DEBT REPORT 2020 -- EDITION I January 2020 DEBT Report 2020 About the Report This is the first of a new series of Debt Reports for 2020 to be published online, at regular intervals, over the course of the year. Their aim is to provide users with analyses of evolving trends and developments related to external debt and public debt in individual countries and regional groups, with primary emphasis on low- and middle-income countries, and to keep users abreast of debt-related issues and initiatives. The reports will: • Complement the summary overview of borrowing trends in 122 low- and middle-income countries presented in International Debt Statistics (IDS 2020), published in October 2019 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 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. Debt Report Edition I presents an overview of the evolution of external debt stocks and net financial flows (debt and equity) from the regional perspective and draws out the main messages from the regional and country specific data available to users at https://data.worldbank.org/products/ids. 1 Regional Overview 2018 Net financial flows, debt and equity combined, to low- and middle-income countries totaled $1 trillion in 2018, 19 percent lower than the comparable inflows in the prior year. Driving the downturn was a 31 percent fall in net debt inflows to $516 billion and a 49 percent reduction in portfolio equity inflows. Inflows of foreign direct investment (FDI) $469 billion were little changed from 2017. China was the principal recipient of net financial flows to low- and middle-income countries in 2018, $472 billion, equivalent to 46 percent. At the regional level countries in Latin American and the Caribbean (LAC) accounted for the largest share $272 billion (27 percent), followed by countries in East Asia and Pacific (EAP), other than China, $115 billion (11 percent). Debt inflows surpassed equity inflows in all regions in 2018 except South Asia (SAS) where equity inflows accounted for 60 percent of total inflows and Europe and Central Asia (ECA) where debt flows were negative (-$11 billion). Figure 1: Net Financial Flows 2018 – Regional Figure 2: Change in External Debt Stock 2017- Distribution1 2018 - Regional Distribution US$ (billion) US$ (billion) 300 SSA 250 200 SAS 150 MNA 100 LAC 50 ECA 0 EAP excl. China -50 -100 China China EAP ECA LAC MNA SAS SSA 0 500 1000 1500 2000 excl. China 2018 2017 Debt Equity Source: World Bank Debtor Reporting System, Source: World Bank Debtor Reporting System, International Monetary Fund and United Nations International Monetary Fund and Bank for International Conference on Trade and Development (UNCTAD) Settlements Total external debt stocks of low- and middle- and middle-income countries combined. China’s income countries rose 5.3 percent in 2018 to $7.8 external debt stock rose 15 percent in 2018 with trillion, almost half the rate of accumulation (10.4 short-term debt rising 18 percent and long-term percent) recorded in 2017. The increase in debt debt by 10 percent. Outcomes at the regional stocks resulted from net debt inflows of $516 level were divergent. Countries in the Middle billion and valuation changes in year-on-year East and North Africa (MNA) region recorded exchange rates in relation to the U.S. dollar the fastest accumulation in external debt stocks, (around half the external debt of low- and middle- on average 7 percent, propelled by the 15 percent income countries is denominated in currencies rise in Egypt, the region’s biggest borrower. other than the U.S. dollar). The 2018 increase in Conversely, in Europe and Central Asia external external debt stock was dominated by China: it debt stocks fell, on average 4.8 percent, from the accounted for one- quarter of the combined end- 2017 level due in large part to the sharp 2018 external debt stock of low- contraction in the Russia’s external debt stock. 1 SSA stands for Sub-Saharan Africa. 2 East Asia and Pacific Net financial flows totaled $587 billion in 2018, a 5 percent decline from the prior year with increased equity inflows largely offsetting a contraction in net debt inflows. But outcomes were dictated by China and, on average, for other countries in the region, net financial inflows fell on average 12 percent reflecting a downturn in both debt and equity inflows. Table 1: External Debt Stock and Net Financial Flows, East Asia and Pacific, 2009-2018 US$ (billion) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 External debt stocks 822 1,183 1,546 1,728 2,091 2,435 2,000 2,117 2,491 2,794 Net financial flows, debt and equity 274 662 657 468 720 606 -104 274 621 587 Percent of GNI (%) 4 8 7 4 6 4 -1 2 4 4 Net Debt Inflows 83 358 367 174 382 297 -368 53 391 323 Long-term 15 51 100 130 90 138 63 70 135 138 Official creditors 5 2 3 3 2 4 2 3 3 5 Bilateral -1 -2 1 0 0 2 -3 -1 0 0 Multilateral 6 4 2 3 2 3 6 4 4 5 World Bank (IBRD and IDA) 2 3 1 1 2 2 3 2 2 2 IMF 0 0 0 0 0 0 0 0 0 0 Other multilateral 3 1 1 2 0 1 3 2 1 3 Private creditors 10 49 97 127 88 133 61 67 132 133 Bonds 13 9 37 76 41 61 25 38 113 99 Banks and other private -3 40 61 51 46 73 36 29 19 34 Short-term 68 307 266 44 292 159 -432 -17 256 185 Net equity flows 191 304 290 294 337 310 265 221 230 264 Net FDI inflows 151 265 283 259 309 259 261 197 195 215 Net portfolio equity inflows 40 40 7 35 29 51 4 24 35 49 Source: World Bank Debtor Reporting System, International Monetary Fund, and Bank for International Settlement. The volume and trend of net financial equity flows were negative, registering an flows was determined by China which accounted outflow of $11.7 billion largely from Thailand (- for around 80 percent of the combined debt and $7.1 billion) and Indonesia (-$3.7 billion). These equity inflows to countries in the region in 2018. outflows were mostly a reflection of inter- The underlying factors that drove the level and regional changes with most funds held by Asian composition of financial inflows to China are investors reinvesting in portfolio equity in China. discussed in the overview section of IDS 2020. Excluding China, net financial flows to other Figure 3: Net Debt and Equity Inflows excluding countries in the region fell, on average, 12 percent China 2009-2018 in 2018 a consequence of a 15 percent fall in net US$ (billion) 160 debt inflows combined with an 8 percent decline 140 in net equity inflows. Net debt inflows totaled $66 120 billion, of which 46 percent was accounted for by 100 Indonesia and a further 38 percent by the 80 Philippines and Thailand combined. Inflows of 60 foreign direct investment (FDI) rose 11 percent to 40 $61 billion, driven primarily by a 50 percent rise 20 in FDI inflows to Thailand ($13.3 billion) 0 comprising new ventures by Asian investors and 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 reinvestment by new ventures and reinvestment Net equity inflows Net debt inflows by multinational corporations with a long-time Source: World Bank Debtor Reporting System and presence in the country. In contrast portfolio International Monetary Fund. 3 Net debt inflows to the region fell 17 East Asia and Pacific region, other than China, percent in 2018 with a marginal 2 percent rise in was characterized by a change in both the creditor long-term debt inflows offset by a 28 percent fall composition of these inflows and an important in net short-term debt flows, an outcome driven shift in the type of borrower. Of the $62 billion by a combination of a contraction in net short- in net inflows from private creditors in 2018, 49 debt inflows to China to $188 billion, ($229 percent constituted inflows related to bond billion in 2017), and an outflow of -U.S. 3 billion issuance and 51 percent inflows from commercial to other countries in the region, a marked banks. The comparable shares for 2017 were 67 turnaround from the $27 billion inflow in 2017. percent and 33 percent, respectively. Similarly, Excluding China, long-term debt inflows to the in 2018, 55 percent of net long-term debt inflows region rose 38 percent to $69 billion, underpinned from private creditors went to non-guaranteed by a doubling of net inflows from private private sector entities as compared to 47 percent creditors and a 61 percent rise in inflows from in 2017. This was driven by a surge in net debt official creditors, mostly from multilateral inflows from commercial banks to private sector institutions to $6.6 billion. Despite this increase entities in Thailand, in large measure inter- official creditors’ share of long-term debt inflows company lending linked to foreign direct remained moderate, 10 percent. investment. Net long-term debt inflows from The rise in inflows from private creditors private creditors to public sector borrower were was propelled by inflows from commercial banks up 17 percent in 2018 whereas those to non- which rose to $32 billion in 2018, more than guaranteed private sector entities rose 57 percent double the 2017 level. They accounted for 51 to $34 billion ($22 billion in 2017) of which percent of long-term debt inflows from private Indonesia and Thailand accounted for 77 percent. creditors in 2018, as compared to 31 percent the For some of the smaller borrowers in the region prior year. Net inflows from bond issuance $30 such as Cambodia and the Republic of Lao bond billion in 2018 were virtually unchanged from the issuance was the primary factor in the rise in net comparable issuance in 2017. inflows to non-guaranteed private sector entities The rise in net long-term debt inflows in 2018. from private creditors in 2018 to countries in the Figure 4: Creditor Composition of Net Debt Figure 5: Composition of Long-Term Debt Inflows excluding China 2009-2018 Inflows from Private Creditors - 2017-2018 US$ (billion) US$ (billion) 50 40 PNG Indonesia 30 PNG Thailand 20 PNG Other excl. China 10 0 PPG Indonesia -10 PPG Thailand -20 PPG Other excl. China 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Official creditors Bondholders -10 0 10 20 30 Commercial banks Short term 2018 2017 Source: World Bank Debtor Reporting System. Source: World Bank Debtor Reporting System 4 Europe and Central Asia Net financial flows turned negative in 2018 with an outflow of $11 billion on debt and equity combined. This was driven by the steep contraction in flows to Russia but mirrored in a downturn in financial flows to most countries in the region in 2018. Table 2: External Debt Stock and Net Financial Flows, Europe and Central Asia, 2009-2018 US$ (billion) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 External debt stocks 1190 1264 1428 1533 1708 1576 1452 1539 1601 1525 Net financial flows, debt and equity 49 179 206 230 210 2 -83 150 153 -11 Percent of GNI (%) 2 6 6 6 5 0 -3 5 5 0 Net Debt Inflows -18 114 130 156 142 -50 -131 71 94 -52 Long-term 18 69 108 126 107 -10 -70 73 65 -46 Official creditors 36 26 8 -5 -11 4 9 7 6 1 Bilateral 2 3 -1 -1 1 5 2 2 3 2 Multilateral 33 23 9 -4 -12 -1 6 5 2 -1 World Bank (IBRD and IDA) 3 3 2 2 2 3 2 1 1 1 IMF 20 9 -1 -8 -16 -7 3 1 0 -1 Other multilateral 10 11 8 3 2 4 2 3 1 -1 Private creditors -17 44 99 131 118 -14 -79 66 59 -47 Bonds -12 13 25 43 45 4 -7 27 38 3 Banks and other private -6 31 75 88 72 -18 -72 39 21 -50 Short-term -36 44 22 30 36 -39 -61 -2 29 -6 Net equity flows 67 65 76 74 67 51 48 79 60 40 Net FDI inflows 60 66 86 66 72 62 55 81 64 47 Net portfolio equity inflows 7 -1 -10 8 -5 -10 -7 -1 -5 -7 Source: World Bank Debtor Reporting System, International Monetary Fund, and Bank for International Settlement. The regional trend in net financial flows propelled by robust FDI inflows and sharp rise in (debt and equity) was dictated by Russia where net debt inflows from private creditors. In Belarus stagnant oil prices, geopolitical tensions and fiscal consolidation led to a retrenchment in both Figure 6: Net Financial Flows - Select Countries debt and equity inflows. Outflows totaled $58 2017-2018 billion in 2018 as compared to an inflow of $46 US$ (billion) billion in 2017 and masked a divergent trend for Other countries excl. Russia and Turkey other countries in the region where, on average, net financial flows fell by 57 percent. Net Turkey financial flows to Turkey remained positive, $8 Serbia billion, but down significantly from their 2017 level ($51 billion) and robust inflows of foreign Russia direct investment were not enough to offset the Romania collapse in net debt flows and $1 billion outflow of portfolio equity. Net financial flows to Kazakhstan countries in the region, excluding Russia and Turkey, also declined in 2018 but at a more -60 -40 -20 0 20 40 60 moderate pace, falling to $38 billion, one third the 2018 2017 level in the prior year. The only bright spots were Source: World Bank Debtor Reporting System, in some of the smaller economies of the region. International Monetary Fund, and Bank for International Settlement. Net financial flows rose 350 percent in Armenia 5 they increased by 46 percent on account of FDI inflows to Russia fell by $17 billion in 2018 increased debt and equity inflows and in Bulgaria in response to geopolitical concerns, sluggish they more than doubled as a result of strong FDI GDP growth and disinvestments (i.e. sale of inflows. foreign affiliates to Russian investors). Net debt flows to the region turned Excluding Russia inflows to other countries were negative in 2018 with countries recording a $37 billion in 2018, unchanged from the prior combined outflow of $52 billion, a marked year but at the individual country level the picture contrast to the $94 billion in debt inflows recorded in 2017. Long-term debt outcomes were was mixed. Weak oil prices and declining rates largely dictated by Russia and specifically by the of return weighed heavily on oil exporters such as much lower disbursements of new financing and Azerbaijan and Kazakhstan; both countries saw much higher principal repayments by public FDI inflow fall to half the 2017 level due to a sector borrowers resulted in an outflow on long- downturn in investments in the oil and gas sector. term debt of $61 billion, as compared to an inflow Conversely, FDI inflows to the region’s more of $22 billion in 2017. Net debt flows to other diversified economies proved resilient. Serbia countries in the region were positive in 2018, $12 recorded the most significant increase, 82 percent billion, but significantly below the comparable to $3 billion, facilitated by the country’s strategic figure of $66 billion for 2017. The primary location and skilled labor force and it was a reason for this decline was the pronounced, $23 similar story for Bulgaria which recorded a 40 billion drop in net inflows from private creditors percent increase in FDI inflows in 2018. Turkey and reversal in the direction of short-term debt was the region’s largest recipient of FDI in 2018. flows to an outflow of $3 billion, from an inflow of $23 billion in 2017. In contrast to Russia most Inflows rose percent 18 percent to $12 billion, of the fall in net inflows was accounted for by a despite slower than usual economic growth and downward trajectory in commercial bank inflows uncertainty surrounding the Turkish lira. The to private sector non-guaranteed entities across $6.3 billion Star Refinery built by the National the region. The contraction in short-term debt Oil Company of Azerbaijan and one the largest was largely attributable to Turkey: it turned foreign investments in Turkey came on stream in negative in 2018, an outflow of $4 billion late 2018. Other important inflows in 2018 was compared to an $18 billion inflow in 2018. Short- the acquisition of UN Ro-Ro Isletmeleri, term debt flows were also negative in other providers of deep-sea freight transport, by DFDS countries in the region in 2018, including Denmark. Romania and Ukraine. Figure 7: Net Debt Inflows by Creditor Type Figure 8: Foreign Direct Investment - Select excluding Russia 2009-2018 Countries 2017-2018 US$ (billions) US$ (billion) 80 Russia 60 Kazakhstan 40 Azerbaijan 20 - Turkey (20) Romania (40) Serbia (60) Ukraine 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Bulgaria Official creditors Private creditors 0 10 20 30 Short-term 2018 2017 Source: World Bank Debtor Reporting System Source: International Monetary Fund 6 Latin America and Caribbean Net financial flows rose 11 percent in 2018 to $272 billion, their highest level since 2014, despite a 24 percent fall in net equity inflows. It was offset by increased net debt inflows which rose 63 percent to $159 billion driven in large part by the rescue package for Argentina and surge in short-term debt inflows. Table 3: External Debt Stock and Net Financial Flows, Latin America & Caribbean, 2009-2018 US$ (billion) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 External debt stocks 898 1064 1221 1361 1503 1657 1669 1693 1774 1868 Net financial flows, debt and equity 163 333 288 300 303 303 208 168 246 272 Percent of GNI (%) 4 7 5 6 6 5 4 4 5 6 Net Debt Inflows 61 173 140 147 170 177 88 43 98 159 Long-term 64 117 141 128 141 152 79 72 86 114 Official creditors 16 22 5 12 9 11 6 5 7 34 Bilateral 3 4 3 5 5 6 -2 -2 4 -3 Multilateral 13 18 2 7 4 6 8 6 3 37 World Bank (IBRD and IDA) 6 8 -3 4 3 2 3 2 -1 2 IMF 0 1 0 0 0 -1 0 0 0 29 Other multilateral 7 8 5 3 2 4 6 4 4 7 Private creditors 47 95 136 116 132 140 73 67 79 80 Bonds 42 67 81 78 69 64 26 52 71 36 Banks and other private 5 28 56 38 64 76 47 15 8 43 Short-term -3 56 -1 19 29 26 8 -29 12 45 Net equity flows 102 160 148 153 133 125 120 125 148 113 Net FDI inflows 61 120 145 138 121 107 106 104 129 118 Net portfolio equity inflows 41 40 3 15 12 19 14 21 20 -5 Source: World Bank Debtor Reporting System, International Monetary Fund, and Bank for International Settlement. Aggregate net financial inflows to the both debt and equity inflows. Other countries in region rose 11 percent in 2018 despite the the region recorded a 25 percent increase in net downturn in net equity inflows. This was driven financial flows in 2018 with a 21 percent fall in primarily by an outflow of portfolio equity in net equity inflows more than offset by a tripling response to investor concerns over global and of net debt inflows to $27 billion ($9 billion in regional economic uncertainties. In 2018 $5 2017). billion flowed out of the region as compared to an inflow of $20 billion in 2017. Foreign direct Figure 9: Net Debt and Equity Inflows to Select investment inflows remained relatively stable in Countries 2017-2018 most countries, declining on average 9 percent in US$ (billion) 80 2018 from the prior year level. The big three, 70 Argentina, Brazil and Mexico accounted for 80 60 percent of net financial flows to the region in 50 2018 and drove the overall trend but country 40 specific outcomes diverged. For Argentina and 30 20 Brazil higher net debt inflows more than offset 10 the decline in net equity inflows, notwithstanding 0 in Brazil the negative $10 billion turnaround in net equity net equity net debt net debt portfolio equity flows (from a $6 billion inflow in 2017 2018 2017 2018 2017 to a $6 billion outflow in 2018) and net Argentina Brazil Mexico Other LAC countries financial flows rose 29 percent and 11 percent, respectively in 2018. In contrast they fell 25 Source: World Bank Debtor Reporting System and percent in Mexico on the back of a contraction in International Monetary Fund 7 The 61 percent rise in net debt inflows in The fall in bond issuance by public and 2018 was accompanied by a change in private sector borrowers in 2018 reflected composition. Short-term debt inflow rose at a uncertain prospects for the global and U.S. much faster pace (275 percent) than long-term economy to which much of the region is closely debt (33 percent) reflecting a surge in flows to tied, and, in some instances, alternative Brazil and, to a lesser extent, Mexico. The borrowing options in domestic markets. Bond principal driver of the 33 percent increase in net issuance by public and private sector borrowers long-term debt inflows was the IMF $57 billion bailout package for Argentina against which $29 combined totaled $90 billion in 2018, a 25 billion was disbursed in 2018. It pushed percent decline from the comparable figure for multilateral creditors share of net long-term debt 2017. New issuance by public sector borrowers inflows to one third, from a negligible 3 percent fell 21 percent from the prior year level due in in 2017. Net inflows from private creditors ($80 large part to the absence of Brazilian borrowers billion) were static but characterized by a switch who eschewed international markets to take in composition with the decline in net inflows advantage of attractive terms in the robust from bonds offset by a comparable increase in net domestic market. New issuance by private sector inflows from commercial banks. Underlying this borrowers in the region fell 38 percent, to $21 shift was the reduction in bond issuance, notably billion. A principal factor in this downturn was by Brazil, where borrowers found opportunities the sharp contraction in issuance by private sector in the domestic market. The rise in inflows from entities in Mexico in response to uncertainties commercial banks was propelled by a surge in surrounding trade disputes with the United States. those to private sector entities to $40 billion ($6 billion in 2017), often inter-company lending Repayments on maturing bonds were also an associated with foreign direct investment. important factor in net flow outcomes. Principal Brazilian entities were the dominant factor, repayments on maturing bonds issued by public accounting for 65 percent of total inflows but sector borrowers fell 7 percent in 2018, resulting Colombia and Peru also recorded a sizeable in a net inflow of $40 billion ($56 billion in 2017) increase in inflows in 2018, as compared to but for maturing bonds issued by private sector outflows in 2017. entities principal repayments rose 33 percent resulting in a net outflow of $4 billion in 2018, compared to a net inflow of $15 billion in 2017. Figure 10: Composition of long-term net debt Figure 11: Bonds by Borrower Type- Gross and inflows 2016-2018 Net Flow 2017-2018 US$ (billion) US$ (billion) 120 100 PNG bonds… 80 PNG bonds… 60 PNG bonds… 40 20 PPG bonds… 0 PPG bonds… -20 PPG bonds… 2016 2017 2018 Bilateral creditors -20 0 20 40 60 80 100 Multilateral creditors Bonds 2018 2017 Commercial banks Source: World Bank Debtor Reporting System Source: World Bank Debtor Reporting System 8 Middle East North Africa Net financial flows US$43.8 billion in 2018 were little changed from the prior year but characterized by a shift in composition of debt flows with a sharp decline in inflows from official creditors and outflow of short-term debt offset by a 67 percent rise in long-term debt inflows from private creditors. Table 4: External Debt Stock and Net Financial Flows, Middle East North Africa, 2009-2018 US$ (billion) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 External debt stocks 182.9 192.2 191.9 200.7 223.5 225.5 239 267.6 299.5 320.7 Net financial flows, debt and equity 33.0 33.9 14.4 28.4 40.3 28.9 34.5 49.7 43.3 43.8 Percent of GNI (%) 3.3 2.9 1.1 2.0 3.1 2.2 2.9 4.0 3.7 .. Net Debt Inflows 5.3 9.3 0.5 8.9 22.2 10.9 19.6 29.9 23.0 24.2 Long-term 2.1 4.4 1.2 12.3 20.3 6.6 18.4 19.2 21.8 27.3 Official creditors 2.5 1.3 1.0 4.7 10.3 2.6 8.3 15.9 9.0 5.7 Bilateral -0.9 -1.1 -1.5 1.8 6.8 -0.4 4.8 6.4 1.7 1.9 Multilateral 3.4 2.4 2.5 2.9 3.5 3.0 3.5 9.5 7.3 3.8 World Bank (IBRD and IDA) 0.9 0.8 0.9 0.7 1.1 0.8 1.8 2.3 2.5 2.5 IMF -0.1 .. .. 0.5 0.9 1.5 0.9 2.8 2.8 1.7 Other multilateral 2.6 1.6 1.6 1.7 1.5 0.7 0.8 4.4 2.0 -0.4 Private creditors -0.4 3.1 0.2 7.6 10.0 4.0 10.1 3.3 12.8 21.6 Bonds 0.1 3.2 -0.8 5.8 7.8 0.5 5.6 1.3 11.4 10.6 Banks and other private -0.5 -0.1 1.0 1.8 2.2 3.5 4.5 2.0 1.4 11.0 Short-term 3.2 4.9 -0.7 -3.4 1.9 4.3 1.2 10.7 1.2 -3.1 Net equity flows 27.7 24.6 13.9 19.5 18.1 18.0 14.9 19.8 20.3 19.6 Net FDI inflows 26.5 22.6 14.5 20.7 18.1 17.3 15.7 19.1 20.9 19.6 Net portfolio equity inflows 1.2 2.0 -0.6 -1.2 .. 0.7 -0.8 0.7 -0.6 .. Source: World Bank Debtor Reporting System, International Monetary Fund, and Bank for International Settlement. Net debt inflows to the region rose 5 primarily the IMF and regional multilateral percent in 2018 to $24.2 billion with a $3.1 billion institutions, more than offset by increased contraction in short-term debt inflows offset by a inflows from commercial banks to public sector 25 percent increase in long-term debt inflows to entities. Together Egypt and Lebanon absorbed $27.3 billion (including the IMF), and 90 percent of net long-term debt inflows to the characterized by a shift in creditor composition. region in 2018. Most countries saw net debt Net inflows from official creditors fell 37 percent in 2018, to $5.7 billion while those from private Figure 12: Net long-term debt inflows 2017-2018 creditors rose 67 percent to $21.6 billion, divided US$ billion broadly evenly between bond issuance and 16 financing from commercial banks. 14 Trends at the individual country level 12 were mixed. Lebanon recorded the sharpest rise 10 in long-term debt inflows in 2018, an increase of 8 275 percent from the 2017 level; driven by a more 6 than fourfold rise in inflows from private 4 creditors, largely commercial banks to non- 2 guaranteed private sector borrowers. In Egypt, 0 the region’s largest borrower, net long-term debt Egypt Jordan Lebanon Morocco Other inflows rose 13 percent to $16 billion with a 20 2017 2018 countries percent fall in inflows from official creditors, Source: World Bank Debtor Reporting System 9 inflows decline. In Morocco they fell 76 percent but have been outpaced by debt inflows and their to $425 million, their lowest level in a decade share of net financial flows has eroded. In 2018 following a sharp contraction in flows from equity inflows accounted for 45 percent of net official creditors, including a net outflow to financial flows as compared to an average of 80 bilateral creditors. Jordan recorded a 29 percent percent in 2009-2012. drop in net debt flows and in the remaining Historically, the ratio of external debt-to- countries in the region they fell, on average, to GNI and to exports for countries in the region has, half the prior year level. on average, been low, a consequence of the high Aggregate net financial inflows to the share of equity in net financial flows and robust region rose marginally in 2018 with the 5 percent export earnings. More recently, the impact of the increase in net debt inflows offsetting the 6 downturn in global oil prices and other export percent fall in net equity inflows. The downturn earnings, coupled with increased debt creating in net equity flows was driven by reduced inflows inflows, has resulted in an appreciable rise in of foreign direct investment (FDI) to the Arab external debt-to-export ratios. They rose, on Republic of Egypt, Jordan and Iran. FDI inflows average, from 64 percent in 2013 to 94 percent at to Egypt fell 8 percent in 2018 but remained end 2018. In parallel the external debt-to-GNI robust, $6.8 billion, directed primarily at the oil rose from an average of 17 percent to an and gas sector, and equivalent to 35 percent of all estimated 26 percent at end 2018. While FDI inflows to the region that year. Stable moderate in comparison with many other low- economic performance attracted investment in and middle-income countries, the averages reflect Morocco. It stood out as the country to record the Algeria’s very low external debt-to-export and largest increase in FDI inflows in 2018, up 54 debt-to-GNI ratios, 12.5 percent and 3.2 percent, percent to $3 billion, mostly into infrastructure respectively, at end 2018 and masks wide and the automotive sector. After falling sharply divergence across the region. For Djibouti and in 2011 in the wake of the economic turbulence Lebanon, the external debt-to-export ratio was and social unrest across the region precipitated by 380 percent and 349 percent, respectively at end the Arab Spring, aggregate net financial flows 2018 and in Jordan it was close to 200 percent. have been on a broadly upward trajectory, rising Djibouti, Lebanon and Tunisia had the highest from an average of $35 billion in 2013-2015 to external debt-to-GNI ratio at end 2018, 158 $46 billion in 2016-2018. Equity inflows have percent, 145 percent and 90 percent, respectively. remained the most stable element of these flows Figure 13: Debt and Equity Inflows 2009-2018 Figure 14: Debt to Exports/GNI 2013, 2018 Percent Percent 35 400 30 350 300 25 250 200 20 150 15 100 50 10 0 5 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Debt-to-Exports 2013 Debt-to-Exports 2018 Net debt inflows Net equity inflows Debt-to-GNI 2013 Debt-to-GNI 2018 Source: World Bank Debtor Reporting System and Source: World Bank Debtor Reporting System and International Monetary Fund International Monetary Fund 10 South Asia Net financial flows fell to $67.3 billion in 2018, 45 percent lower than 2017 on account of the steep, 50 percent downturn in inflows to India. Net financial inflows to other countries in the region also declined but at a slower pace, on average 27 percent. Table 5: External Debt Stock and Net Financial Flows, South Asia, 2009-2018 US$ (billion) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 External debt stocks 366.2 410 460.5 528.3 566.2 604.5 635.6 624.5 707.2 730.1 Net financial flows, debt and equity 89.6 103.7 80.8 104.9 99.0 105.4 83.4 42.3 123.3 67.3 Percent of GNI (%) 5.3 5.0 3.6 4.6 4.2 4.1 3.1 1.4 3.7 1.9 Net Debt Inflows 27.9 42.9 47.1 55.4 47.4 54.3 36.5 -7.7 74.5 26.9 Long-term 24.0 30.4 26.2 36.9 45.2 59.6 36.6 -11.7 55.7 22.7 Official creditors 11.0 9.4 5.3 4.6 2.4 6.9 7.3 9.3 11.5 16.5 Bilateral 1.8 1.6 1.5 3.4 4.0 3.5 2.2 4.3 7.0 11.2 Multilateral 9.2 7.8 3.8 1.2 -1.6 3.4 5.1 5.0 4.5 5.3 World Bank (IBRD and IDA) 2.4 3.3 2.2 0.9 0.7 0.7 2.4 2.3 1.5 1.7 IMF 3.6 2.0 0.0 -1.5 -2.8 -0.5 1.3 0.9 0.1 0.0 Other multilateral 3.2 2.5 1.6 1.8 0.5 3.2 1.4 1.8 2.9 3.6 Private creditors 13.0 21.0 20.9 32.3 42.8 52.7 29.3 -21.0 44.2 6.2 Bonds 1.9 10.1 0.7 5.5 -0.5 32.4 12.7 -1.7 36.3 -7.2 Banks and other private 11.1 10.9 20.2 26.8 43.3 20.3 16.6 -19.3 7.9 13.4 Short-term 3.9 12.5 20.9 18.5 2.2 -5.3 -0.1 4.0 18.8 4.2 Net equity flows 61.7 60.8 33.7 49.5 51.6 51.1 46.9 50.0 48.8 40.4 Net FDI inflows 37.5 31.0 37.8 26.1 31.1 37.4 44.6 47.9 42.6 45.3 Net portfolio equity inflows 24.2 29.8 -4.1 23.4 20.5 13.7 2.3 2.1 6.2 -4.9 Source: World Bank Debtor Reporting System, International Monetary Fund, and Bank for International Settlement. The downturn in net financial inflows to sector entities was the principal driver. Foreign the region in 2018 was driven by outcomes in direct investment (FDI) proved resilient, rising 6 India where debt and equity inflows fell sharply percent in 2018 to $45 billion driven primarily by because of a selloff of domestically issued bonds inflows to India. They rose 6 percent to $39 held by nonresidents, a marked, 50 percent, billion, reflecting new investment in the contraction in short term debt inflows and a $5 manufacturing and service sectors, and cross- billion outflow of portfolio equity. Net debt flows to India were down 77 percent from the Figure 15: Net Debt and Equity Inflows 2009-2018 2017 level and net equity inflows fell 17 percent, US$ (billion) reducing India’s share of net financial inflows to 70 60 the region in 2018 to 70 percent (78 percent in 50 2017). Net debt inflows to other countries in the 40 30 region fell, on average, 33 percent in 2018 but 20 10 Pakistan drove the downward trajectory. It saw 0 net debt inflows fall close to 50 percent as a result -10 -20 of the combined effect of a marked contraction in -30 inflows from multilateral creditors and an 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 outflow of short-term debt. In Bangladesh the 20 South Asia (excl. India) net equity inflow percent downturn in net debt inflows in 2018 India net equity inflow South Asia (excl. India) net debt inflow resulted from an outflow of short-term debt; in Sri India net debt inflow Lanka where the comparable fall was 35 percent, Source: World Bank Debtor Reporting System, and an outflow on debt of non-guaranteed private International Monetary Fund. 11 border mergers and acquisitions, including countries, notably China and Japan, and inter- Walmart (USA) and India’s biggest e-commerce regional lending by India to smaller countries like platform FlipKart. India is the third largest Bhutan and Nepal. IDA, the single largest recipient of FDI amongst low- and middle- multilateral creditor, accounted for, on average, income countries and the tenth largest recipient 22 percent, but for a much larger share in some worldwide. Bangladesh recorded the largest rise countries e.g. Bangladesh (38 percent) and Nepal in FDI inflows in the region; up 40 percent, to (49 percent). $2.1 billion on account of investment in power The ratio of external debt stock to GNI generation and acquisition of United Dhaka and to exports for the region fell marginally in Tobacco by Japan Tobacco. 2018, to an average of 21 percent and 109 The external borrowing patterns of India percent, respectively at year end. The GNI and and other South Asian countries differ export earnings of India was a key determinant of considerably, and this is reflected in the these ratios, given the size of the Indian economy, composition of outstanding external debt stocks. relative to that of neighboring countries. Across For India public and publicly guaranteed debt the region there was significant divergence in accounted for 56 percent of long-term external debt burdens. Bhutan recorded the highest debt- debt at end 2018 as compared 14 percent for other to-export and debt-to GNI ratio at end 2018, 313 South Asian countries. There was a similar percent and 109 percent, respectively. Debt in divergence in the creditor composition of public relation to exports (256 percent) and GNI (61 and publicly guaranteed debt. India owed 52 percent) was also elevated in Sri Lanka. percent of such debt to private creditors Elsewhere, the external debt-to-export ratio (bondholders and commercial banks) at end 2018 ranged from 295 percent in Pakistan to 119 as compared to other countries in the region percent for Bangladesh while external debt-to- where, on average, 82 percent was owed to GNI ratios were moderate in both countries, official bilateral and multilateral creditors: except Pakistan 28 percent and Bangladesh 18 percent. for Sri Lanka these countries are all IDA-eligible The regional average for the ratio of international and thus the reliance on official creditors for reserves to external debt, 59 percent at end 2018, external financing. The combined long-term was also heavily weighted by India which had public and publicly guaranteed external debt reserves equivalent to 72 percent of external debt stock of this group (excluding India) was $163 stock at end 2018. This ratio varied considerably billion at end 2018 of which close to half was for other countries from 60 percent in Bangladesh owed to multilateral creditors and 34 percent to to a low of just 10 percent for Pakistan. bilateral creditors primarily other Asian Figure 16: External Public Debt Stock -Creditor Figure 17: External Debt Indicators end-2018 Composition, end-2018 Percent Percent 100% Sri Lanka 80% Pakistan 60% India 40% Bhutan 20% Bangladesh 0% South Asia 0 100 200 300 400 Private creditors Other multilateral creditors incl. IMF Reserves to Debt Debt-to-Exports Debt-to-GNI IBRD + IDA Bilateral creditors Source: World Bank Debtor Reporting System and Source: World Bank Debtor Reporting System International Monetary Fund. 12 Sub-Saharan Africa The 37 percent decline in net financial flows in 2018 was driven by the sharp contraction in net debt inflows to South Africa. Other countries in the region recorded, on average, a 23 percent increase in net debt inflows, partially offset by a 17 percent decline in net equity inflows. Table 6: External Debt Stock and Net Financial Flows, Sub-Saharan Africa, 2009-2018 US$ (billion) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 External debt stocks 269 300.8 330.7 379.5 416.4 441.8 458.8 485.4 556.5 584.3 Net financial flows, debt and equity 47.6 61.8 77.9 80.0 76.2 75.2 73.7 46.6 96.5 61.1 Percent of GNI (%) 4.5 4.9 5.4 5.2 4.8 4.4 4.7 3.2 6.0 3.8 Net Debt Inflows 12.1 23.1 31.3 36.8 41.7 38.5 40.3 26.6 62.9 35.0 Long-term 15.0 18.4 29.9 24.8 37.7 40.4 37.8 30.3 54.6 36.8 Official creditors 10.4 14.0 13.5 12.2 15.8 17.4 15.4 23.0 20.2 16.0 Bilateral 2.8 6.5 6.4 4.8 7.9 9.3 7.0 15.4 7.9 4.8 Multilateral 7.6 7.5 7.1 7.4 7.9 8.1 8.4 7.6 12.3 11.2 World Bank (IBRD and IDA) 3.1 4.0 3.2 3.9 5.0 5.7 5.7 5.0 6.1 6.1 IMF 2.2 1.2 1.4 0.9 0.2 -0.3 -0.1 0.0 0.6 1.5 Other multilateral 2.3 2.3 2.5 2.6 2.7 2.7 2.8 2.6 5.6 3.6 Private creditors 4.6 4.4 16.4 12.6 21.9 23.0 22.4 7.3 34.4 20.8 Bonds 2.1 2.3 8.7 4.4 4.3 10.6 8.3 4.3 26.3 12.6 Banks and other private 2.5 2.1 7.7 8.2 17.6 12.4 14.1 3.0 8.1 8.2 Short-term -2.9 4.7 1.4 12.0 4.0 -1.9 2.5 -3.7 8.3 -1.8 Net equity flows 35.5 38.7 46.6 43.2 34.5 36.7 33.4 20.0 33.6 26.1 Net FDI inflows 24.7 22.8 37.8 28.9 20.5 26.3 24.0 21.9 20.0 23.6 Net portfolio equity inflows 10.8 15.9 8.8 14.3 14.0 10.4 9.4 -1.9 13.6 2.5 Source: World Bank Debtor Reporting System, International Monetary Fund, and Bank for International Settlement. A sell-off by foreign holders of South slowdown in repatriation of earnings by investors African bonds in 2018 following investor concern in Angola, strong inflows into the oil and gas over macro-economic and fiscal policies was the sector in Uganda and record level of inflows to primary factor behind the sharp contraction in net diverse sectors in Kenya in response to improved debt inflows to the region in 2018. South Africa ‘Doing Business’ scores. is by far the region’s largest borrower, accounting for 31 percent of the combined external debt Figure 18: Net Debt and Equity Inflows 2009-2018 stock at end 2018. In contrast, a surge in net US$ (billion) inflows from bondholders was the main driver of 70 the 23 percent rise in debt inflows to other 60 countries in the region in 2018. They totaled 50 $14.7 billion ($8 billion in 2017) and accounted 40 for almost 40 percent of net long-term debt 30 inflows, excluding South Africa. The 17 percent 20 downturn in net equity inflows in 2018 was 10 driven by South Africa where heightened risk 0 perceptions reduced portfolio equity flows by 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 $4.7 billion from the 2017 level. Conversely, a Net debt inflows rebound in inflows of foreign direct investment Net debt inflows excl. South Africa Net equity inflows (FDI) to South Africa helped the net inflow of Net equity inflows excl. South Africa FDI to the region rise 20 percent in 2018, a larger increase than any other region. Other factors Source: World Bank Debtor Reporting System and International Monetary Fund. contributing to the increase in FDI were a 13 In recent years there has been a The rise in external debt stocks outpaced significant increase in external debt stock for economic growth in many Sub-Saharan African many countries in the region. This has been countries over the past decade. The combined accompanied by important shifts in borrowing ratio of external debt-to-GNI averaged 36 percent patterns, included increased reliance on non- at end 2018, a marginal change from the prior traditional bilateral creditors like China, and a year, but over 40 percent higher than 2009. sharp rise in loans from private creditors Between 2009-2018 the combined GNI of including international bond issuance facilitated countries in the region rose 51 percent, measured by accommodative global financial conditions. in U.S. dollar terms, while the combined external These trends are evidenced by the marked change stock increased, on average, by 117 percent. For in creditor composition of new debt flows, some countries the pace of increase in external particularly those to the 33 countries in the region debt was far more accelerated over this period. classified as IDA-only and eligible for highly External debt stocks rose 423 percent in Ethiopia, concessional financing from official creditors. 38 percent in Rwanda and 345 percent in Uganda Disbursements from long term loan commitments compared to increases of 159 percent, 74 percent to this group of countries totaled $24.6 billion in and 49 percent, respectively in GNI. The ratio of 2018, an increase of 25 percent from the 2017 external debt-to-export earnings followed a level. Private creditors share of disbursements similar trajectory. It averaged 134 percent at end rose to 46 percent in 2018 (29 percent in 2017) 2018, an small improvement over the prior year primarily on account of large Eurobond issues by (144 percent in 2009) but well over double the Cote d’Ivoire, Ghana and Senegal. In all, one comparable ratio at the start of the decade and quarter of IDA-only countries in the region have masking the fact that in over 30 percent of now issued Eurobonds. Disbursements by countries, mostly ones that benefitted from HIPC multilateral creditors, $8 billion in 2018, were and MDRI, the end 2018 ratio was close to, or little changed from 2017 but their share of total above, 250 percent. disbursements fell to 34 percent, down from 41 percent in 2017 while disbursements from bilateral creditors fell 5 percent to $5.4 billion. Figure 19: Disbursements to IDA-only countries – Figure 20: External Debt Stock and GNI Creditor composition 2009-2018 Percentage Increase 2009-2018 Percent Percent 100 Sub-Saharan Africa 80 Uganda Senegal 60 Rwanda 40 Kenya Ghana 20 Ethiopia 0 0 200 400 600 2009 2013 2014 2015 2016 2017 2018 Bilateral creditors Multilateral creditors Private creditors GNI Total External Debt Stock Source: World Bank Debtor Reporting System. Source: World Bank Debtor Reporting System and International Monetary Fund. 14