Slight increase in debt payments Significant increase in lending in recent years Projections made in 20132014 for increasing debt payments Nine countries most exposed to foreign lending Significant net external debt over 30 of GDP ID: 630363
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The new debt trap?Slide2
External debt levels stable?Slide3
Slight increase in debt paymentsSlide4
Significant increase in lending in recent yearsSlide5
Projections made in 2013/2014 for increasing debt paymentsSlide6
Nine countries most exposed to foreign lendingSignificant net external debt (over 30% of GDP)Significant projected future government external debt payments (over 15% of revenue)Significant and sustained current account deficits (over 5% of GDP)Bhutan, Ethiopia, Ghana, Lao, Mongolia, Mozambique, Senegal, Tanzania, UgandaSlide7
Analysis of nine countriesGrowing faster (average annual growth rate 4.74% 2008-2013, compared to 3.64%)Not reducing poverty faster. In five of the nine, people living in poverty increasing. Only Bhutan, Ghana and Mongolia reducing poverty at a faster rate than the averageInequality increasing in eight of nine (Mozambique exception, but already most unequal)Commodity export dependence has not fallenSlide8
Commodity dependence has not fallenSlide9
Since 2014: Commodity price fallSlide10
Since 2014: dollar increase in valueSlide11
Currency depreciations since start 2015Ghanaian Cedi: Down 39% against the dollarMozambique Metical: Down 49% against the dollarTanzanian Schilling: Down 28% against the dollarZambian Kwacha: Down 46% against the dollarSlide12
Ghana’s rapidly increasing debtSlide13
Who Ghana’s debt is owed toSlide14
Interest cost of the debtInterest rates:Eurobonds and other private external: 7.9% - 10.75%Cedi debt: 7% (average real interest rate)Other governments: 4.5% estimatedMultilateral institutions: 0% - 2%Slide15
Projected Ghana government external debt paymentsSlide16
Assumptions for sustainabilityIMF view that external debt is sustainable based on assumptions:$GDP growth averaging 8.2% a year until 2035Government $ revenue grows in line with GDPA fall in average interest rate on external debt from 5.1% to 4.1%Continual primary budget surplusesSlide17
Real government spending projected to fallSlide18
External bond refinancing could be difficultMost recent Eurobond autumn 2015:$1bn borrowed at 10.75%But World Bank guaranteed $400mThis implies cost would have been 16.25% without guaranteeAs long as government keeps paying interest until 2025, lenders will have made a profitSlide19
Mozambique and the hidden debtSlide20
Mozambique and the hidden debt1. $726.5 million Eurobond: issued through Credit Suisse and VTB Bank in 2013. English law, London branches. It was not approved by the Mozambique parliament.2. $597 million direct loan: 81% of the loan was from Credit Suisse, 19% VTB. English law, London branches. It was not approved by the Mozambique parliament.3. $535 million direct loan from VTB. English law, London branches. It is now thought to be in default. It was not approved by the Mozambique parliament.Slide21
Mozambique and the hidden debtSlide22
New debt crisis?1. Are Ghana and Mozambique the start of a new crisis or individual cases? Other recently agreed IMF bail outs: Sri Lanka, Tunisia. Zambia to come?2. Wide range of creditors in both cases.3. Dominance of English law for impoverished countries private external debts. 95% of sub-Saharan Africa (excluding South Africa) bonds owed under English law.