- September 19, 2014
- Posted by: admin
- Category: Current News
The following is an abstract of a presentation made on 19 September 2014 at the MEFMI Policy Seminar Series. The topic: Current Trends in Public Debt in the MEFMI Post HIPCs and Prospects for Long Term Debt Sustainability.
The paper was presented by Stanislas Nkhata, Programme Officer, Debt Management Programme & Raphael Otieno, Director, Debt Management Programme.
Total public debt has increased considerably in the MEFMI countries that received external debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). The increase has been quite pronounced on external debt, with some countries already reaching the pre-MDRI debt levels while domestic debt has also been increasing. Nevertheless, recent debt sustainability analyses indicate that external debt dynamics in the MEFMI post HIPCs would remain sustainable based on the current macroeconomic projections. However, in case of adverse shocks to exports, unfavourable lending terms and reduced foreign direct investments, external debt ratios would increase rapidly, implying a moderate risk of debt distress.
Adding domestic debt to the analysis shows that total external and domestic debt in the MEFMI post HIPCs would broadly remain manageable over the long term under the current macroeconomic projections. However, total public debt ratios would also increase rapidly in response to real GDP growth shocks, higher budget deficits, increase in debt creating flows and exchange rate depreciation.
To avoid sharp increases in total public debt ratios going forward, it is important for governments in the MEFMI post HIPCs to maintain sound fiscal policies, diversify their exports, continue growth promoting policies, and moderate commercial borrowing.