflected a much slower rate of debt accumulation than 2017 when the external debt stock for these countries rose 12 percent. This increase in external debt stock is also well below half the average rate of increase in the comparable external debt stock of other low- and middle-income countries reporting to QEDS. The top ten borrowers (defined as low- and middle-income countries with the largest external debt stock at end-2017) accounted for almost three-quarters of the combined external debt stock of low-and middle-income countries at end-2018. Borrowing patterns across the major borrowers were divergent. In China a surge in bond issuance led to a 12 percent increase in external debt stock at end 2018 over the prior year level. In contrast Russia reported a 12 percent reduction in external debt stock over the same period and Brazil, Kazakhstan, South Africa and Turkey all reported moderate declines in external debt stock in 2018.

The combined external debt stock of the 121 low- and middle-income countries for which data was presented in International Debt Statistics 2019 (IDS) was an estimated $7.4 trillion at end 2018. This figure is based on data reported to QEDS and information from creditor sources, both official and private. It equated to an average 4.8 percent increase in external debt stocks at end-2018 as compared to the comparable figure at end-2017. Long-term debt stocks remained broadly evenly divided between public and private sector borrowers. For low- and middle-income countries, other than the top ten borrowers, external debt stock rose on average 9 percent in 2018 but regional trends in external debt stock accumulation varied. Countries in Sub-Saharan Africa added 15.8 percent to their combined external debt stock in 2018, led by countries such as Angola and Nigeria who were particularly active in international bond markets in 2018. In contrast countries in Europe and Central Asia saw external debt stocks fall 5.8 percent in 2018; a trend dominated by the major borrowers in the region, notably Russia and Turkey and, to a lesser extent, Kazakhstan. In South Asia the moderate, 3.3 percent rise in 2018 was dominated by trends in India but masked a 10 percent increase in end-2018 external debt stocks in Bangladesh and Pakistan from the end-2017 level. Similarly, in Middle East North Africa external debt stock accumulation in Egypt in 2018 was twice as fast as the regional average of 7.5 percent.

Bond issuance by the majority of low- and middle-income countries contracted in 2018.Data compiled by Dealogic, from creditor and other market-based sources, show bond issuance by the 121 low- and middle-income countries reporting to the World Bank DRS totaled around $295 billion in 2018, a 17 percent decrease from the comparable figure, and record high, of 2017 but still well above issuance in 2016. Tighter market conditions, global economic uncertainties and some credit rating downgrades drove the downward trend. New issuance by sovereign and other public sector entities fell 20 percent in 2018 to $181 billion while new issuance by private sector entities was down 11 percent from its prior year level to $114 billion.

China dominated bond issuance by low- and middle-income countries in 2018. Public and private sector entities in China issued $129 billion in bonds in 2018. This was 36 percent higher than the comparable figure for 2017 and equivalent to 44 percent of bond issuance by all low- and middle-income countries in 2018 (up from 27 percent in 2017). Bond Issuance by public sector entities in China surged to $63 billion, up 90 percent over the prior year level while issuance by private sector entities rose a moderate 7 percent to $66 billion. In contrast, bond issuance by the Top Ten borrowers, other than China, declined 45 percent in 2018 with a notably sharp contraction in India, Russia and South Africa. Issuance by other low- and middle-income countries fell by a more modest 14 percent.

For Sub-Saharan African countries 2018 was a banner year for sovereign Eurobond issuance. Sovereign bond issuance by Sub-Saharan countries continued apace in 2018, to reach a new record high of $17.2 billion (excluding South Africa), well over double the $8 billion issued in 2017. Oil exporters Angola and Nigeria led the way, issuing a total of $3.5 billion and $5.4 billion, respectively, and Cote d¡¯Ivoire, Ghana, Kenya and Senegal all tapped the markets for around $2 billion. Proceeds from these issuances have been used for infrastructure financing, balance of payments support, and refinancing. All issues were heavily oversubscribed reflecting both investor confidence in the region and the fact that African sovereign debt offers the highest yields to investors globally. Sub-Saharan sovereign issues in 2018 were characterized by longer maturities with all issues including a 30-year tranche, following a trend started by Nigeria when it issued a 30-year bond in late 2017.

II.Trends in High-Income Countries

External debt levels in high-income countries reporting to QEDS were static in 2018. The gross external debt stock of high-income countries reporting to QEDS stood at $76.1 trillion at end 2018, only marginally higher, 0.3 percent, than the comparable figure at end 2017. This was in stark contrast to 2017 when gross external debt stock rose by 11 percent. Short-term external debt liabilities rose 3 percent in 2018 to $30.1 trillion while long-term external debt liabilities declined by 2 percent to $46.0 trillion. The composition of gross external debt stock was unchanged with long-term debt accounting for 60 percent and short-term liabilities 40 percent.

At the individual country level of the 47 high-income countries reporting to the QEDS database 27 countries recorded a decrease in gross external debt stock at end 2018 from the end-2017 level. Among these 27 countries 4 countries saw gross external debt stock fall 10 percent in 2018 while for the remaining 23 countries the decrease was at various levels below 10 percent. In the other 20 high-income countries reporting to QEDS gross external debt stock rose in 2018 with 5 countries in this group, Argentina, Finland, Japan, Palau and Seychelles posting increases between 11 and 18 percent.

The combined gross external debt of the Group of Seven (G7) rose 1.5 percent in 2018 to $48 trillion and accounted for 63 percent of the gross external debt of high-income countries reporting to QEDS at end 2018. Japan recorded by far the largest increase, with gross external debt at end-2018 up 11 percent over the comparable figure for 2017. Gross external debt rose 3.9 percent in the USA in 2018 and Canada and France recorded a marginal increase. In the remaining countries Germany, Italy and the United Kingdom gross external debt stock declined in 2018.

Trends in the external debt stock of high-income countries reporting to QEDS at the sector level were divergent. The gross external debt stock for Direct Investment: Intercompany Lending and General Government fell 3.2 percent and 1.5 percent, respectively in 2018. Deposit-taking corporations (except central banks), comprised primarily of commercial banks, saw external debt stock rise marginally (0.1 percent) by end-2018 over the end-2017 level while Central Bank and Other Sectors recorded increases of 5.2 percent and 3.1 percent, respectively over the same period.