Setting the context – what do we know about debt in developing countries? Informal roundtable on Debt Crisis Prevention in Developing Countries

The new landscape of development finance: new sources may pose a threat for debt sustainability in HIPCs 1.Financing infrastructure via international capital markets, PPPs and blended finance brings opportunities but also threats 2.Graduation into MIC status and from soft windows of MDBs - rising share of non-concessional sources of financing? 3.(Re-)emerging sovereign donors can boost growth, but financial terms are harder 2

Rising sovereign bond issuances in SSA countries 3 Source: Tyson (2015) USD million 2009-Q3 2014

Terms and conditions of international sovereign bonds 4 Source: Tyson (2015)

International sovereign bonds 5 Advantages/Benefits Terms and conditions are usually more favourable than alternative public external and domestic debt instruments International sovereign bond issuances provide a benchmark for pricing corporate bonds in international markets Size of the sovereign bond issuance larger than ODA and no policy conditionality Disadvantages/Risks Exchange rate, interest and liquidity risk Eurobonds may be harder to restructure than bank loans, given the multitude of creditors involved

Cost of financing – Bilateral donors and multilateral development banks – Some examples 6 Sources: Websites for each institution; Grimm et al. (2011) on China

DSF risk rating and sovereign bond issuers 7 Source: Tyson (2015)

Cost of funds (net of amount provided %) 8 Source: Griffiths et al. (2014)

(Re)emerging sovereign donors can boost growth but financial terms are harder 9 Emerging lenders perceived as a threat to debt sustainability but is it actually the case? Transparency on loans from emerging donors? Mwase and Yang (2012); Brautigam (2011); Reisen and Ndoye (2008); Davies (2007) do not support this evidence – but outdated papers/numbers – A different concept: debt sustainability vs development sustainability? – Analysis of debt dynamics shows the Asian giants lower debt ratios a little through debt relief, but they do this even more through stimulating exports and growth (Reisen and Ndoye, 2008)

What can we learn from the past debt crises in developing countries? Drivers of debt crises in HIPCs – Optimistic growth projections (low interest rates and high and volatile commodity prices) – Macroeconomic imbalances – Imprudent lending – Vulnerability to exogenous shocks – Inadequate debt management and political instability 10