Poloy,g Planning, rnd Re"arch WORKING PAPERS Debt and International Finance International Economics Department The World Bank August 1989 WPS 255 The External Debt Difficulties of Low-Income Africa Charles Humphreys and John Underwood The debt crisis that affects middle-income developing countries gets more publicity than the one that affects low-income African countries - but the debt service in 10 of those countries aver- ages 80 percent of annual exports. Poverty and economic rigidi- ties make it hard for them to grow out of their debt problems without increased concessional aid and debt rescheduling. The Policy. Plumning, and Research Complex distributes PPR Working Papers todissesninate the findings of work in progress and to encourage the exchange of ideas among Bank staff and aU others interested in development issues. These papers carry the names of the authors, rflec only their views, and should be used and cited accordingly. The findings, interpeutimns, and comclusions are the authors'own. They should not be attributed to the World Bank, its Board of Dimctors, its management, orany of its manber countries. Plc,Planning, and Research Debt and Internadlonal FinanceI Two debt crises affect developing countries. grow out of their debt problems without special The more publicized crisis affects the middle- assistance. These countries are more dependent income Baker Plan countries, including Nigeria than the highly indebted countries on primary and Cote d'lvoire. The less well known crisis commodity exports, which often require long affects most of Africa's 34 low-income coun- investment periods to increase production. tries. Expanding the output of tradable goods, which is central to adjustment, is difficult and likely to The total external debt of these countries- be slow. about $70 billion - is less than the debt of Mexico alone. Intemational bank exposure there Recognizing the problems of these coun- is less than $10 billion. Low-income Africa's tries, several bilateral donors have converted external liabilities are mainly loans from, or concessional development loans to grants in guaranteed by, official creditors. Their debt many of these countries. Donor govemrn nts represents no threat to the intemational financial have endorsed concessional debt relief. l1 tie system, so it generates little publicity. near-term relief from rescheduling will not be great, but the principal of orderly debt reduction But their extemal debt represents, by many has been put into practice. measures, a more severe economic burden than the debt of the middle-income countries. Ten of Debtor countries must take the lead in the most severely indebted African countries establishing and maintaining workable medium- owe an average of over 1,000 percent of their term adjustment programs. Once adjustment is annual exports. occurring, it is in the interests of donors and creditors to continue supporting recovery well Poverty and economic rigidities in the into the 1990s. African countries make it harder for them to This paper, prepared for the confcrence "Dcaling with the Debt Crisis," is a product of the Debt and Intemational Finance Division, Intemational Economics Departnent Copies are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Sheilah King-Watson, room S8-029, extension 33730 (49 pages with charts and tables). The PPR Working Paper Series disseminates the findings of work under way in the Bank's Policy, Planning, and Research Complex. An objective of the series is to get these findings out quickly, even if prescntations are less than fully polished. The findings, interpretations, and conclusions in thesc papers do not necessarily represent official policy of the Bank. Produced at the PPR Dissemination Center The External Debt Difficulties of Low-Income Af_ica by Charles Humphreys and John Underwood Table of Contents Origins of the Debt Problem 3 The Contrast Between Low-Income Africa and 5 the Highly Indebted Middle-Income Countries Economic Factors Behind Low-Income Africa's 9 Debt Difficulties The Structure of Low-Income Africa's Debt is 13 Different Assessing the Magnitude of the Debt Problem 17 Responses to Date 20 Evaluating the Options 29 The Problem of Commercial Bank Claims 37 References 40 Appendix Tables 42 Two debt crises affect developing cottntries. The more highly publicized crisis affects the middle-income "Baker Plan" countries, including Nigeria and Cote d'Ivoire in Sub-Saharan Africa. The other, less well known, debt crisis affects the majority of a set of 34 low-income African countries. (See Annex table 2 on page 42 for a list of low-income African countries.) The total external debt of these countries, about $70 billion, is less than Mexico's alone (see Annex table 1, page 41.) International bank exposure there is less than $10 billion. Low-income Africa's external liabilities are mainly loans from, or guaranteed by, official creditors. Because their debt represents no threat to the international financial system, these countries receive very little publicity about their plight. Yet, their external debt represents, by many measures, a move severe burden to their economies than the middle-income country debt represents to those economies. Ten of the most severely indebted low-income African countries owe, on average, over 1000 percent of their annual exports. Scheduled debt service for these ten countries averages 80 percent of annual exports. The latter ratio--which unlike the debt to export ratio--takes into account the more concessional terms of low-income Africa's debt, is 40 percent higher than the comparable ratio for the highly indebted middle income countries (HICs). In addition, the poverty and economic rigidities in these countries make it harder for them to grow out of their debt problems without special assistance. Low-income African countries are more dependent than the HICs on primary commodity exports, that often require long investment periods to increase production. They live in more difficult conditions in terms of the availability of health care and of access to safe drinking water. Their education systems completely miss over a third of school age children. Under these conditions the expansion of the output of tradable goods that is central to adjustment is difficult and is likely to be slow. Official creditors and dnnors have recognized the severe and long- term nature of the debt and development problems facing highly indebted low- income countries. Since 1978, several bilateral donors have converted concessional development loans to grants in many of these countries. The World Bank's Special Program of Assistance (SPA) and the Fund's Enhanced Structural Adjustment Facility (ESAF), both backed by bilateral donors, were launched in 1987 to address these problems more directly. Most recently, at the 1988 Toronto Summit, donor governments endorsed concessional debt relief for low-income debt-distressed countries. Industrial-country governments have worked out the forms of that relief and have rescheduled debts of the Central African Republic, Guinea, Niger, Madagascar, Mali, Senegal, Tanzania, and Uganda under the new arrangements. The near-term relief from these reschedulings will not be large, but the important principal of orderly debt reduction has now been put into practice. Together, these actions by official creditors and donors are important steps in restoring normal creditor-debtor relationships in these countries. In some countries, more will be required, in terms of larger asjistance or the maintainance of a high level special assistance for some time beyond the scheduled expiration of the SPA and other special programs. Although they are not a major share of total claims on low-income African countries, commercial bank claims remain a significant problem in some of the most debt-distressed low-income African countries. The additional aid -3- and debt reduction provided by official creditors may tend to benefit commercial banks disproportionately. Some method of burden sharing would help to ensure that these official resources support growth. One method would be the use of concessional aid to buy up long-term commercial bank claims, at heavily discounted prices, and pass the discount on to the debtor country. This process would be similar to the Bolivian buy-back, but if possible without the price increases that resulted from the Bolivian buyback. Other methods include increased official tax and regulatory support for commercial bank donations of claims to aid or charitable organizations. The organizations would use the local currency payments to support their programs in the debtor country. To grow out of debt difficulties, even with the extraordinary external support forthcoming, debtor countries must take the lead in establishing and maintaining workable medium-term adjustment programs. It is in the interest of donors and creditors to provide adequate external resources to support these programs, once orderly and sustained adjustment is occurring. The external support now in place covers mainly the years 1988- 90. With its economic rigidities, low investment and savings rates, and infrasturctural weaknesses, recovery in low-income Africa will extend well into the next decade. Donors must keep in mind the special extirnal financing needs of these countries after 1990, especially during discussions surrounding the upcoming Ninth Replenishment of the International Development Association, the soft-loan window of the World Bank. Why Low-Income Africa's Debt Problem is Different Origins of the Debt Problem -4- The origins of low-income Sub-Saharan Africa's debt problem are in many respects similar to those in other highly indebted countries. World commodity prices, in rzal terms, for many of their major commodity exports (including bauxite, cocoa, coffee, cotton, sugar, tea, groundnuts, and uranium) peaked in the mid- or late 1970s. These commodity booms lowered the real cost of borrowing (it was negative in the last half of the 1970s) and led to optimistic expectations that future export revenues would rise in line with the growth in external obligations. This optimism fueled two converging tendencies. Stt;-ig commodity prices increased government revenues and allowed governments to ratchet up expenditures, which were difficult to compress when commodity prices fell (Krumm 1985). But these low-income countries appeared creditworthy at a time when export credit agencies were under pressure to promote exports to help offset the rising cost of oil imports. As a result, there were short, but intense, bursts of ECA-financed (or guaranteed) exports to low-income Africa, for intermediate and capital goods. Direct end guaranteed export credits grew rapidly during the 1970s (see table 1). In addition, a few low-income African countries had some access to the international syndicated loans of commercial banks. Even countries that did not go through major commodity export price booms (for instance copper exporters like Zaire and Zambia and iron ore exporters Like Liberia and Mauritania) could borrow more because of their previous growth, their mineral reserves, and the expectation that these mineral prices would eventually rise along with those of other commodities. -5- TABLE 1: Borrowing by Low-Income Africa, 1970-87 (billions of U.S. dollars; numbers in parentheses are percentages) 1970 1980 1987 Total nonconcessional debt 2.0 18.2 37.5 (Share of total long-term debt) (48) (65) (63) ECA-type debt 1.0 10.1 19.0 (Share of total long-term debt) (25) (36) (32) Debt service payments on ECA-type debt 0.1 0.9 0.9 (Share of payments on total long-term debt) (42) (41) (34) Source: World Bank Debtor Reporting System. Note: Excludes short-term debt. ECA-type debt is defined as direct bilateral official nonconcessional lending plus all private-source suppliers credits and fixed-rate commercial bank loans, which are assumed to be guaranteed by creditor governments or agencies. Many African economies fell out of step with the world economy when too optimistic images of the future faded and unrealistic development strategies failed. Export prices declined sharply, growth in industrial countries slumped, governments were slow to react, and the economies were unable to adjust. The conditions of these nonconcessional export credits turned out to be unrealistically hard, in terms of both interest rates and repayment periods. The windfall resources from the boom years of the late 1970s and early 1980s did not accelerate development. Instead, they led to unrealistic expectations, overextended borrowing on commercial terms, and an unmanageable debt burden. The Contrast Between Low-Income Africa and the Highly Indebted Middle-Income Countries There are differences with the highly indebted middle income countries. (See table 2 for a list of the latter countries.) Increases in - 6 - real interest rates were less of a factor in low-income Africa, tha debt crisis came earlier, and, most importantly, the debt burden is, by most measures, more severe. Although the unexpected increases in real interest rates were a key element in the highly indebted middle-income countrys' debt crisis (Cuddington 1989), they played a much smaller part in low-income African countries because much less of their bilateral official and private debt is denominated in variable rates (5 percent compared to 66 percent for the highly indebted middle income countries in 1987). The debt problem emerged earlier in low-income Africa than in the highly indebted middle income countries. Beginning with Zaire in 1976, 10 low-income African countries rescheduled official claims or 19 occasions and commercial bank claims on five occasions before the first reschedulinp by a highly indebted middle-income country in 1.32. Though the origins may be similar, the debt problem in low-income Africa is more severe and less easy to correct without special help. Low-income Africa is more heavily indebted. Although the amounts are small relative to financial stocks and flows in other developing countries, the debt is worse for many low-income countries. The usual ratios are as severe, and the economies of these countries are less able to absorb the required adjustments (see table 2). -7- Table 2: Indicators of Debt Burdens, 1987 (billions of U.S. dollars; numbers in parentheses are percentages) Highly Indebted Low- Low- Mid.-Inc. income income Cos.* Africa Asia** Total debt 527 71 113 (official) (28) (77) (68) Debt service payments 56.4 4.2 11.8 (official) (33) (68) (56) Ratio of debt to exports (357) (520) (158) Ratio of debt to GNP (63) (104) (19) Debt service ratio (38 (31) (17) (payments basis) Debt service ratio (59) (52) (17) (obligation basis, using 1987 exports) Source: World Bank Debtor Reporting System. Notes: Total debt includes IMF and short-term obligations. Debt-service payments iucLude IMP repurchases and charges and estimated interest on short- term debt. *1 Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cote d'Ivoire, Equador, Jamaica, Mexico, Morocco, Nigeria, Peru, Philippines, Uruguay, Venezuela, and Yugoslavia. **/ Bangladesh, Bhutan, Burma, China, India, Lao PDR, Maldives, Nepal, Pakistan, Sri Lanka, and Vanuatu. Most methods of assessing debt burdens show low-income Africa faces a more difficult debt situation than the highly indebted middle income countries and than other low-income countries in other developing regions. The most severely indebted low-income Africa countries owe debt amounting to almost 100 percent of their GNP and 500 percent of their annual exports. These debt ratios are nearly double those in the highly indebted middle income countries. The comparison with low-income Asian countries, where the external a bt ratio averages less than a third of the ratio in the severely indebted low-income African courtries, is more telling. - 8 - Because more of this debt is concessional (almost half of total debt in low-income Africa compared to 5 percent in the highly indebted middle income countries), the usual ratios may overstate low-income Africa's real debt burden.!1 The most straightforward adjustment for concessionality is to reduce the debt stock by its grant equivalent, which can be estimated as the difference between the nominal value and the discounted present value of all scheduled debt service on all outstanding debt. The estimated grant equivalent in low-income Africa's existing debt is about $17 billion. On this basis, its ratios of debt to GNP and to annual exports drop to about 80 and 400 percent, respectively. Even adjusting for this higher concessionality, low-income Africa's burden (debt as percentage of experts and GNP) remains more severe than the highly indebted middle income countries. In addition, the bite that debt-service payments takes out of exports is about as large. But one element that mitigates low income Africa's debt burden is the high level of grants in its capital inflows. Grants make up more than half of the total gross capital inflows of IDA-eligible countries in Sub-Saharan Africa, compared with less than a fifth for the rest of the region (World Bank, 1989). In 1987, grants were $6.4 billion, including technical assistance grants that are 35 to 40 percent of the total. If these grants were included in export receipts in that year, the adjusted debt service ratio would have been much lower than the conventional debt service ratio (21 percent compared to 31 percent). 1/ Debt is conveniently defined as concessional when its terms are long enough and its interest rates low enough that it contains an implicit grant element of at least 25 percent, using a discount rate of 10 percent. (See OECD 1987, Annex.) Because of the convention of using a 10 percent discounc rate, debt on regular commercial terms may appear to have a grant element. This anomaly can be eliminated by using the current commercial interest rate as the discount factor. -9- No matter how it is measured, the strong conclusion from these data is that low-income Sub-Saharan 1irica is more severely indebted. The short- term real cost of this higt.r indebtedness (debt service paid) is almost as severe for low-income Africa as for the highly indebted middle income countries when compared to export receipts. But the region's capacity to bear this more severe burden is limited by its weaker, more rigid, economies. Economic Factors Behind Low-Income Africa's Debt Difficulties Although the origins and characteristics of their debt problems are similar, the weaker, less flexible economies in low-income Africa limits more severely their ability to adjust sufficiently and rapidly enough to restore creditworthiness. Structural economic rigidities have been compounded by policy rigidities. These economies have an arguably lower capacity to adjust to their debt burdens. As a result, a strategy of simply delaying debt service payments to allow these countries to grow out of their debt problems is much less like'.y to work. Structural weaknesses. Structural weaknesses preclude most of these economies from achieving the rapid growth necessary to escape from their debt difficulties under conventional debt relief mechanisms. They are smaller, poorer, and more dependent on primary commodities than the Highly indebted middle income countries. The lack of a diversified economy and export base makes it more difficult to adjust to changing world economic conditions. Population growth is higher by almost a percentage point compared to the Highly indebtei middle income countries (see table 3), making it harder both to increase per capita income and to provide for basic human needs. Living conditions and the quality of human capital are worse. Infant - 10 - mortality is about double than in Highly indebted middle income countries. Life expectanicy is some ten years less than in the Highly indebted middle income countries. Only about two-thirds of the school-aged children attend primary school compared with almost 100 percent in the Highly indebted middle income countries; and only 16 percent attend high schoot compared with about half in the Highly indebted middle income countries. Relative to population, there are seven times more physicians in the Highly indebted middle income countries. Savings and investment rates are, on average, the lowest in the developing world, making it harder co strengthen their productive base; savings rates are only a third those in the Highly indebted middle income countries and investment rates, for all low-income Africa, are some five percentage points lower (see table 3). Low-incomes make it difficult to increase investment and savings. They are almost twice as dependent on imports as the Highly indebted middle income countries, but their export shares are not much larger. Consequently, low-income Africa countries have substantial resource gaps, and foreign capital is essential both to finance trade deficits and domestic investment. Gross aid flows, including technical assistance and other grants, are about US$10 billion a year, equivalent to about 90 percent of gross domestic investment in these countries, and are three times their actual debt service payments on nonconcessional debt. Investments that are made are less productive. Incremental capital output ratios (ICOR) measure the units of investment required to raise annual output by one unit; smaller ratios imply greater efficiency and productivity than higher ratios. Those in low-income Africa are much higher than in the Highly indebted middTe income countries. During the 1970s, the best ICORs in low-income Africa (about five, with most being much higher) were about the - 11 - same as the worst ICORs in the Highly indebted middle income countries (most were about three). Table 3: Indications of Structural Differences Between Low-Income Africa and Highly Indebted Middle Income Countries Low-income HICs Africa Average population per country 9 36 (millions, 1987) Population growth (annual 3.1 2.4 percentage, 1987) GNP per capita (ATLAS basis) 287 1452 (US$, 1987) Gross domestic savings 6 14 (percent of GDP in current prices, 1986-87) Gross domestic investment 14 20 (percent of CDP in current prices, 1986-87) Exports as share of GDP 19 16 (percent, 1980-86) /a Imports as share of GDP 28 15 (percent, 1980-86)/a Share of manufacturing 8 26 in exports (1986-87, percent) Source: World Bank data files. Notes: Averages are weighted /a Goods and nonfactor services Their economic performance has been poor, both before and during the debt crisis. GDP grew in low-income Africa by only 2 percent a year in 1970- 80, declining in per capita terms. Over the same period, GDP grew by almost 6 percent a year in the highly indebted middle income countries. Since the onset of the international debt crisis in 1982, when new flows of - 12 - nonconcessional capital virtually dried up for these countries, their export growth has been lower and more erratic than that of the Highly indebted middle income countries and their per capita consumption has been declining faster (see table 4). Low-incom'e Africa's export volume is lower now than in 1970, and the failure of exports to expand in line with expanding world trade (including that in primary commodities) goes far in explaining the region's debt servicing difficulties. If these countries had simply maintained export growth in line with other developing countries, their debt service ratio in 1987 would have been more than a third lower. Had they simply maintained their market shares in developing countries' nonoil primary commodities, the additional export revenue would have amounted to about twice as much as their debt service payments in the mid-1980s. The failure to diversify their exports out of primary commodities has also contributed to their problems coping with higher debt burdens. Manufactured exports represent the most rapidly growing segment of developing country exports, and have had by far the highest growth rate of exports from the Highly indebted middle income countriea during the 1980s. But the Highly indebted middle income countries also increased substantially the volume of nonoil primary exports as well, in contrast to the decline in these in low- income Africa. - 13 - Table 4: Selected Economic Indicators Low-income HICs Africa GDP growth (1982-87, annual 1.8 2.0 percentage) Export growth (1982-87, annual 0.6 4.3 percentage) Instability of export revenues (1970-85, median country values) 20.8 20.2 Import growth (1982-87, annual -1.1 -3.0 percentage) Per capita consumption growth -1.7 -0.4 (1982-87, annual percentage) Sources: World Bank data files and Development Committee Pamphlet No. 15 Notes: Growth rates are weighted and computed in constant prices using least squares regression. Poor policies have compounded these structural rigidities and contributed to poor performance. As in the highly indebted middle income countries, these must also be rectified if the region is to recover from the debt crisis. These have been dealt with at length elsewhere, including recent progress on reforms. However, regardless of the reforms adopted, developing a solution to their debt problem depends on the structure of their debt. The Structure of Low-Income Africa's Debt is Different Almost 90 percent of low-income Africa's total debt represents claims directly from or guaranteed by official agencies, both bilateral and multilateral. (See appendix tables 1 and 2 for a creditor breakdown of low- income Africa's debt.) Thus, the bulk o the creditor effort to help deal - 14 - with the problem in these countries must be by official agencies, not commercial banks. ln the shortrun, efforts of official creditors must focus on reducing debt service obligations and payments in an orderly fashion, and on increasing gross capital inflows. Well over half (60 percent) of the official claims are bilateral, including private loans guaranteed by official export credit agencies. Most low-income African countries could not borrow to any significant degree without external guarantees provided by official export credit agencies. When borrowers were unable to pay debt service due on these loans, the ECAs have picked up these claims. Altogether, private lending by commercial banks and suppliers to low-income African councries accounts for about eight percent of their total debt, or a quarter of their nonconcessional, bilateral official debt.2/ About half (52 percent) of this bilateral official and officially guaranteed debt is nonconcessional. Although official bilateral nonconcessional direct and guaranteed loans (mainly ECA exposure) represented almost 30 percent of the long-term debt in these countries, it accounted for 27 percent of debt service payments on long-term debt (including IMF transactions) in 1987 and 53 percent of scheduled debt service obligations in 1988. Multilateral creditors, including the IMF, hold about $25 billion (39 percent) of the claims on low-income Africa. More than 60 percent of these claims are at concessional interest rates and represent a small proportion of scheduled debt service obligations. 2/ This figure includes only guaraateed debt for which the guarantee has not been called. It has%been estimated from the loans recorded in the Debtor Reporting System on the assumption that all suppliers credits are guaranteed and all commercial bank loans issued with fixed interest are guaranteed. - 1C - Table 5: Low-Income Africa's Multilateral Debt US$ billion percent of total long-term Multilateral debt, 1987 25.5 39 of which: World Bank 3.0 5 IDA 9.6 15 IMF 5.6 9 AfDB/F 2.8 4 Debt service payments 2.0 54 on multilateral debt, 1987 of which: World Bank 0.4 10 IDA 0.1 3 IMF 1.0 27 AfDB/F 0.2 5 IDA, the soft loan window of the World Bank, holds almost $10 billion in claims on the 34 countries (excluding Mozambique) and is their largest single creditor. Although IDA credits account for 15 percent of their total long-term debt, debt service to IDA amounted to less than three percent of their actual long-term debt-service payments in 1987. Private commercial lending to low-income Africa, mostly by commercial banks, that is not guaranteed by creditor governments or agencies is relatively small--less than $10 billion (13 percent) of total external debt. Most of this is stvrrt-terin debt, including interest arrears on long-term debt. In several of the most severely indebted low-income African countries, - 16 - a large share of this debt is in arrears. This debt structure contrasts sharply with that of the highly indebted middle income countries, whose claims are highly concentrated in private creditors (three-fifths), with less than a fifth from bilateral creditors (direct and guaranteed) and the rest from multilateral creditors (see table 6). The small residual amount represents claims of nonbank private creditors. Table 6: Summary of Debt Structure Low-Income HICs Africa Official direct bilateral US$ billion 30 54 percentage 42 12 Creditor guaranteed/a US$ billion 6 34 percentage 9 7 Multilateral US$ billion 26 83 percentage 36 18 Private (including short-term debt)/b US$ billion 9 357 percentage 13 78 Source: World Bank Debtor Reporting System. Notes: a/Defined as suppliers credits and fixed-rate commercial bank loans. b/Defined as private loans not guaranteed. by debtor governments, variable rate commercial bank loans, short term debt (which may include interest in arrears on public loans), bonds, and nationalization obligations. - 17 - Assessing The Magnitude of the Debt Problem The low-income countries of Sub-Saharan Africa are m-:ch less creditworthy than had been anticipated at the time the bulk of the original nonconcessional loans were made. Their current debt structure is, in most cases, inappropriate to their current economic circumstances or prospects. Marginal adjustments to past strategies for dealing with debt problems are, with few exceptions, not sufficient to resolve their debt distress. Medium-term projections made in 1986-' show that many of the low- income African countries will face continuing debt problems. Most of the 34 countries would be unable to finance imports adequate for adjustment and growth, while at the same time servicing their existing debts. Additional borrowing to fill the gaps--assuming creditors were prepared to lend--would push future scheduled debt service ratios well above levels that these countries have been able to meet in the past. Some of the assumptions about export price and volume growth made then appear optimistic now, reinforcing the results of that study. The magnitude of the effort that might be required to extract low- income African countries from their debt difficulties can be assessed by analyzing the 19 countries currently eligible for the Bank's Special Program of Assistance (SPA) for debt distressed low-income African countries. Real imports are targeted to grow at a rate one percentage point faster than population growth, starting from a 1988 base, providing for some recovery of imports from the extremely depressed levels of the mid-1980s. (This level of imports in 1988-90 corresponds to that agreed to by donors in setting targets 3l World Bank 1986. - 18 - for the SPA.) The target growth rate of real imports translates into an eight percent nominal growth rate. (See appendix table 3.) With projected export growth of eight percent in nominal terms, which is a turnaround from the declines in export volumes over the last 20 years, the implied current account deficit (before receipt of grants) would be $8.8 billion in 1989. In the first exercise, the nonconcessional equivalent of the 19 countries' total external debt was held constant, relative to exports through 1995. This target would represent a minimum requirement: creditworthiness should not deteriorate.41 The change in the level of nonconcessional debt is the sustainable current account deficit in each year after grants and payment of interest. The difference between this current account deficit and net exports of goods and all services is the necessary level of grants. The results of this exercise indicate that the grant equivalent of any combination of loans and grants must be 68 percent to keep the ratio of the nonconcessional equivalent of debt to exports constant. At one extreme, commercial-rate loans can be combined with pure grants. The other extreme would be financing entirely by concessional loans with a 68 percent grant element.5- To represent a move toward potential creditworthiness, the target ratio of the nonconcessional equivalent of debt to exports was lowered to 200 percent in 1995, compared with its present level of 330 percent. Casual empirical work indicates that a debt to export ratio of 200 percent is a rough divider between countries that have maintained creditworthiness and those that The nonconcessional equivalent of debt was calculated as the present discounted value of scheduled debt service payments on disbursed debt, using a discount rate of nine percent. An average nine percent rate of interest was also assumed on the nonconcessional equivalent debt over the projection gpriod. _ Grants can include the grant equivalent of debt forgiveness. - 19 - experienced debt servicing difficulties. This ratio would be an upper bound to creditworthiness in low-income Africa, given the lower short-term growth potential of the region. Achieving this target path of debt would require reducing debt by almost $12 billion dollars as measured in terms of its net present value. The grant equivalent of the debt relief required annually between now and 1995 would raise the overall grant equivalent of all combined grant and loan flows to these 19 countries to over 90 percent. These results indicate the extent of medium term support that these low-income debtor countries need in aggregate. A case-by-case study, taking into account the conditions of individual debtor countries would be required to make a more definitive calculation for specific countries. - 20 - Responses to Date The low-income countries of Sub-Saharan Africa have benefitted from both regular and special measures to help alleviate their debt problem. These include reschedulinigs, cancellations of concessional debt, increased concessional inflows, and concessional debt relief. Because of some of these measures, debt service payments have, in aggregate, been less than their level of debt, even adjusted for its higher concessionality, would have suggested. Reschedulings. During 1980-88, 21 of the 25 Sub-Saharan countries tLhat rescheduled their debts with official and private creditors were low- income. These countries had 88 agreements within the multilateral frameworks of the Paris and London Clubs, about 85 percent of the total. About three- fourths of these agreements were with the Paris Club, and, in total, during the eight years 1980-87, these Paris Club reschedulings reduced scheduled debt service payments by $10 billion,6- which is equivalent to 57 percent of the total debt service payments. The annual consolidation of debt service obligations has been increasing, from an average of $0.6 billion in 1980-81 to a peak of $1.8 billion in 1986. Nor is the official debt of other creditors fully serviced. Paris Club agreements oblige debtor governments to seek parallel treatment from its creditors that do not participate in the Paris Club, especially Arab and Eastern bloc countries. Although details of such arrangements are seldom reported, it would appear that only about one-third of the obligations on Soviet debt and only about -------- of those on Arab debt are being This amount is a gross reduction; it does not take into account the moratorium interest payments on the consolidated debt service. - 21 - regularly paid. In June 1987, the economic summit in Venice agreed that "for those of the poorest countries that are undertaking adjustment efforts, consideration should be given to the possibility of applying lower interest rates on their existing debt, and agreement should be reached, especially in the Paris Club, on longer repayment and grace periods to ease the debt burden." After that date, several reschedulings by the Paris Club have reflected the new approach. Mozambique, Somalia, Guinea-Bissau, Niger, and Malawi all received 20-year maturities, including 10 years' grace, compared with 15-year maturities with six years' grace for the five other low-income Sub-Saharan African countries that rescheduled over the same period. Debt Cancellation. In 1978, the UNCTAD adopted a resolution calling on official creditors to cancel concessional debt owed to least developed countries (27 of the 34 low-income African countries are currently classified by the UN as least developed). During 1978-87, 14 OECD countries that are members of the Development Assistance Committee (DAC) cancelled over $1.4 billion of concessional debt, about a fifth of their concessional loans to IDA-eligible countries in the region.71 Much of the zrvice on this debt would probably have been rescheduled by the Paris Club (ibout $1.2 billion in debt service owed on concessional debt was rescheduled in 1980-87, or about $150 million per year). Thus, the additional savings in any year from the cancellations would amount to only the moratorium interest chargLs on the consolidated amounts, or some $5 million per year on average. But the additional savings from cancellation would increase over time, because cancellations would reduce the growth in the stock of consolidated debt Li These creditors report higher cancellations--about $2 billion for 1978- 87/88, which is two-thirds of their cancellations worldwide. (UNCTAD 1988). - 22 - service from rescheduling, which progressively increases moratorium interest charges.8/ Increased Official Aid Flows. In addition to their efforts to alleviate debt burdens directly, creditor governments and agencies have sought to increase the net flow of new funds. Multilateral agencies (including the IMF) have increased their net ODA disbursements to Sub-Saharan Africa even faster than bilateral donors have. When deflated by the region's import prices, net ODA disbursements (including grants) by multilateral agencies grew by 12 percent a year between 1983 and 1985 and by 13 percent a year in 1986 and 1987. IDA accounts for most of this increase; since 1983, net disbursements from IDA have grown 25 percent a year in real terms, three and a half times the annual rate for other multilateral agencies. Bilateral ODA rose by 12 percent a year in 1986 and 1987, as measured by the volume of imports the aid could finance, despite the shrinking global volume of aid and the decline of food aid and emergency relief for the Sub-Saharan Africa since 1985. The World Bank's Special Program of Assistance. At a donors conference in December 1987, the World Bank formally launched the Special Program of Assistance for low-income, debt-distressed countries in Sub-Saharan Africa. The objective of the three-year (1988-90) program is to help eligible countries adjust and grow, while restoring and sustaining normal debtor- creditor relationships. The program provides for substantially increased highly concessional, quick-disbursing financing, and debt relief on softer 8/ To illustrate, $150 million rescheduled annually at 3 percent interest would, after 8 years, give rise to additional interest obligations of $180 million per year. -23 - terms to expand import capacities in eligible countries. Donors have agreed on three eligibility criteria for the SPA: first, poverty (eligibility for IDA credits but not IBRD loans); second, debt problems (originally a projected debt service ratio of 30 percent or more in 1988-90); and third, adjustment (currently implementing a policy reform program supported by the Bank and IMF, including agreement on a Policy Framework Paper). Nineteen countries are currently eligible and others may be approved soon.9/ The program established a framework of five elements for case-by-case assistance to eligible countries. This framework includes increased adjustment lending from IDA-8, increased cofinancing and coordinated financing from bilateral and other multilateral donors for adjustment operations, and supplemental IDA adjustment credits. These resources would be provided in conjunction with additional IMF resources from the ESAF and greater debt relief. These five components constitute the pool of additional assistance being made available to eligible debt-distressed countries under the SPA, although the total resources available for some components are not necessarily restricted to African low-income, debt-distressed countries or limited to 1988-90.10/ 9/ These eligible countries are: Burundi, Central African Republic, The Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Sao Tome and Principe, Senegal, Tanzania, Togo, Uganda and Zaire. In April 1989, Chad became eligible and Benin and Somalia are expected to be accepted as eligible soon. __/ Some donors have discussed the possibility of including within the framework, proposals to deal with commercial debt not eligible for Paris Club rescheduling. This private debt is about 3 percent of total external debt and 7 percent of debt service payments of the 19 countries currently eligible for the SPA. An objective of any proposal to reduce this private debt would be to transfer to debtor countries the prevailing market discounts on it (which are 75 percent or more). This could be accomplished through a variety of mechanisms, including direct cash buybacks, debt for debt swaps, conversion of debt to equity, exit bonds, or direct contributions by creditor institutions. - 24 - Additional IDA-8 adjustment lending. About half of the eighth IDA replenishment has been set aside for Sub-Saharan Africa. Two-thirds of this predominately quick disbursing money is earmarked to debt-distressed countries. This high allocation reflects the addition of $1 billion above regular project and program *ending as IDA's contribution to the SPA. Additional disbursements from IDA's SPA contribution to the 19 currently eligible countries are projected at $0.7 billion in 1988-90. Overall, the program should enable IDA to increase its disbursements to the low-income, debt distressed countries of the region by about 50 percent, compared with levels during the previous three years. Increased cofinancing of adjustment operations. Eighteen donor governments and multilateral agencies pledged an initial $6.4 billion in concessional, quick-disbursing funds for low-income African countries with debt problems. These funds will be provided through both formal cofinancing of specific IDA-supported adjustment operations and other financing coordinated closely with these same operations. About half was estimated to be additional to aid disbursements already planned by donors for these countries. By early 1989, donors had given indications of specific commitments of over $5 billion, of which about $1 billion had been disbursed by the end of 1988. If a high rate of disbursements (about 80 percent over 3 years) can be achieved, these commitments could be expeced to disburse some $4 billion during 1988-90. Additional commitments of the pledges would further increase disbursements. Supplemental IDA adjustment credits. A special allocation for supplemental IDA adjustment credits for IDA-only countries with outstanding IBRD debt (other than for enclave projects) was added in September 1988 to support the SPA. The global allocation would average 10 percent of IDA - 25 - reflows and investment income on IDA dono. encashments in fiscal 1989-¶l3p divided among qualifying countries in proportion to their IBRD interest payments. Supplemental IDA adjustment credits totaling $87 million will be provided in 1989 for eight countries (which is equivalent to about _ percent of their annual IBRD interest obligations). In support of this initiative, the governments of Norway and Sweden also made grant funding available to help meet IBRD debt service in four African countries in 1989. ESAF. At the end of 1987> the International Monetary Fund set up an Enhanced Structural Adjustment Facility (ESAF), to help low-income countries with protracted external payments problems undertake policy adjustment growth over the medium term. This program supplements the original Structural Adjustment Facility (SAF), which was established in March 1986. Together, these two programs can provide $11.7 billion (31 percent from the SAF and 69 percent from the ESAF) in 10-year credit, including 5 year's grace, at interest rates of 0.5 percent, to low-income countries, mostly in Africa.ll/ By the end of 1988, SAF arrangements totaling $1.3 billion had been agreed for 22 Sub-Saharan African countries, with disbursements of $0.6 billion. In July 1988, Malawi became the first country to receive assistance from the ESAF, and programs for four more African countries had been approved by the end of 1988 with commitments totalling $0.9 billion and disbursements $0.2 billion. ESAF arrangements approved so far provide an average access of about 165 percent of quota, much higher than the 70 percent now available under the SAF. More concessional debt relief. The SPA calls for continued rescheduling on conventional terms to provide cash-flow relief during 1988- 11/ SDRs have been converted to US$ at US$1.35 per SDR, the exchange rate at end of March 1986. - 26 - 90. Such rescheduling has occurred or is expected for 15 of the 19 countries. But the SPA also calls for more concessional debt relief in two forms: (1) further conversion of bilateral ODA loans to grants, and (2) softer terms on rescheduled commercial loans from or guaxinteed by creditor governments. Much has been accomplished on both fronts. More ODA Conversions. In 1987-88 Canada and Germany moved to convert their ODA loans to grants. After the Toronto Summit, Japan added eight low- income countries to its program of financing debt service on its ODA loans with additional grants, bringing the total to 14 in Africa. France recently announced a conversion of ODA loans to grants for a long list of African countries. And the United States is also considering allowing repayment in local currencies for certain types of concessional debt, although this might be financed by transfers out of the aid budget. But the actual short-term cash savings of these cancellations, as explained above, would probably be small--on the order of $1-2 million a year in addition to conventional rescheduling. The Concessional Debt Relief Menu. The Toronto agreement, finalized in Berlin at the 1988 Annual Meetings of the World Bank and the IMF, represents a major breakthrough by creditor governments to reduce the burden of their official nonconcessional debt in low-income, debt-distressed countries, mostly in Sub-Saharan Africa. It is a way to lower debt service payments in the shortterm with less build up of nonconcessional debt that must be serviced in the long term. And it established the principle of reducing the stock of official nonconcessional bilateral debt.12/ - 27 - Creditors agreed on a menu of comparable options to increase the concessionality of rescheduling official nonconcessional debt. These options are: A. Partial writeoff. Forgiveness of one-third of eligible debt service due during the consolidation period, and rescheduling of the remainder at market interest rates with a 14-year maturity. B. Longer terms. Rescheduling of eligible debt service due during the consolidation period at market interest rates, but with a 25-year maturity. And C. Lower interest rates. Rescheduling of debt interest rates (either 3.5 percentage points below or one-half of market rates, whichever gives the smallest reduction), with a 14 year maturity, including 8 years of grace. Creditor governments have described the three options as comparable in the sense that partial writeoff and lower interest rates offer a similar concessionality, while longer terms, though less concessional involves greater risk as creditors choosing this option would not begin to be paid until after those choosing the other options were repaid. By the end of 1988, this menu of options had been applied by the Paris Club to five Sub-Saharan countries (Mali, Niger, Tanzania, Madagascar, L2/ On ODA debt, the Toronto-Berlin consensus provides for 25-year maturities at interest rate- no higher than those originally contracted. Additional concessionality would result only if the rescheduling increases grace and/or maturities. - 28 - and Central Africa Republic) and was subsequently been applied to Guinea, Senegal, Guinea, and Uganda in early 1989. In applying the various options, two creditors have chosen to forgive a third of the debt-service obligations on loans covered by the rescheduling arrangements (option A); four creditors have chosen to provide longer maturities of 25 years (option B); and the other Paris Club creditors have chosen to reduce the interest rates charged on the rescheduled debt by up to three and half percentage points (option C). One chose a mix of options depending in part on the type of loan rescheduled. Based on the debt service on nonconcessional debt that the five debtors that rescheduled in 1988 owe to the Paris Club creditors in 1989, which the agreements cover wholly or in part, about half would be covered by option A, a seventh by option B, and a third by option C.13/ The Toronto-Berlin consensus is a helpful step, and it should be applied in future reschedulings of these countries. But it is not a full solution. First, debt owed to regular Paris Club creditors does not account for all official bilateral nonconcessional debt. The debt owed to Paris Club creditors gives rise to only about a third of the total debt service obligations of the five SPA countries whose debt was rescheduled under the menu approach in 1988. Second, the reduction in debt-service payments, over and above that achieved by conventional rescheduling, is limited in the short- term to the savings on moratorium interest payments. For these five countries, the additional reduction in the first year may be no more than $10 13/ Exact coverage is difficult to ascertain in advance because not all debt service owed to Paris Club creditors is eligible for consolidation (for example, debt contracted after the cut off date (1983 in five of the seven applications) is excluded, some previously rescheduled debt (one-fifth of previous rescheduling agreements) is excluded, and arrears may be rescheduled on less favorable terms). It is also up to the debtor to seek similar terms from other creditors that do formally not participate in the Paris Club. - 29 - million a year, although the savings in subsequent years will grow progressively by that amount. Third, some creditor governments are financing the debt reduction provided for by the menu by transferring funds from their aid budgets to their creditor agencies. This practice reduces the additionality of the Toronto-Berlin consensus. Evaluating the Options The relief to debtor countries that the options agreed on at the Berlin meeting would provide can be compared using two general criteria: increasing net financial transfers, and contributing to creditworthiness. Net Resource Transfers. Increased resources are needed to enable debt distressed countries to import, invest and grow. Conventional rescheduling does not increase net resource transfers; it simply alters the profile over time of the transfers. Rescheduling actually reduces cumulative net transfers because of the additional financing changes when interest is consolidated (although the net present value of transfers is unchanged). But concessional debt relief can increase transfers by reducing debt service payments over a specified period of time. But this increase will materialize only to the extent that creditors do not finance concessional rescheduling out of existing aid budgets, and that debtors would have eventually serviced their debt. Permanent reduction in nominal debt service payments can be achieved by forgiving debt, writing off debt service as it comes due, or rescheduling at reduced interest rates. Extending terms reduces debt service payments only for a limited period. - 30 - Restoring Debt-Servicing Capacity. Restoring normal debt-servicing capacity for these countries will usually require reducing the stock of nonconcessional debt (or the nonconcessional equivalent of the stock of all debt). Debtors that have less nonconcessional debt after rescheduling should be better able to service both that debt and any new borrowing. One way to measure the movement toward debt servicing capacity is to look at the reductiot. in the nonconcessional equivalent stock of debt under each option at the end of a specified period (e.g., when the consolidation period ends). Nonconcessional debt can be reduced by borrowers repaying it as scheduled, by rescheduling it at below-market interest rates, or by creditors writing it off. Rescheduling on conventional terms alone does not reduce the stock of debt and consolidation of interest obligations actually increases it. These criteria are used here to compare the three options now being applied by the Paris Club with two other options chosen as benchmarks for comparison: No rescheduling. This option assumes that debtor countries are able to pay all of their debt service obligations on time, which they are unlikely to be able to do without a substantial increase in financial resources or a severe compression of growth. This option, however, provides a point of reference for assessing the benefits of the various rescheduling options. Conventional rescheduling. This option represents the average rescheduling terms that the Paris Club has given the ten low-income debt distressed countries that rescheduled during 1987-88 before the menu of options began to be applied. These consist of rescheduling virtually all nonconcessional debt service at market rates with an 18-year maturity, - 31 - including 8 years grace. No country received exactly those terms (half got better terms, half worse) but they serve as a benchmark for the current practice, against which the more concessional rescheduling options can be assessed. The following analysis compares the benefits of these options for 22 low-income debt distressed countries currently eligible for the Special Program of Assistance. It is based on the results using the World Bank's rescheduling model and debt data compiled for the Wot;d Debt Tables, and focuses only on nonconcessional debt owed by these ccuntries to Paris Club creditors (including pari passu debt). Although the specific empirical results depend on the debt structure of the countries analyzed and on the various assumptions about :he implementation of the options, the results nonetheless indicate the relative merits of the various proposals. The accompanying box defines and explains the indicators shown in table 7. Box: Interpreting the data Table 7 shows comparative indicators for the five rescheduling scenarios studied. Table 8 shows annual debt service obligations during 1988- 2025 and the remaining stock of debt at the end of each year for each the five options. Graphs 1 and 2 compare the streams of debt-service payments and the stocks of remaining nonconcessional debt after rescheduling under each option. The net present value (NPV) of total debt service payments during 1988-2025 (columns 1 and 2 of Table 7) is based on all payments during the life of the loan, account taken of any rescheduling.141 14'For these columns, the period covered is 1988-2025, whereas the rest of the table refers to the cumulative consolidation period, 1988-2000. - 32 - The relative grant element of each option (column 3) is the proportion by which the NPV of debt service payments without rescheduling is reduced by each option. It measures the concessionality provided by the option (higher values denote options that are more concessional) and can be used to rank the options in terms of overall concessionality.15/ The nonconcessional equivalent debt stock at year-end 2000 (columns 4 and 5) shows the present discounted value, as of the year 2000, of all future principal and interest payments outstanding at the end of the cumulative consolidation period. Nonconcessional equivalent debt increases because of the rescheduling of interest obligations at market rates during 1988-2000 and decreases as a result both of actually paying principal after the end of the grace period and of applying concessional moratorium interest rates on rescheduled amortization obligations. Longer terms result in higher debt at the end of the consolidation period, because principal payments are delayed longer and are smaller each year. Information on debt service obligations during 1988-2000 (columns 6- 11) covers principal and interest on both original debt and new debt resulting from consolidating interest obligations. Total debt service obligations are shown in both nominal dollars and in terms of their net present value. (The NPV figures in column 11 are smaller than the sum of columns 1 and 2 because the former do not include payments during 2001-25.) 16/ The NPV of debt service payments without rescheduling is slightly less than the actual stock of debt at the end of 1987 because the standard discount rate is higher than the current market interest rate used here (10 and 9 percent, respectively). Thus, these "relative grant elements" understate the total concessionalityz(as conventionally defined) of each option to the extent that standard terms before rescheduling already provided some concessionality. But the ranking of options is unaffected. - 33 - The amount of debt service rescheduled (columns 12 and 13) is simply the sum of annual consolidations of debt service during 1988-2000. The amounts shown variously overstate the actual contribution of each option to increasing net financial flows because they have not been reduced by the additional interest that accrues on rescheduled principal obligations and on consolidated interest obligations (which is shown in column 9) or by principal payments on debt service that may have been rescheduled during the first part of the consolidation period but has come due after the expiration of the grace period. Comparative Results In terms of the first general criterion for evaluating the options-- the increase in net financial transfers to debtor countries--the options can be compared using figures in column 10 of table 7. Options A (partial writeoff) and C (lower interest rates) are roughly comparable as currently defined. Over the consolidation period (1988-2000), total debt service payments, if made on time, in nominal terms, would be only about three fourths of the level that would result with conventional rescheduling (second line in table 7). However, there are significant differences. Option A results in higher total interest payments during 1988-2000 and in higher annual debt service payments until 1996, when the grace period ends and the principal payments start coming due, which are larger under Option C. Option B (longer terms) would result in somewhat higher overall debt service payments than options A and C, although still substantially less (about 17 percent) during 1996-2000 than under- Relative I Total Of Uhich on 01 oh Di Vm,nal Net oresent Principal Interest rpant EIete j tI"ijsiDnt Dn ro i c"v dtei erw anul D oo ldted Vulut v"Iu Principal Interest 11) 12) 131) 14) (5) (b) It) (9) 19) 011' 711) 112' 1131 1. t Pes:hIduliq b,921 3.419 O 202 1e2 10.610 0 4,807 0 15,497 10.28 . :.;re-TcrFto cers:'eduliro: XF-0es,liro all dcbt aerac.e at oarket ratet 3.S06 7,141 13) 3124 12.19 2.100 1,6 8.379 4.2 15.I 1' 7.024 10.61) 4t1.7 win' 8 .eoaru qraEe and IS mars aaturaty 3" '. Intc OvtsCe' A. Partial Fcrqiinems ' Cnnt'il canrellaticn of 13 debt servite pawonts. 2.m 4.366 31 i 6,962 6.72Z 2.229 5.342 5.436 2,23 11.73. 5,oeB 7.i'C 3S2.1 resuc ul,no reainana debt srvice at Vret rates mth B vears rrace and 14 years eaturatv. R. Estrded Toers Penchedulinn all debt serice at market rates 2.034 S.O (4) I I5.6b9 IS,0 O 0 9.716 4,429 13.145 6.111 10.610 4b.87 inth 14 vws orace nd 2 verS .turltv. C. Lower Interest Pates: Fescnedulifo all debt service at 3O basis onints heltc warket rates with a erS orace period ad 4.077 4.003 22 10.34U2 9,0b6 3,344 2,014 4.9B3 2.496 12,036 5.371 10.610 4.E74 14 We'S eitultvr. tJ 11 lIe ilwes presented here awe bated on data from the *trid aus hbtor Rurtunq System (M1, and a *rld ant refnchdlivq ael. 1ll remchedulina atimns are for serial rachedulun over a cmaative cousolidatian Wtiod o IS 13rtws (1989-2000), I(0 percent cnsowldatium of orincipal and interesrt and nc re-reschedulinq ifter 1997. The moratorium intere-t rate (9 percent) is the averace dDllar dencrinatrd inteF"t rate mn rescheduled lows in 1988. Projections are based mn lMarcb 1989 enchacnge rate aid wket interest rate aind asute no ne disburnseeta. 21 'he dbttcr cocntries included in this table atre thte 22 IPA-eliqible couutries-esmn. OBtrondi Chad. CAR, The Gabia. 61ana. fuirno G'ineai-iBssau henva, lSadaqagcv. Mali. laitn, Mauritania, I2atique. loer. SaO TDu 4 Pr'ncire, Se9 al, Somlia. lanzenis, logo, Ikanda. and Zaire. 3/ kierale Paris Club terms accorded to thest countries in 1987-M. 4* Waed cm 9 cprrent diacoat rate. S ' (enrre of cOncesaIualatv of eact oDtion cEWtred With no reschtdulinq. Jrditor Couatrvz All bilateral creditors irldudir. Pari-Patu) h7t I sf 2. ITue of tet t Totil ncmccessnoeal Pris Club eigible debt includlrn Prl-Assn., 2 ebtor Cruntrv : SP6lioble cunottres 21 Fable 8. 6vdictions in debt service Pavents and reminino debt stock under reschedulins UDtitmi all creditors ealch otia. P .7 I(51 Mtlliars- .'F IC%S 1988 199 1990 IWI 1992 1993 1 9 19f5 1299 17 1998 1999 2000 2001 20(2 2Xv3 0N 25 *A .1 1 Teht service tite 3.83 1,979 1,789 1.673 1,534 1.394 1,214 689 503 2`76 14 12. 200 65 71 14 12 1)t t0 - Pesann'. dett ntxt. end v!erid 8,733 7.2W,1 6,0933 4.968 3,938 2,839 I.Bt45 1.122 606 481 37b 91 2512 12 70 bI 53 46 t 2. ReuchedLar,: all debt service at earket rates with Bears orace ald 18 sears maturity. 37 P*Ceurtion in dubt svi.vce due cc.ared to opticon 2 3.708 1.540 1.181 909 62 355 56 136) 199) (1.521) 41,8101 (11946' 12,156) .f 12.2()(,2) '2.214) 12,255) 12.061) /1.762) - ,mn:no dett stch. er d Oeriod 12.618 13,062 13,7 14 292 14.745 15.090 15.330 15,476 15.36 14,932 14.294 13.473 12,45 13.259 9,(12 ).512 7.043) 5.57 MY.1 3. Tcn. Etimtz es A. Fartial Foroi eness ;mrual carcelitaton co. 1,3 debt service uay,eots resctediLino remani%no debt serviice at market rates. - 4:dvcticn in debt nvevice due c"pared to ratim . 3.767 1,686 138 1.164 929 701 442 54 1579) '1.121' 11,4I91 /1.562) (1.677) 1.83I41 (1.6t 1) (1,343) l1,12b 115 fir., - Pettninq eebt stcck. esd peric- 11.23 11,169 11,183 12,184 11.126 11,.07 10.842i 10.691 10,394 9.812 9.,51 8.06 6.962 5.6e0 4.333 3,326 2.440 1.7!0 1.l 5 Y. E terded Tesrm.: kevchedu1inu all debt 5ernice at rarket rates withe 24 w crat rce and 25 Years satuiuty. - FEdtwtion in debt service due coared to optionl 3,708 1.540 1.181 90 626 355 56 133) (Bll) 41,077 1,236 (1257) (1,291) (1.395) 11.563) (L.67.) (I1.9b) 2,,U.14 12,#j - eutairing dett stock. end period 12.618 13.062 13.733 14.m2 14.745 25,09M 15,33:i 15.47b 15.562 15.614 15.651 15.679 15.699 15.62? M331 14,939 14.317 13 129 2.615 C. Liwe' Interest Rates: Rescheduling all debt sericce at 35i basis ooints naket ratei mitt 8 venaTs orace and 24 Years maturity. - Ooeoj:tnan in debt ser.ice due compared to option 1 3.776 1,71D 1,417 1.206 979 759 506 124 I615) 11,321) 11.727) 12,972) 12.183) (2,430) (2,221) (1,81) (1.!41) (1,225 (t) ° - Roe-ning debt stock. end oeriod 12,618 13.062 13.733 14,M 14,745 15.090 15.339 15.476 15,239 24.478 13.309 12.0D3 10.342 B.34N6 6,465 4,95 3,674 2,542 1,683 I bich unconcesional 8,735 7.201 6.i4 4,969 3.889 2.839 1.865 1.122 7C6 481 376 251 202 132 70 61 !¶3 46 40 I; The (entres oresented here are based on data from the ikrld Bonks Debtor Reortino Snte. (iSI). and a iorld Bank rescheduling model. All reschedulzig octions are fcr serial rescheduling over a ceumlatsye ceomlidatior, ornied of 13 vears 19M-2000t. 100 wercont crsolidatin of principal and interest. and no rereschedulmrg after 1987. The nwatoretm interest rate 19 oercent) is the averoe dollar donuanated interest rate vn rescheCuled loans in 1988. Projections are based r,n Phrch 1989 exchange rates and eurket mnterest rates and ansume no new d*usrsebew ts. 2 Tke debtor caovtfees included in this table are the 22 PA--elioible coutriets-4enin, Bururdi, Ehad, U0R, The tGambi. Ghana, Suinei. 6caeea-Disrnd Venva. (adagiscrt, hlt, )lalans, Mauritania. Isaabque Nihger. Sao Tome & Principe. Senegai . Soalia. lanrania, 7ogo. Uganda, and laire. A/ veage Paris thib terms accorded to these cuntries en 1987-88. Crudittr Ewtrvin Al balitat credittl fis mcloda. P.r-P aus PM 2 ot f 2. Ise im of t kg Teta mcracsamrAl Paris Lii ulisible jeib lisKildIli Pur'-assi.) Obtwr Ca[ntrv 2 XIfelitible contriin 21 latle E. ' edNzt:;s an dett servce waments od remaa debt stdck ieler reschelalinp ctiomu all creditors ench rtion. 11 31 (LII &hilaonn 2007 2008 2009 2010 2011 2012 2Q13 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Z24 202; 1. rc fie.ctednar: - ebt wrvice due 7 6 4 4 3 2 1 1 1 1 1 1 1 1 1 1 I I I - Rairin rsdebt stock. end erio 36 31 2 25 23 21 20 20 19 19 12 4 4 4 3 3 3 2 2 . nesc .edAIano a l debt service at mrtket rates iith 9 vwers race and 19 wres uturity. 31 - Re"ctim an debt service due ceared to option I (1.374) 11.111) IB721) 562 I467) O3N7) 193) 1102) 257) 233 (17) 15 10) /) (0) '0) (0) 10) t0) - FPesanim debt stock. end eroiA 3,154 2,20 1,576 1.032 S35 370 210 120 70 40 P 4 4 4 3 3 3 2 2 3. Tcttto I 5- - . artia,) FOrCaIIes: A-nual caecellation of 113 debt service oaveents rescheWlzinr resanino ddtt service at market rates. - F,,:tion in ddbt service due ccapared tD optiM 1 500) 2336) 1203) 1114) 263) 136) 119) 26) 10) 20) 20) (0) 10) 20) 201 (0) 10) /0) (01 -ailino debt stock. end Eiod I11 419 239 137 79 44 26 20 19 19 12 4 4 4 3 3 3 2 2 B. Exterded Terms: ;evcheuliro all debt service at earket rates with 14 vein grace aoi 25 vears mtuerity. - Reductrion in decbt service due compared to wtittn 1 MU13\ 2154) IStl 12I40) 2,6 12.01) 112.%) l1.615) 21.260) 11.014) 2793) 2596) 2425) tI) /Ik) '93) /5) 1.23) fib) 1') - Renainian debt stock, end Deriod 1I.560 10,397 9.119 7.789 6.423 5,039 3.021 2.859 2M0M 1.426 927 561 321 1S *5 4 22 7 2 C. Lcowr Interest Rates: Rescheiling all debt service at 35C basts points eiriet rates anth 8 rears qrace aiWd 14 nwrs saturit.4 - Peduictiwn in debt service due corDared to optimn 1 2703) 1475) (289) 2162) 292l 152) Q29) 29) 20) 20) 20) 20) hv; 10) 10) 20) 10) 01) I01 -Pesairin debt stoc end pernd l.C48 613 344 :93 107 56 29 20 19 19 12 4 4 4 3 3 3 2 2 of lhch Pncn:ensitcal 36 31 28 25 23 21 20 20 19 19 12 4 4 4 3 3 2 2 b3ES 1/ The fqoures presented here are based on data from tte IVrld 8ash's Webtor Reysrting System (IC. and a tlrld Pnk reschedalanig model. All rescheduling eptaoes are for serial reschedling over a cuulative consolidation eriod of 13 Years 11999-200), 100 percent conwlidatien of Drincacal and interest, and no re-reschedulinq after 1997. The stratorium interest rate 29 percent) is the averwaqe dollar denominated interest rate on reschedyled lbcs in 19O. Projections are based w llarch P99 enchanne rates and urtet interest rates aid assune no reum disinrrsewts. The dbtctr countries included in this table are the 22 SPA-el3qible countries-Ehsin. Erutndi. Chad. CAR, The anbia,. Diana, 6uinea. Ouinea-kiwad )enya. Sadqascar. Mfla. Malawi. t4untanua. Mozadique, almer. Sao loe A Principe. Sneqal. Smlia. Tanzania, Togo. toanda, ad Zaire. 3'1 Aeraqe Pans Club terts acorded to these cAstries in 199J-E9. 48 GRAPH - r Debt Service - Toronto Term Comparison 22 SPA Countrles 4. 4 3 - 3 - 2 - 2 - 1961 1995 2000 2005' 2010 2015 2020 2025 +tvS 9 1 e U 24^0~ fe-er a. o x c'2zl dh^C A* . W. ~~~"Graph -2 4 Debt' Stock-Toronto Terms 22 SPA Countries 15 I ' 132 6 5 4-~~~~~~~B -W-eff- 1995 2000 O 2005 2010 2015 2-020 2025 Dti74~StIJ4%: O$ C.4 0, a * '~~~~~ A B x C - T , .at. tr ra:', I 1960 1%9 1590 199l 1r92 1993 Jim4 1995 199 1997 1998 299 20 2001 2002 2003 2t04 2005 206 C6 MEt0'LS;tl'i 3.963 1. Wl 1. 7cAt 1.6r7 IOSY2 1.3944 1.2136 0.i 0.5C33 0.2761 t.i419 0.122 0.0996 .0945 0.0706 0.013b 0.0110 0.0102 0.0055 c- (LU13N K:Hi.. h Y.17i;45 p .9489 0.607995 0.67t.3 o.ouO 4 1.0351 1.157211 1.51023 1.499885 1.797357 1.952193 2.06576 2.155343 2.29339 2.30X0 2.227679 2.1671 2.071344 1.770235 ^ LF'LKT5 LE!!i A v. 11649 0.92326 0.463 0.5069 o.05376 0.693234 0.771474 0.934549 1.(2329 1.397265 I.5609341 .69964 1. 7769 1.919092 1.m7021 1.3 223 I.18067 0.91580 0.70125 (( 1(I{49O OF(FrK; i 0.174135 0.48499 0.67950.7M3753 .9680A 4 I.o030 51.157211 1.251 231.314472 1.349545 I.M3685 1.3ail271 2. 392r4 1.47926 1.63923 1.81i4671. 37318 2.030699 2.099774 l'D ILA.03 CkF11Zit C 0.1 G7O2 0.20795 0. 37152 0.46678 80.54929 0.634 M0.7071C4 0.7i003 1.117973 1.596611 1.0713 2.094579 2.2R2900 2.514890 '.291751 l.a.073 1.552ff2 1.2U209 0.975709 Fr.!l Ft L M1 S.?1t 7.01 -603.2 4 *A2 .89.3 2939.1 It45.1 1122.1 705.5 4ti.8 375.9 291.1 202 131.9 69.8 61 53. 46.4 40 :t7; _. l 3 'EL2.. I.6110g 162.3 13;33 14291.7 14745 15090.2 1530.8 15475.7 15368.23 14932.44 14293.99 13473.37 12484.91 11259.42 ?1.535 9511.92 7043.395 5537.2 204.555 t-ti V1:.r Cf' . 4 11.';46 :1( K6.S I11t.36 11184.2 11126.1 11(06.5 10841.56 10691.16 03N94.37 9912.4 9051.498 05.716 6961.95 5608.93 4333.05 3320.133 240.038 1710.138 1135.477 oEoT .es;& 8fTLd. Di 1.011 1 0.642.3 13733 14291.7 14745 15907.2 15329.8 15475.7 15662.4 15613.8 15650.8 15678.9 1569.4 15620.3 1S90.7 1493.99 14316.94 338.77 12615.14 DtW . r 3L;( :1 t I:A i.E 161o;9 1362.3 13733 14291.7 14745 15090.2 15329.8 1545.7 15238.01 14478.2 133b9.28 12003.02 10341.92 834 175 b464.675 4949.7 3350 242.9 1683.216 4.J :' ut I Ic.t. . I. 63.-tl ktr7 .3 2010 2015 2020 2025 .rar '2A(7 2.X 2N09 2010 2 1 2012 20013 2014 2015 2016 2017 201l 201? 2020 2021 2022 2023 2024 2025 LE lk P."t3'.A0 .'.(%.5 OJOA.0 0.U 43 0.0038 0.003 0.0021 0.0012 0.0012 D.ooll O.o007 0.0006 0.00Xb 0.0OX 0.0(06 0DAM ODOS 0.0o00 O.05 D.AIT(P.- IQ E#TIfd A 0.5'K452 D.341164 0.077Gj2 0.1174 60.0663 80.03891 0.020397 0.00882 0.oo9 0.0007 o.o0 0 O6 0.0006 0Qo0 0.06 0.0006 0.005 0.0005 0.0005 .00 rs 15'.ic' D li-; 9 2.141! 1 2.15910 2.14.9& 2.09MX28 2.003564 1.899123 1.615764 1.212 1.01523 0.793406 0.596733 0.425359 0.279s3 0.167020 0.09391 O.235B 0.030102 0.016207 0.00523 bEiHi. 1 3*'INi I 0.7fM49 0.481051 .M9!,94 0.16800.09367 0.O54286 0.0292360.00962 o 0.0009 0.0007 0.0006 0.0006 0.006 O.46 O.000' Q.45 0.O05 o005 0.00o0 ;jtj icr rjjran; C :331 v SrE ill r: 35.5 32.4 2D.9 2 22.7 221 2.3 19.5 19.1 18.8 11.9 4 3.7 3.5 3.2 3 2.7 2.4 2.2 1[('W..wzhitt nEsn. ;152.63 2296.32 15i.695 1032.015 633.365 369.715 210.19 120.115 69.5 39.80 16.88 4 3.7 3.5 3.2 3 2.7 2.4 2.2 l50' TL,.!S4TU If i.1e A 7Vl.7:f5. 418.0611 !O.9909 136.8611 70.73333 44.42777 2583333 19.5 19.1 e8 11.9 4 3.7 3.5 3.2 3 2.7 2.4 2.2 FI .l!;S' 9ID ( G3.r0 9 211 .28 10367.298 919.318 7788.66 6423.190 50;9.713 380.9 2a58.7io 2b3.572 1425.6 927.3681 560.9al 320.7136 176.122 94.72272 48.84545 21.818 6.927272 2.2 AF., 5I.T0;f fflz. I iC Vle..* 022.526 244.3833 192.7916 106.75 56.14166 29.6 29.5 19.1 28.9 11.9 4 3.7 3.5 3.2 3 2.7 2.4 2.2 PPR Working Papo. Series Contact I:a Author 12 paper WPS240 The Public Role in Private Post-SecondaryEducatton: A Review of Issues and Options Ake Blomqvist Emmanuel Jimenez August 1989 A. Bhalla 61059 WPS241 The Effect of Job Training on Ana-Maria Ardagada July 1989 C. Crstobal Peruvian Women's Employment and 33640 Wages WPS242 A Multi-Level Model of School Effectiveness in a Developing Country Marlaine Lockheed Nicholas Longford WPS243 Averting Financial Crisis - Kuwait Fawzi Hamad Al-Sultan WPS244 Do Caribbean Exporters Pay Higher Freight Costs? Alexander Yeats July 1989 J. Epps 33710 WPS245 Developing a Partnership of Indigenous Peoples, Conservationists, and Land Use Planners in Latin America Peter Poole August 1989 S. Davis 38622 WPS246 Causes of Adult Deaths in Developing Countries: A Review of Data and Richard Hayes July 1989 S. Ainsworth Methods Thierry Mertens 31091 Geraldine Lockett Laura Rodrigues WPS247 Macroeconomic Policies for Structural Adjustment Carlos A. Rodriguez WPS248 Private Investment, Government Policy and Foreign Capital in Zimbabwe Mansoor Dailami August 1989 M. Raggambi Michael Walton 61696 WPS249 The Determinants of Hospital Costs: An Analysis of Ethiopia Ricardo Bitran-Dicowsky David W. Dunlop WPS250 The Baker Plan: Progress, William R. Cline August 1989 S. King-Watson Shortcomings, and Future Evolution 33730 WPS251 Patents, Appropriate Technology, Ishac Diwan and North-South Trrade Dani Rodrik WPS252 Do the Secondary Markets Believe Vassilis A. Hajivassiliou August 1989 S. King-Watson in Life After Debt 33730 PPR Working Paer Serlrs Contact Iwab Atbhgr lforpapr WPS253 Public Debt, North and South Helmut Reisen August 1989 S. King-Watson 33730 WPS254 Future Financing Needs of the lshrat Husain August 1989 S. King-Watson Highly Indebted Countries Saumya Mitra 33730 WPS255 The External Debt Difficulties of Charles Humphreys August 1989 S. King-Watson Low Income Africa John Underwood 33730 WPS256 Cash Debt Buybacks and the Sweder van Wijnbergen Insurance Value of Reserves WPS257 Growth, External Debt, and the Real Sweder van Wijnbergen Exchange Rate in Mexico WPS258 The Role of Voluntary Organizations L. David Brown in Developmen David C. Korten WPS259 Dealing with Debt: The 1930s and Barry Eichengreen August 1989 S. King-Watson the 1980s Richard Portes 33730 WPS260 Growth. Debt Accumulation and Sovereign Risk in a Small, Open Economy Jagdeep S. Bhandari Nadeem Ul Haque Stephen J. Turnovsky WPS261 Inflation, Extemal Debt and Financial Sector Reform: A Quantitative Approach to Consistent Fiscal Policy Sweder van Wijnbergen Roberto Rocha Ritu Anand WPS262 Economic Policy and External Shocks in a Small Open Economy: the Irish Experience Dermot McAleese I F. Desmond McCarthy WPS263 How Has Instability in World Markets Affected Agricultural Export Producers in Developing Countries? Peter Hazell August 1989 C. Spooner Mauricio Jaramillo 30464 Amy Williamson WPS264 Case Studies of Two Irrigation Systems in Colombia: Their Performance and Transfer of Management to Users' Associations Herve Plusquellec WPS265 The Influence of Imperfect Competition in International Markets: Some Empirical Evidence Alexander Yeats