Approved by: Prepared by the staff of the International Manuela Francisco and Abebe Adugna (IDA), Development Association (IDA) and the and Vitaliy Kramarenko and Fabian Valencia International Monetary Fund (IMF) (IMF) CHAD: JOINT BANK-FUND DEBT SUSTAINABILITY ANALYSIS Risk of external debt distress High Overall risk of debt distress High Granularity in the risk rating Sustainable Application of judgment Yes Despite significant improvement, Chad’s external and overall public debt continues to be assessed at high risk of distress, with the application of judgment due to uncertainty on the medium- to long-term debt dynamics.1 The implementation of the debt treatment under the G20 Common Framework and accelerated repayments to the government’s main private creditor have significantly lowered short -term debt service and moderated the risk of distress. However, the shift from a currency-based to a residency-based debt coverage for loans only has mechanically increased the external debt stock and debt service, leading to a breach of the 14-percent external debt service-to-revenue ratio threshold in 2024. Under the baseline scenario, which relies on continued reform implementation, mechanical signals suggest a moderate risk of debt distress. In the medium to long term, debt should remain sustainable with an expected transition to a moderate risk of distress, as reforms are implemented and related uncertainty dissipates. Controlling public spending, improving revenue mobilization, and identifying additional external funding sources with concessional terms are necessary to safeguard debt sustainability and promote accelerated development. Conversely, under an adverse scenario of no reforms and fiscal adjustment, the projected fiscal slippages, comparable to the 2023 fiscal stance, could lead to a resumption of debt accumulation in 2025, possibly under non- 1 With a score of 2.34, Chad’s composite indicator, which is based on the October 2024 WEO and the June 2024 CPIA, signals a weak debt-carrying capacity. 1 >>> concessional terms for external debt. In this scenario, from 2027 onwards, all public and external debt burden metrics would rise substantially, exceeding their thresholds and jeopardizing debt sustainability. Owing to of the large significant divergence in between debt trajectories under in the two scenarios considered in the analysis, a judgment is applied to maintain the assessment of a high risk of debt distress. The adoption by the parliament of a 2025 budget law and a continued fiscal prudence would significantly reduce the uncertainty surrounding baseline projections and could warrant a moderate debt assessment at the next review. 1. Public debt coverage includes central government debt, as well as government guaranteed external debt owed by the public oil company (Société des Hydrocarbures du Tchad or SHT). Almost all other public sector entities (including other state-owned enterprises—SOEs) do not have access to external financing. The exception is the N’Djamena Oil Refinery (Société de Raffinage de N’Djaména, or SRN), which has two loans with CNPC Finance and EXIM Bank China. The SRN is minority government- owned (40 percent share) with managerial independence from the government. Contrary to previous DSAs, which used to define external debt on a currency basis, this DSA considers external debt on a residency basis for loans only, following Debt Sustainability Framework best practices.2 Therefore, CFAF- denominated loans contracted with the regional development bank (BDEAC) 3 and with bilateral creditors in the currency union (Cameroon, Equatorial Guinea, and the Republic of Congo) are now considered external debt. Debt owed to Angola, which is being repaid in kind 4, is also classified as external debt. 2. The contingent liability stress test accounts for vulnerabilities associated with nonguaranteed SOE debt and contingent fiscal liabilities associated with financial sector recapitalization (Text Table 1). Contingent liabilities from financial markets are set at 5 percent of GDP, which represents the average cost to the government of a financial crisis in a low-income country since 1980. The size of the contingent liabilities for the SOE debt is set at 5.5 percent, reflecting the liabilities of SRN, Société Nationale d'Electricité (SNE), and Société Nationale de Ciment (SONACIM) following the results of a 2017 SOE Census supported by the World Bank. 2 See 2018 Guidance Note on the Bank-Fund Debt Sustainability Framework for Low Income Countries. 3 The Banque de Développement des Etats de l’Afrique Centrale (BDEAC) is the development bank of the CEMAC region. The main shareholder is BEAC (33.43 percent). CEMAC countries, including Chad, are equal shareholders (8.48 percent each). All government securities, also when held by non-residents in the regional market, are classified as domestic debt due to data limitations on the residency of the securities’ holders. Revision in perimeter has also been applied on historical data from 2017 onwards. 4 Debt owed to Angola is repaid in kind, by head of cattle, mainly zebus, following terms and conditions agreed by Angola and Chad, including price and transport. 2 >>> Public debt coverage Subsectors of the public sector Coverage 1 Central government X 2 State and local government 3 Other elements in the general government 4 o/w: Social security fund 5 o/w: Extra budgetary funds (EBFs) 6 Guarantees (to other entities in the public and private sector, including to SOEs) X 7 Central bank (borrowed on behalf of the government) X 8 Non-guaranteed SOE debt Public debt coverage and the magnitude of the contingent liability tailored stress test 1 The country's coverage of public debt The central government, central bank, government-guaranteed debt Used for the Reasons for deviations from the Default analysis default settings Accounting for the reclassification 2 Other elements of the general government not captured in 1. 1.5 percent of GDP 1.5 of some public arrears in 2022. 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 5.5 From SOE census, 2017 levels. 4 PPP 35 percent of PPP stock 0.0 5 Financial market (the default value of 5 percent of GDP is the minimum value) 5 percent of GDP 5.0 Total (2+3+4+5) (in percent of GDP) 12.0 1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%. 3. After rising continuously from 2019–21, Chad’s public and publicly guaranteed (PPG) debt declined in 2022 and 2023 in nominal terms. Gross public debt decreased from 40.6 percent of GDP at end-2021 to 31.5 percent of GDP at end-2022 (Text Figure 1), reflecting declines in both domestic and external debt stocks. The reduction in external debt has been triggered by the accelerated payments linked to high-oil prices to the main commercial creditor. At end-2023, outstanding PPG external and domestic debt stood at nearly US$6 billion, 30.3 percent of GDP. In comparison with the previous DSA (December 2022), the new framework incorporates a rebasing of GDP estimates, now about 45 percent higher in nominal terms (on average for 2021-2022).5 For 2021, the debt-to-GDP ratio was of 57.4 percent with the previous GDP estimates, while it is now at 40.6 percent. 4. Domestic debt has declined since 2021 relative to GDP despite an increase in the stock of Treasury securities. At end-2021, domestic arrears stood at CFAF 491 billion, approximately 5.2 percent of GDP. By the end of 2022, this amount had declined to CFAF 164 billion (1.5 percent of GDP) after authorities had determined that part of the debt was owed by regional and local governments rather than central government. Since then, the stock of domestic arrears has remained roughly unchanged in nominal terms and decreased to 1.2 percent relative to GDP by end-July 2024. Conversely, the stock of Treasury securities, including bills and bonds, has more than doubled from 2019 to 2023, increasing from CFAF 333 5 The GDP rebasing by the Chadian National Statics Institute (INSEED) has led to a significant re-evaluation of the value added in the agricultural sector, now 74 percent higher in 2022 than previously estimated, and in the oil sector value added, revised up by 23 percent. 3 >>> billion (3.8 percent of GDP) to CFAF 767 billion (6.6 percent of GDP). The issuance of sovereign securities was particularly high in 2021, with the stock increasing by 50 percent. This trend is expected to continue in 2024, with an anticipated increase of CFAF 112 billion (0.4 percent of GDP). Text Figure IV.1 Chad: PPG Debt Percent of GDP External Debt in Local Currency External Debt in Foreign Currency 50% Domestic Debt PPG Debt 40.1% 40.6% 38.2% 40% 31.5% 30.3% 30% 20% 10% 0% 2019 2020 2021 2022 2023 5. Treasury security issuances have progressively shifted from bills to bonds to mitigate rollover risk, while the regional market has recently shown signs of saturation. In recent years, the government has increasingly relied on the regional market to fund the budget with Cameroonian banks now holding 56 percent of all outstanding Chadian paper. To mitigate rollover risks, the authorities have prioritized the issuance of T-bonds over T-bills, leading their share to jump from 54 percent in 2021 to 84 percent of the public security portfolio at end-July 2024. The shift from T-bills to T-bonds has come at a significant cost, as the average spread between T-bill and T-bond yields has widened from 0.8 percent in 2021 to 3.4 percent in 2024 (on average from January to July). In addition, the regional market has recently shown signs of saturation, with low subscription rates for many auctions, and an increased number of failed auctions, owing to a large increase in issuance from other CEMAC member states in recent years. Interest rate recently climbed, T-bill rates reaching 7.5 percent and T-Bonds 11.7 percent, on average over 2024. Room for additional domestic issuance appears very limited, with rollovers possibly at risk in this context. 6. The composition of external PPG debt is dominated by multilateral organizations and non- Paris Club lenders as the debt owed to private creditors has been gradually settled (Text Table 2). The debt due to the IMF has more than doubled since the start of the COVID pandemic, accounting for 31 percent of total external debt in 2023, up from 15 percent in 2019. Accelerated debt repayments to Chad’s main private creditor, Glencore, triggered by high oil prices in 2022 and 2023, have significantly reduced the overall debt stock owed to the company. In contrast, debt to non-Paris Club bilateral creditors has recently increased, mainly because of a new loan contracted from the Abu Dhabi Fund for Development in 2023. This trend is expected to continue in 2024, as the government recently secured various concessional loans with the European Investment Bank and various bilateral partners: from the French Treasury, the Hungarian Development Bank for project financing, and a new loan of US$500 million from the Abu Dhabi Fund for Development for budget support. 4 >>> 7. The debt treatment under the G20 Common Framework has been implemented and has significantly reduced short-term risks. Following the Memorandum of Understanding signed with the Chadian authorities in December 2022, Glencore reprofiled part of the debt service due to ensure total Chad’s external debt service-to-revenue ratio falls below 14 percent in 2024.6 8. The integration of CFAF-denominated loans from non-residents into the DSA’s external debt perimeter resulted in the reclassification of about US$400 million in liabilities as external debt. This inclusion of the bilateral debt to Cameroon, Congo, and Equatorial Guinea, and to the Central African States’ Development Bank (BDEAC) has raised the external debt stock by US$401 million at end-2023, 6 Following a currency-based approach, which was used when the agreement was reached, the external debt service-to- revenue ratio is projected to fall below the 14-percent threshold in 2024. However, under a residency basis, the ratio is projected to slightly exceed this threshold. 5 >>> representing a 15-percent increase from the currency-criteria numbers. This also translates into additional external debt service for 2024 of about US$20 million, equivalent to 0.6 percent of government revenue. 9. While some discussions with bilateral creditors are still ongoing, negotiations to restructure some old outstanding loans have recently concluded. A debt restructuring agreement with Belgium Credendo has been signed to settle the arrears in 2025 and 2026. The proposed restructuring of the large debt to Libya has yet to be ratified. Regarding CFAF-denominated bilateral debt, discussions for debt restructuring with Congo and for undisbursed debt cancellation with Equatorial Guinea are currently underway, while arrears with Cameroon are expected to be settled soon. Debt to the BDEAC has been characterized by significant irregular debt service payments and arrears in recent years, partly explaining the institution’s low level of disbursement in Chad. Discussions are ongoing with the institution regarding future repayments. 10. The macroeconomic framework reflects an updated fiscal scenario and the October 2024 WEO assumptions. Compared to the previous DSA (December 2022), the new framework incorporates a rebasing of GDP estimates, about 45 percent higher in nominal terms, which has mechanically reduced all debt-to-GDP ratios. This increase primarily reflects revaluations of the contributions of the agricultural and oil sectors and resulted in a significant decrease in all ratios over GDP. Real GDP growth in 2023 is higher than previously projected (4.9 vs. 3.5 percent), reflecting both faster-than-expected oil growth – owing to a rebound in oil production – and higher non-oil activity, driven by a rebound in agricultural production and a large increase in public investment (Text Table 3). The overall fiscal balance turned into a deficit in 2023, reflecting higher-than-expected investment despite stable revenue. The non-oil primary deficit moderated to 3.9 percent of non-oil GDP during the first seven months of 2024 (down from 11.2 percent in 2023), while revenue from the oil sector stabilized, reflecting the evolution in prices and production. In the coming years, oil production should remain mostly stable close to its 2023 high level of around 55 million barrels (compared to a projection of 52 million barrels in the previous DSA). Increased output from new oil fields will offset gradually declining production from older wells, before gradually falling over the medium to long term. Based on current projections, production is expected to peak in 2029, and gradually decline afterwards, which coupled with a projected fall in Brent oil prices from US$82 per barrel in 2023 to below US$70 by 2028, will lead to a reduction in fiscal revenue. Non-oil growth would decline to 3.7 percent in 2024, on account of the floods affecting a large part of the country and a longer than usual lean season. It would rebound to 4.2 percent in the medium term owing to the implementation of structural reforms, improvements in the business environment, and high levels of public investment. Imports are anticipated to rebound, driven by non-oil sector growth and the public investment. While exports are expected to see modest growth in 2024, they are likely to slow in 2025 due to temporarily reduced oil production. As a result, the current account deficit is expected to widen, reaching 1.3 percent of GDP in 2024 and 4.2 percent in 2025, before averaging 3 percent over the medium term. 11. Given the risks surrounding the authorities’ intentions to tighten fiscal policies, two scenarios are developed to conduct the analysis. The bearish outlook for oil prices and calls for fiscal prudence and reform implementation, with the aim of pursuing the fiscal adjustment initiated in the first 6 >>> seven months of 2024 and gradually reducing the non-oil primary deficit to below 5 percent of non-oil GDP over the medium term. In contrast, maintaining the 2023’s level of expenditure would inevitably lead to further debt accumulation. Two macro frameworks with diverging assumptions over the short and long terms are therefore considered to analyze debt sustainability: (i) the baseline scenario, which is based on a preliminary draft of the 2025 budget law and assumes that reforms continue to be implemented, thereby enhancing external concessional financing support and economic resilience; and (ii) a no-adjustment scenario involving resumed fiscal slippages, leading to an increase in arrears and non-concessional debt, and a decline in growth. 12. The baseline scenario relies on prudent fiscal policy and the implementation of Public Financial Management (PFM) and governance reforms. The baseline scenario would be underpinned by the acceleration of tax administration reforms to increase non-oil tax revenues by at least 1.3 percent of non-oil GDP by 2029, as well as measures to reduce current spending —focused on wage bill reduction as well as phasing out water and electricity subsidies and transfers linked to the political transition and the organization of elections—by 1.8 percent of non-oil GDP by 2029. Alongside prudent fiscal policy, the scenario assumes a medium-term operational target of 4-5 percent of non-oil GDP for the non-oil primary fiscal deficit, ensuring that the level of net debt converges towards, and then stabilizes at approximately 28 percent of GDP (consistent with the recommended medium-term fiscal framework that would anchor net debt in order to build a safety buffer).7 This allows the government to build buffers to increase the fiscal resilience to adverse shocks (such as a larger-than-projected decline in oil prices and climate shocks); the baseline scenario assumes a steady accumulation of deposits – from 1.6 percent of GDP at end-2023 to 5.1 percent of non-oil GDP at end-2029. Sound fiscal policies, with key structural reforms, will help build institutional credibility and create a pro-growth environment.8 This will contribute to improved tax revenue mobilization, higher disbursement rates for the implementation of key projects, and potentially more financing from external creditors and new investors. 13. An alternative scenario assumes no fiscal adjustments (see Annex V). The projected fiscal balance would gradually deteriorate, reflecting continuously high spending. This situation would lead to an accumulation of domestic arrears (about 0.7 percent of non-oil GDP per year on average, with the stock reaching 5 percent of GDP by the end of the period), progressively slowing down economic activity (about 1 percentage point difference in 2029 in the non-oil sector with respect to the baseline scenario). In the absence of a credible fiscal framework and, external financing options would be limited, and additional external budget support would be provided on non-concessional terms (about 4 percent of non-oil GDP per year on average). As in the baseline scenario, the government would have very limited room to increase treasury security issuance because of market saturation in the short term. 7 Net debt is calculated as the difference between gross public debt and government deposits. A deposit stock of 5 percent of GDP and a gross debt target of 33 percent of GDP would be compatible with the net debt anchor of 28 percent of GDP. 8 To further reduce the non-oil primary deficit, staff recommends an acceleration of structural fiscal reforms, including tax administration reforms (including digitalization) to boost non-oil revenues as well as measures to enhance expenditure controls (and reduce the use of DAOs) and streamlining non-priority spending. 7 >>> 2017-20 2021 2022 2023 2024 2025-29 Real GDP growth Baseline Scenario 3.2 3.9 2.1 -0.9 3.6 4.9 No-Adjustment Scenario 3.2 3.0 December 2022 DSA 1/ 0.3 -1.1 2.5 3.5 3.7 3.6 Oil GDP Growth Baseline Scenario -0.5 1.8 3.1 -7.2 10.7 7.4 No-Adjustment Scenario -0.5 1.8 December 2022 DSA 1/ 2.0 -6.9 5.6 5.6 2.0 1.3 Non-oil GDP Growth Baseline Scenario 3.7 4.2 2.5 0.3 4.1 4.5 No-Adjustment Scenario 3.7 3.1 December 2022 DSA 1/ 0.0 0.2 1.8 3.1 4.1 4.1 Current Account (percent of GDP) Baseline Scenario -1.3 -3.3 -4.1 -2.0 4.7 -0.7 No-Adjustment Scenario -1.3 -3.8 December 2022 DSA 1/ -5.0 -4.5 2.8 -1.4 -5.2 -5.2 Overall Budget Balance 2/ (percent of non-oil GDP) Baseline Scenario -0.1 -1.8 0.3 -1.8 4.6 -1.8 No-Adjustment Scenario -0.1 -4.2 December 2022 DSA 0.3 -1.6 4.0 5.4 3.2 3.6 Expenditure Baseline Scenario 20.4 19.6 13.1 15.5 16.3 20.4 No-Adjustment Scenario 20.4 21.6 December 2022 DSA 13.0 15.3 14.1 14.3 12.8 7.2 Revenue and Grants Baseline Scenario 20.2 17.8 13.3 13.7 20.9 18.6 No-Adjustment Scenario 20.2 17.4 December 2022 DSA 13.3 13.7 18.2 19.6 16.1 14.7 Non-Oil Primary Balance (excl. Grants) Baseline Scenario -7.5 -5.5 -3.8 -7.3 -7.2 -11.2 No-Adjustment Scenario -7.5 -7.8 December 2022 DSA -3.8 -7.1 -4.8 -4.3 -3.2 -1.5 Grant element of new external borrowing Baseline Scenario 42.7 43.1 … … … … No-Adjustment Scenario 14.3 10.7 December 2022 DSA … … 36.8 36.7 46.3 50.5 Source: Country authorities, IMF staff projections. 1/ Data based on pre-rebasing GDP series. 2/ Commitment basis, including grants and expected grants. 14. Both scenarios are surrounded by substantial uncertainty and risks related to oil price fluctuations, climate shocks, and security issues. Chad’s heavy dependency on oil export revenues has increased economic volatility as evidenced by four recessions since 2006 with significant consequences for debt sustainability. Additionally, the effectiveness of spending in terms of GDP growth is highly uncertain (see Figure 5). The increasing frequency and severity of climatic shocks are exacerbating an already fragile economic environment. The regional security situation remains a source of concern, notably as the conflict in Sudan could prolong or intensify. 15. Financing assumptions have been updated to reflect most recent information . With respect to external financing, the DSA includes IDA project grant financing during the period July 2022-June 2024 while no World Bank budget support was provided over this period. In addition, Chad is eligible for an annual Prevention and Resilience Allocation (PRA) contingent on the successful attainment of PRA milestones. Chad also has access to additional IDA resources under the Regional Window, Crisis Response Window, Window for Host Communities and Refugees, and the Private Sector Window, subject to meeting the respective window eligibility criteria. Subsequently, annual IDA allocations assume a similar level of resources as the IDA19 performance-based allocation. Recently, the disbursement rates from 8 >>> World Bank and other partners have increased thanks to some easing in administrative procedures. Continuing implementation of PFM and governance reforms in fiscal planning, risk management, expenditure control, and revenue administration strengthen donors’ engagement and provide additional financing support. In the baseline scenario, the financing needs are limited and assumed to be secured on concessional external borrowing (about 2 percent of non-oil GDP per year on average). The higher financing needs of the no-adjustment scenario are assumed to be covered on non-concessional terms (about 4 percent of non-oil GDP per year on average from 2026 to 2030). Projects and budget support grants are assumed to average 2.1 percent of non-oil GDP in the baseline scenario and 1.5 percent in the no-adjustment scenario. Under both scenarios, domestic debt should gradually decline relative to GDP in the coming years owing to limited room for new domestic issuance, before stabilizing at about 10 percent of GDP over the medium to long term (see Text Figure 4). 16. The composite indicator (CI) indicates weak debt carrying capacity for Chad (Text Table 5). The CI is calculated based on the CPIA score, a proxy of external conditions defined by world economic growth, and country-specific factors. Data as of June 2024 indicate weak debt carrying capacity, mainly reflecting a low CPIA, very low remittances, and a low level of foreign reserves. Debt-carrying capacity was also rated as weak prior to the latest update. The relevant external debt burden high-risk thresholds are: (i) 30 percent for the present value (PV) of external debt-to-GDP ratio; (ii) 140 percent for the PV of debt-to-exports ratio; (iii) 10 percent for the debt service-to-exports ratio; and (v) 14 percent for the debt service-to-revenue ratio. In the case of Chad, the two most relevant debt indicators are the external debt service-to-revenues (excluding grants) ratio and the stock of public debt-to-GDP ratio. Consequently, the analysis of results focuses on these two indicators. 17. The debt sustainability analysis relies on six standard stress tests and a customized oil commodity price shock stress test. Of the stress tests, the natural disaster and the commodity price shock have the most relevance for Chad (Figure 1 and 3). The commodity price shock assumes a one- standard deviation decline in oil prices from 2024-2029, corresponding to a 58 percent fall in the price of oil. Despite the severity of most of the simulated shocks, the analysis will focus on the commodity price shock, to which Chad is particularly vulnerable. 9 >>> Debt Carrying Capacity Weak Classification based Classification based Classification based on the Final on the previous on current vintage two previous vintage vintage Weak Weak Weak Weak 2.34 2.30 2.40 Calculation of the CI Index 10-year average CI Score components Contribution of Components Coefficients (A) values (B) (A*B) = (C) components CPIA 0.39 2.72 1.05 45% Real growth rate (in 2.72 2.32 0.06 3% percent) Import coverage of 4.05 28.15 1.14 49% reserves (in percent) Import coverage of -3.99 7.92 -0.32 -14% reserves^2 (in percent) Remittances (in percent) 2.02 1.07 0.02 1% World economic growth 13.52 2.86 0.39 16% (in percent) CI Score 2.34 100% CI rating Weak Reference: Thresholds by Classification EXTERNAL debt burden Weak Medium Strong thresholds PV of debt in % of Exports 140 180 240 GDP 30 40 55 Debt service in % of Exports 10 15 21 Revenue 14 18 23 TOTAL public debt Weak Medium Strong benchmark PV of total public debt in 35 55 70 percent of GDP 18. Adaptation to climate change presents a significant challenge for Chad, potentially impacting country’s debt and necessitating substantial international financial support. As one of the most vulnerable nations to climate change, Chad faces severe environmental degradation, including the drying up of Lake Chad, increased desertification, frequent droughts, and floods. The DSA natural disaster module assumes a one-off 10 percentage points of GDP shock to the external debt-to-GDP ratio in the first year of the projection period; it also involves a real GDP growth shock of 1.5 percent and an exports growth shock of 3.5 percent. This natural disaster shock, even if unlikely with the current calibration, illustrates the potential adverse impact of such an event on debt dynamics. Chad’s Nationally Determined Contribution (NDC), submitted in October 2021, outlines considerable financial requirements to meet its climate objectives. Mitigation efforts, estimated to cost approximately US$6.7 billion (about 35 percent of 2024 GDP) to reduce emissions by 19.3 percent by 2030, are likely to be difficult to achieve due to financial constraints, despite aligning with sustainable development goals. On the adaptation front, Chad needs around US$5 billion (about 26 percent of 2023 GDP) by 2030 to enhance resilience against climate impacts. The authorities have committed to financing US$1.2 billion (6.2 percent of 2023 GDP) domestically towards these efforts, which will result in additional financing needs in the coming years. Substantial and crucial international financial support will also be required to achieve its climate goals. 19. Chad continues to be assessed as presenting a “high risk” of external debt distress, as in the previous DSA of December 2022. The PV of external debt-to-GDP ratio improved substantially in 10 >>> 2023, thanks to the accelerated repayments to Glencore. However, external debt service remains elevated, particularly under the extended debt coverage, which now includes foreign-held CFAF-denominated debt. In the baseline scenario, the declining trend in external debt is expected to be reversed, but without driving debt service above the threshold, as the additional debt is assumed to be contracted under concessional terms. This would result in the external debt service-to-revenue remaining below 14 percent from 2025 onwards, eventually leading to a moderate risk of distress (Table 1 and Figure 1). In the no-adjustment scenario, on the other hand, the widening fiscal deficit over the entire forecasting horizon significantly increases debt service, causing the external debt service-to-revenue ratio to exceed the 14-percent threshold from 2027 onwards (Table 5 and Figure 6). Due to the significant uncertainty surrounding the realism of the baseline scenario in the medium to long term, which could deteriorate into the unsustainable no-adjustment scenario should fiscal prudence and necessary reforms fail to materialize, judgement is applied to continue assessing the risk of external debt distress as high. 20. Chad’s overall risk of public debt distress also remains high . In 2022 and 2023, total public debt declined rapidly, with reductions in both domestic and external debts. Moving forward, debt is expected to stabilize at about 30 percent of GDP over the next 10 years, with a stable share of domestic and external debt, at approximately 10 and 20 percent of GDP, respectively (Table 2 and Figure 2). The progressive decline of the debt service, as external debt becomes more concessional, leads to a moderate risk assessment of overall public debt distress. However, in the no-adjustment scenario, the trends differ drastically as higher budget deficits would lead to further debt accumulation. In this scenario, the PV of total public debt-to-GDP ratio would breach the 35 percent high-risk benchmark in 2029 and continue to rise over the long term (Table 6 and Figure 7). Due to the wide divergence of debt trajectories in the two scenarios, judgement is also applied to maintain the risk assessment of public debt distress as high. 21. A commodity price shock represents the main vulnerability of overall public and external debt. Adverse scenario analysis indicates that a commodity price shock could lead to a significant deterioration in outstanding debt stock and debt service in the baseline scenario. The external debt service- to-revenue ratio would exceed the risk threshold at multiple times, exacerbating liquidity pressure. The public debt-to-GDP ratio would exceed its benchmark in the near future by 2026 and remain well above thereafter. 22. In contrast, the stress resulting from a natural disaster shock event could be contained in the baseline scenario. Although the debt stock would significantly increase after the shock, additional debt service would remain limited. However, in the no-adjustment scenario, any shocks, including the natural disaster shock, would dramatically increase both domestic and external debt, leading to higher debt and debt service ratios over the entire forecast period, jeopardizing debt sustainability. 23. Overall, debt remains sustainable. Given the anticipated decline in oil export revenue over the medium to long term, the implementation of prudent fiscal policies is essential to significantly reduce debt and debt service and the risk of distress. The recent improvement in fiscal policy and commitments made by the authorities contribute to establish an appropriate framework to preserve debt sustainability and promote accelerated economic development. On the other hand, persistent elevated spending, as projected in the no-adjustment scenario, would increase the stock of debt in an uncontrolled manner, 11 >>> breaching all risk thresholds. Although uncertainties persist as to whether the recommended fiscal prudence and the implementation of essential reforms will fully materialize, the baseline scenario involves debt remaining sustainable over the entire forecast horizon. Domestic Debt to GDP Ratio Domestic Debt Service to Revenues Incl. Net Domestic Debt Issuance 1/ 25 60 6.0 50.0 5.0 50 40.0 20 4.0 3.0 30.0 40 15 2.0 20.0 30 1.0 10 10.0 0.0 20 -1.0 0.0 5 -2.0 10 -10.0 -3.0 0 0 -4.0 -20.0 2019 2021 2023 2025 2027 2029 2031 2033 2019 2021 2023 2025 2027 2029 2031 2033 2019 2021 2023 2025 2027 2029 2031 2033 Historical realizations As a ratio to GDP (LHS) Median of average projected values over the first five years of the forecast period As a ratio to domestic debt stock in prev. year (RHS) across countries using the LIC DSF with non-zero domestic debt, end-2023 Borrowing Assumptions (average over 10-year projection) Value Shares in new domestic debt issuance Medium and long-term 40% Short-term 60% Borrowing terms Domestic MLT debt Avg. real interest rate on new borrowing 3.6% Avg. maturity (incl. grace period) 3 Avg. grace period 0 Domestic short-term debt Avg. real interest rate 5.0% Sources: Country authorities; and staff estimates and projections. 1/ Net domestic debt issuance is an estimate based on the calculated public gross financing need net of gross external financing, drawdown of assets, other adjustments and domestic debt amortization. It excludes short-term debt that was issued and matured within the calendar year. 24. The authorities concurred with staff’s assessment that debt remains sustainable and reiterated their commitment to implement a prudent fiscal policy and to contract external debt on concessional terms only. The authorities highlighted the efforts made to reduce the level of external debt following the restructuring of part of the external debt in 2022. They remain committed to improving revenue mobilization and controlling spending, by continuing implementing structural reforms. They also intend to continue contracting new loans only at concessional terms, indicating that maintaining the external debt service-to-revenue ratio below the 14-percent threshold is now a key fiscal policy objective. With regard to domestic debt, the authorities shared staff’s concerns about regional securities market saturation and intend to limit net sovereign issuance to approximately CFAF 15 billion per year. 12 >>> Actual Projections Average 8/ 2021 2022 2023 2024 2025 2026 2027 2028 2029 2034 2044 Historical Projections External debt (nominal) 1/ 21.6 17.9 16.1 15.8 17.0 19.0 20.3 21.6 23.3 21.3 20.6 20.2 20.8 Definition of external/domestic debt Residency-based of which: public and publicly guaranteed (PPG) 21.6 17.9 16.1 15.8 17.0 19.0 20.3 21.6 23.3 21.3 20.6 20.2 20.8 Is there a material difference between the Yes two criteria? Change in external debt 0.6 -3.8 -1.7 -0.4 1.2 2.0 1.3 1.3 1.7 -0.5 0.2 Identified net debt-creating flows -2.7 -7.7 -2.5 -0.9 1.2 1.0 0.1 1.1 1.9 1.7 2.6 0.0 1.2 Non-interest current account deficit 1.6 -5.2 0.4 0.9 3.7 3.8 2.7 2.5 2.7 2.1 2.3 1.9 2.5 Deficit in balance of goods and services 5.6 -3.9 1.4 1.9 4.5 4.5 3.5 3.1 3.2 2.9 2.8 6.1 3.3 Exports 27.4 35.1 30.1 28.2 24.9 24.2 23.3 23.1 22.2 18.0 12.0 Debt Accumulation Imports 33.1 31.2 31.6 30.1 29.4 28.7 26.8 26.2 25.4 20.9 14.9 Net current transfers (negative = inflow) -5.5 -3.6 -3.0 -2.6 -2.3 -2.0 -1.8 -1.6 -1.4 -0.9 -0.4 -5.6 -1.6 Debt Accumulation of which: official -1.1 -0.9 -0.8 -0.5 -0.5 -0.5 -0.6 -0.6 -0.6 -0.7 -0.8 Grant-equivalent financing (% of GDP) Other current account flows (negative = net inflow) 1.5 2.3 1.9 1.5 1.5 1.3 1.1 1.0 0.9 0.1 -0.1 1.4 0.8 Grant element of new borrowing (% right scale) 4.0 45 Net FDI (negative = inflow) -2.3 -1.7 -1.9 -1.7 -2.5 -2.2 -2.1 -0.7 -0.1 0.4 0.9 -2.5 -0.8 Endogenous debt dynamics 2/ -2.0 -0.8 -0.9 -0.1 0.0 -0.6 -0.5 -0.7 -0.7 -0.7 -0.7 3.5 44 Contribution from nominal interest rate 0.4 0.4 0.4 0.4 0.5 0.2 0.1 0.1 0.1 0.0 0.0 44 3.0 Contribution from real GDP growth -0.1 -0.8 -0.8 -0.5 -0.5 -0.7 -0.7 -0.8 -0.7 -0.7 -0.7 43 Contribution from price and exchange rate changes -2.3 -0.4 -0.5 … … … … … … … … 2.5 43 Residual 3/ 3.3 3.9 0.8 0.5 0.0 1.0 1.2 0.2 -0.2 -2.2 -2.4 0.1 -0.7 2.0 of which: exceptional financing -0.7 -1.1 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 42 1.5 Sustainability indicators 42 1.0 PV of PPG external debt-to-GDP ratio ... ... 12.4 11.4 11.4 12.3 12.9 13.5 14.6 15.2 14.7 41 PV of PPG external debt-to-exports ratio ... ... 41.2 40.3 45.6 50.7 55.3 58.6 65.8 84.0 122.3 0.5 41 PPG debt service-to-exports ratio 6.5 7.3 7.6 7.9 7.1 4.8 5.7 5.6 4.1 7.2 10.2 0.0 40 PPG debt service-to-revenue ratio 16.3 16.5 15.8 14.8 12.1 9.0 10.2 9.8 6.7 10.3 10.5 Gross external financing need (Million of U.S. dollars) 186.3 -767.7 143.5 294.3 671.2 660.5 496.9 830.2 995.3 1471.4 3170.9 -0.5 40 2024 2028 2032 2036 2040 Key macroeconomic assumptions Real GDP growth (in percent) 0.3 4.1 4.8 3.2 3.4 4.5 3.8 4.3 3.7 3.2 3.5 2.0 3.5 GDP deflator in US dollar terms (change in percent) 12.6 1.7 2.7 5.2 4.0 2.1 1.9 1.7 2.5 2.5 2.6 -0.7 3.1 External debt (nominal) 1/ Effective interest rate (percent) 4/ 2.2 1.9 2.1 2.6 3.4 1.0 0.8 0.6 0.5 -0.1 0.1 3.0 0.7 Growth of exports of G&S (US dollar terms, in percent) 33.4 35.4 -7.5 1.5 -4.8 3.6 1.9 4.9 2.3 3.3 2.4 4.5 2.0 of which: public and publicly guaranteed (PPG) of which: Private Growth of imports of G&S (US dollar terms, in percent) 14.8 -0.2 9.1 3.5 5.0 4.4 -1.4 3.6 3.2 2.5 2.7 1.7 2.9 25 Grant element of new public sector borrowing (in percent) ... ... ... 42.7 41.5 44.2 42.0 43.8 44.1 43.6 41.1 ... 43.4 Government revenues (excluding grants, in percent of GDP) 10.8 15.5 14.6 15.1 14.6 12.8 13.2 13.1 13.4 12.6 11.7 10.7 13.3 Aid flows (in Million of US dollars) 5/ 233.3 198.9 178.0 857.4 1155.9 1366.2 1322.1 1452.1 1581.8 1627.9 3388.9 20 Grant-equivalent financing (in percent of GDP) 6/ 0.7 0.8 0.5 2.8 3.3 3.7 3.4 3.5 3.6 3.1 3.4 ... 3.3 Grant-equivalent financing (in percent of external financing) 6/ 100.0 100.0 100.0 63.6 62.0 62.1 62.4 63.3 63.3 72.9 69.2 ... 66.8 Nominal GDP (Million of US dollars) 16881 17867 19241 20885 22472 23991 25364 26914 28598 39685 71167.4 15 Nominal dollar GDP growth 12.9 5.8 7.7 8.5 7.6 6.8 5.7 6.1 6.3 5.9 6.2 1.3 6.8 Memorandum items: 10 PV of external debt 7/ ... ... 12.4 11.4 11.4 12.3 12.9 13.5 14.6 15.2 14.7 In percent of exports ... ... 41.2 40.3 45.6 50.7 55.3 58.6 65.8 84.0 122.3 Total external debt service-to-exports ratio 6.5 7.3 7.6 7.9 7.1 4.8 5.7 5.6 4.1 7.2 10.2 5 PV of PPG external debt (in Million of US dollars) 2387.5 2371 2551.7 2941 3271 3640 4175.2 6013.9 10461.9 (PVt-PVt-1)/GDPt-1 (in percent) -0.1 0.9 1.7 1.4 1.5 2.0 0.8 1.0 Non-interest current account deficit that stabilizes debt ratio 1.0 -1.4 2.1 1.2 2.5 1.8 1.4 1.2 1.0 2.6 2.2 0 2024 2028 2032 2036 2040 Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency- denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 13 >>> Actual Projections Average 6/ 2021 2022 2023 2024 2025 2026 2027 2028 2029 2034 2044 Historical Projections Public sector debt 1/ 40.6 31.5 30.3 29.5 29.5 30.4 30.8 31.5 32.6 30.1 30.1 35.4 30.8 Definition of external/domestic debt Residency-based of which: external debt 21.6 17.9 16.1 15.8 17.0 19.0 20.3 21.6 23.3 21.3 20.6 20.2 20.8 Is there a material difference between the Yes two criteria? Change in public sector debt 0.6 -9.2 -1.1 -0.8 0.0 0.9 0.5 0.7 1.1 -0.1 0.3 Identified debt-creating flows 1.0 -7.7 -1.7 -0.5 0.2 0.5 0.3 0.4 0.9 0.1 0.5 -0.5 0.1 Primary deficit 0.8 -4.6 0.4 -1.1 -0.4 1.3 0.8 0.9 0.8 1.2 1.6 -0.2 0.7 Public sector debt 1/ Revenue and grants 11.5 16.3 15.1 16.7 16.5 14.7 15.1 15.1 15.3 14.8 14.0 12.3 15.3 of which: grants 0.7 0.8 0.5 1.6 1.9 1.9 1.9 1.9 2.0 2.2 2.3 of which: local-currency denominated Primary (noninterest) expenditure 12.3 11.7 15.5 15.6 16.1 16.0 15.9 16.0 16.2 16.0 15.6 12.0 16.0 of which: foreign-currency denominated Automatic debt dynamics -1.0 -4.3 -0.9 -0.9 -0.5 -1.0 -1.0 -1.3 -1.2 -1.2 -1.1 35 Contribution from interest rate/growth differential -1.8 -4.3 -1.0 -0.9 -0.5 -1.0 -1.0 -1.3 -1.2 -1.2 -1.1 of which: contribution from average real interest rate -1.7 -2.7 0.4 0.0 0.5 0.2 0.1 0.0 -0.1 -0.2 -0.1 30 of which: contribution from real GDP growth -0.1 -1.6 -1.4 -0.9 -1.0 -1.3 -1.1 -1.3 -1.1 -0.9 -1.0 Contribution from real exchange rate depreciation 0.8 0.0 0.1 ... ... ... ... ... ... ... ... 25 Other identified debt-creating flows 1.3 1.2 -1.2 1.4 1.1 0.3 0.6 0.7 1.3 0.0 0.0 -0.6 0.5 Privatization receipts (negative) 0.0 0.0 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 Recognition of contingent liabilities (e.g., bank recapitalization) 0.2 0.0 0.0 0.0 0.4 0.3 0.0 0.0 0.0 0.0 0.0 Debt relief (HIPC and other) -0.2 -0.3 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15 Deposit accumulation/withdrawals 1.3 1.4 -1.6 1.4 0.7 -0.1 0.6 0.7 1.3 0.0 0.0 Residual -0.4 -1.4 0.6 -0.3 -0.2 0.3 0.1 0.3 0.2 -0.1 -0.1 1.3 -0.1 10 Sustainability indicators 5 PV of public debt-to-GDP ratio 2/ ... ... 26.5 25.0 23.9 23.6 23.4 23.4 23.9 24.0 24.2 PV of public debt-to-revenue and grants ratio ... ... 175.5 149.4 144.4 160.7 155.1 154.9 155.6 162.2 173.5 0 Debt service-to-revenue and grants ratio 3/ 19.7 21.6 26.5 35.6 47.8 56.0 52.7 49.0 43.7 46.9 65.3 2024 2028 2032 2036 2040 Gross financing need 4/ 4.3 0.1 3.2 4.9 7.5 9.5 8.7 8.3 7.5 8.2 10.7 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 0.3 4.1 4.8 3.2 3.4 4.5 3.8 4.3 3.7 3.2 3.5 2.0 3.5 Average nominal interest rate on external debt (in percent) 2.0 2.0 2.1 2.5 3.4 1.0 0.8 0.6 0.5 -0.1 0.1 3.0 0.7 Average real interest rate on domestic debt (in percent) -6.1 -9.4 5.2 0.2 2.3 3.0 2.6 2.4 1.7 1.9 2.1 1.6 1.5 Real exchange rate depreciation (in percent, + indicates depreciation) 3.7 0.1 0.5 … ... ... ... ... ... ... ... 4.4 ... Inflation rate (GDP deflator, in percent) 8.5 14.2 0.1 4.4 3.3 1.8 2.1 1.8 2.5 2.5 2.6 1.1 3.0 Growth of real primary spending (deflated by GDP deflator, in percent) -6.8 -1.1 38.8 4.2 6.5 3.7 3.1 5.0 4.8 3.8 3.7 3.4 3.9 Primary deficit that stabilizes the debt-to-GDP ratio 5/ 0.2 4.6 1.5 -0.3 -0.4 0.4 0.3 0.2 -0.3 1.3 1.3 2.1 0.8 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government, central bank, government-guaranteed debt . Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 14 >>> Figure 1. Chad: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2024-2034 PV of Debt-to-GDP Ratio PV of Debt-to-Exports Ratio 35 200 180 30 160 25 140 20 120 100 15 80 10 60 40 5 Most extreme shock: Exports 20 Most extreme shock: Exports 0 0 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Debt Service-to-Exports Ratio Debt Service-to-Revenue Ratio 20 20 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 Most extreme shock: Exports 2 Most extreme shock: Commodity price 0 0 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Baseline Historical scenario Most extreme shock 1/ Threshold Response to a Natural Disaster Shock Borrowing assumptions on additional financing needs resulting from the stress Customization of Default Settings tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Stress Terms of marginal debt Combined CL Yes Avg. nominal interest rate on new borrowing in USD 0.2% 0.2% Natural disaster n.a. n.a. USD Discount rate 5.0% 5.0% Commodity price No No Avg. maturity (incl. grace period) 20 20 Market financing n.a. n.a. Avg. grace period 5 5 Note: "Yes" indicates any change to the size or interactions of * Note: All the additional financing needs generated by the shocks under the stress tests are the default settings for the stress tests. "n.a." indicates that the assumed to be covered by PPG external MLT debt in the external DSA. Default terms of stress test does not apply. marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2034. The stress test with a one-off breach is also presented (if any), while the one- off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one- off breach, only that stress test (with a one-off breach) would be presented. Note: Consistent with the 2018 contract with Glencore, the 4 million barrels transferred to the refinery are valued at market prices when estimating the revenue and external debt service in 2024. 15 >>> PV of Debt-to-GDP Ratio 60 50 40 30 20 10 Most extreme shock: Commodity price 0 2024 2026 2028 2030 2032 2034 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 400 140 350 120 300 100 250 80 200 60 150 40 100 50 20 Most extreme shock: Commodity price Most extreme shock: Commodity price 0 0 2024 2026 2028 2030 2032 2034 2024 2026 2028 2030 2032 2034 Baseline Most extreme shock 1/ TOTAL public debt benchmark Historical scenario 0 Response to a Natural Disaster Shock Borrowing assumptions on additional financing needs resulting from the stress tests* Default User defined Shares of marginal debt External PPG medium and long-term 35% 26% Domestic medium and long-term 26% 26% Domestic short-term 39% 48% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 0.2% 0.2% Avg. maturity (incl. grace period) 20 20 Avg. grace period 5 5 Domestic MLT debt Avg. real interest rate on new borrowing 3.6% 3.6% Avg. maturity (incl. grace period) 1 3 Avg. grace period 0 0 Domestic short-term debt Avg. real interest rate -1.0% 5.0% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2034. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 16 >>> Projections 1/ 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 PV of debt-to GDP ratio Baseline 11 11 12 13 14 15 15 15 15 15 15 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 11 11 11 12 11 11 10 10 9 8 7 A2. Alternative Scenario: Natural Disaster Shock 13 14 16 18 19 21 22 22 22 22 22 B. Bound Tests B1. Real GDP growth 11 12 15 15 16 17 18 18 18 18 18 B2. Primary balance 11 12 13 14 15 17 18 18 18 18 18 B3. Exports 11 15 23 23 24 25 25 25 24 23 22 B4. Other flows 3/ 11 13 15 15 16 17 18 17 17 17 17 B5. Depreciation 11 14 13 14 15 16 17 17 17 17 18 B6. Combination of B1-B5 11 15 17 18 18 20 20 20 20 20 19 C. Tailored Tests C1. Combined contingent liabilities 11 13 16 17 19 20 22 22 22 23 23 C2. Natural disaster 11 13 15 17 18 20 21 22 22 22 23 C3. Commodity price 11 16 21 22 23 25 25 24 23 22 21 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 30 30 30 30 30 30 30 30 30 30 30 PV of debt-to-exports ratio Baseline 40 46 51 55 59 66 71 75 79 82 84 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 40 44 46 50 49 50 49 47 46 44 39 A2. Alternative Scenario: Natural Disaster Shock 48 59 68 77 84 96 105 111 118 123 126 B. Bound Tests B1. Real GDP growth 40 46 51 55 59 66 71 75 79 82 84 B2. Primary balance 40 48 55 62 67 77 84 89 95 99 101 B3. Exports 40 76 142 151 156 170 181 186 188 190 188 B4. Other flows 3/ 40 51 61 66 69 77 83 86 89 92 93 B5. Depreciation 40 46 44 48 51 58 64 67 72 75 78 B6. Combination of B1-B5 40 63 59 81 85 95 102 105 110 113 115 C. Tailored Tests C1. Combined contingent liabilities 40 54 64 73 80 92 102 108 116 122 126 C2. Natural disaster 40 55 65 74 81 93 103 110 118 124 129 C3. Commodity price 40 87 115 119 119 123 125 126 127 126 124 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 140 140 140 140 140 140 140 140 140 140 140 Debt service-to-exports ratio Baseline 8 7 5 6 6 4 3 6 6 6 7 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 8 8 5 7 7 5 4 8 7 8 9 A2. Alternative Scenario: Natural Disaster Shock 8 7 5 6 6 4 4 8 7 9 10 B. Bound Tests B1. Real GDP growth 8 7 5 6 6 4 3 6 6 6 7 B2. Primary balance 8 7 5 6 6 4 3 7 6 7 8 B3. Exports 8 9 8 10 9 7 5 13 15 17 18 B4. Other flows 3/ 8 7 5 6 6 4 3 7 7 8 8 B5. Depreciation 8 7 5 6 6 4 3 6 5 6 7 B6. Combination of B1-B5 8 8 6 7 7 5 4 9 8 9 10 C. Tailored Tests C1. Combined contingent liabilities 8 7 5 6 6 4 3 6 6 7 7 C2. Natural disaster 8 7 5 6 6 4 3 7 6 7 8 C3. Commodity price 8 10 7 8 8 5 4 10 11 12 12 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 10 10 10 10 10 10 10 10 10 10 10 Debt service-to-revenue ratio Baseline 15 12 9 10 10 7 5 10 8 9 10 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 15 13 10 12 12 9 6 13 10 12 13 A2. Alternative Scenario: Natural Disaster Shock 15 12 9 10 10 7 6 12 11 12 14 B. Bound Tests B1. Real GDP growth 15 13 11 12 12 8 6 12 10 11 12 B2. Primary balance 15 12 9 10 10 7 5 10 9 10 12 B3. Exports 15 13 10 11 11 8 5 13 15 16 17 B4. Other flows 3/ 15 12 9 10 10 7 5 11 10 11 12 B5. Depreciation 15 15 11 13 12 8 6 12 9 10 12 B6. Combination of B1-B5 15 13 11 12 12 8 6 14 11 13 14 C. Tailored Tests C1. Combined contingent liabilities 15 12 9 10 10 7 5 10 9 10 10 C2. Natural disaster 15 12 9 10 10 7 5 10 8 10 10 C3. Commodity price 15 18 15 17 15 9 6 15 15 16 17 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 14 14 14 14 14 14 14 14 14 14 14 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 17 >>> Projections 1/ 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 PV of Debt-to-GDP Ratio Baseline 25 24 24 23 23 24 24 24 24 24 24 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 25 25 24 23 23 23 23 22 22 22 22 A2. Alternative Scenario: Natural Disaster Shock 34 33 32 31 31 31 31 31 31 31 31 B. Bound Tests B1. Real GDP growth 25 27 31 32 34 36 38 39 41 42 44 B2. Primary balance 25 26 26 25 25 25 25 25 25 25 25 B3. Exports 25 27 32 32 32 32 32 31 31 30 29 B4. Other flows 3/ 25 25 26 26 26 26 26 26 26 25 26 B5. Depreciation 25 25 23 21 20 19 18 17 17 16 16 B6. Combination of B1-B5 25 25 22 23 23 24 23 23 23 23 24 C. Tailored Tests C1. Combined contingent liabilities 25 34 33 32 32 32 31 31 31 30 31 C2. Natural disaster 25 33 32 32 31 31 31 31 31 31 31 C3. Commodity price 25 27 32 38 43 48 50 51 53 54 55 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. TOTAL public debt benchmark 35 35 35 35 35 35 35 35 35 35 35 PV of Debt-to-Revenue Ratio Baseline 149 144 161 155 155 156 158 158 158 159 162 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 149 148 159 151 148 147 147 144 141 140 140 A2. Alternative Scenario: Natural Disaster Shock 204 196 217 207 205 202 204 205 205 205 209 B. Bound Tests B1. Real GDP growth 149 159 205 210 221 231 245 256 266 276 290 B2. Primary balance 149 155 175 168 167 166 168 168 168 169 172 B3. Exports 149 164 218 211 210 209 211 209 204 199 198 B4. Other flows 3/ 149 153 178 172 171 172 174 173 172 171 173 B5. Depreciation 149 150 156 141 131 122 120 117 115 112 112 B6. Combination of B1-B5 149 149 152 150 151 153 154 155 156 157 161 C. Tailored Tests C1. Combined contingent liabilities 149 207 226 214 210 206 207 206 205 204 207 C2. Natural disaster 149 200 219 209 206 204 206 206 206 206 211 C3. Commodity price 149 223 303 352 363 359 356 339 346 354 367 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Debt Service-to-Revenue Ratio Baseline 36 48 56 53 49 44 41 41 42 44 47 A. Alternative Scenarios A1. Key variables at their historical averages in 2024-2034 2/ 36 51 62 59 56 50 48 49 49 52 55 A2. Alternative Scenario: Natural Disaster Shock 36 90 97 88 81 72 71 68 66 67 68 B. Bound Tests B1. Real GDP growth 36 52 76 80 83 84 90 91 93 97 102 B2. Primary balance 36 49 71 67 63 58 58 55 54 55 56 B3. Exports 36 48 56 53 49 44 41 43 46 49 51 B4. Other flows 3/ 36 48 56 53 49 44 41 42 43 46 48 B5. Depreciation 36 48 57 53 50 44 42 43 42 45 47 B6. Combination of B1-B5 36 49 58 55 54 52 55 54 54 56 58 C. Tailored Tests C1. Combined contingent liabilities 36 49 109 92 85 75 72 67 62 61 61 C2. Natural disaster 36 50 103 89 83 74 72 67 64 63 63 C3. Commodity price 36 69 85 84 109 113 120 115 116 120 123 C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 18 >>> External debt Gross Nominal PPG External Debt Debt-creating Flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) 40 15 20 10 15 30 5 10 20 0 5 -5 0 10 proj. -10 -5 0 -15 -10 2019 2021 2023 2025 2027 2029 2031 2033 5-year historical 5-year projected Contribution of Distribution change change unexpected across LICs 2/ changes Residual Price and exchange rate Current DSA Interquartile range (25-75) Previous DSA Real GDP growth Nominal interest rate Change in PPG debt 3/ DSA-2017 Current account + FDI Change in PPG debt 3/ Median Public debt Gross Nominal Public Debt Debt-creating Flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) 70 20 20 60 15 10 50 10 40 0 5 30 0 20 -10 10 proj. -5 0 -20 -10 2019 2021 2023 2025 2027 2029 2031 2033 5-year historical 5-year projected Contribution of Distribution change change unexpected across LICs 2/ changes Current DSA Primary deficit Real interest rate Interquartile range (25-75) Previous DSA Real GDP growth Real Exchange rate depreciation Change in debt DSA-2017 Other debt creating flows Residual Median Change in debt 1/ Difference between anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for which LIC DSAs were produced. 3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 19 >>> 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) 8 4 14 Baseline Distribution 1/ Multiplier = 0.2 6 Multiplier = 0.4 3 12 Projected 3-yr adjustment Multiplier = 0.6 Multiplier = 0.8 In percentage points of GDP 3-year PB adjustment greater than 10 2.5 percentage points of GDP in 4 2 1.5 approx. top quartile In percent 8 2 1 6 0 0 -0.7 4 -2 -1 2 -4 -2 0 2018 2019 2020 2021 2022 2023 2024 2025 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show possible since 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; real GDP growth paths under different fiscal multipliers (left-hand side scale). the percent of sample is found on the vertical axis. Public and Private Investment Rates Contributions to Real GDP Growth (percent of GDP) (percent, 5-year average) 20 5 4 15 3 10 2 5 1 0 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Historical Projected (Prev. DSA) Projected (Curr. DSA) Gov. Invest. - Prev. DSA Gov. Invest. - Curr. DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Curr. DSA Contribution of government capital 20 >>> DSA Results for the No-Adjustment Scenario-(for further information on this scenario please refer to Annex V of the IMF Staff Report for the 2024 Article IV Consultation) Actual Projections Average 8/ 2021 2022 2023 2024 2025 2026 2027 2028 2029 2034 2044 Historical Projections External debt (nominal) 1/ 21.6 17.9 16.1 15.8 16.1 18.9 21.3 23.9 26.5 33.4 64.7 20.2 25.0 Definition of external/domestic debt Residency-based of which: public and publicly guaranteed (PPG) 21.6 17.9 16.1 15.8 16.1 18.9 21.3 23.9 26.5 33.4 64.7 20.2 25.0 Is there a material difference between the Yes two criteria? Change in external debt 0.6 -3.8 -1.7 -0.4 0.3 2.8 2.3 2.6 2.6 1.5 3.1 Identified net debt-creating flows -2.7 -7.7 -2.5 -0.9 0.9 1.3 1.3 2.2 3.2 2.0 3.4 0.0 1.7 Non-interest current account deficit 1.6 -5.2 0.4 0.9 3.2 3.7 3.3 2.7 2.9 1.1 0.7 1.9 2.2 Deficit in balance of goods and services 5.6 -3.9 1.5 1.9 4.0 4.4 4.1 3.4 3.5 2.0 1.7 6.1 3.1 Exports 27.4 35.1 30.1 28.2 25.1 24.5 23.8 23.7 22.8 19.6 13.3 Debt Accumulation Imports 33.1 31.2 31.6 30.1 29.1 29.0 27.9 27.1 26.3 21.5 15.1 Net current transfers (negative = inflow) -5.5 -3.6 -3.0 -2.6 -2.3 -2.1 -1.9 -1.7 -1.5 -1.0 -0.5 -5.6 -1.6 Debt Accumulation of which: official -1.1 -0.9 -0.8 -0.5 -0.5 -0.5 -0.5 -0.6 -0.6 -0.7 -0.8 Grant-equivalent financing (% of GDP) Other current account flows (negative = net inflow) 1.5 2.3 1.9 1.5 1.5 1.3 1.1 1.0 1.0 0.1 -0.6 1.4 0.8 Grant element of new borrowing (% right scale) 8 16 Net FDI (negative = inflow) -2.3 -1.7 -1.9 -1.7 -2.5 -2.2 -2.2 -0.8 -0.2 0.2 0.8 -2.5 -0.8 Endogenous debt dynamics 2/ -2.0 -0.8 -0.9 -0.1 0.2 -0.1 0.2 0.2 0.5 0.7 1.9 7 14 Contribution from nominal interest rate 0.4 0.4 0.4 0.4 0.6 0.4 0.6 0.9 1.1 1.7 3.9 Contribution from real GDP growth -0.1 -0.8 -0.8 -0.5 -0.4 -0.5 -0.5 -0.6 -0.6 -1.0 -2.0 6 12 Contribution from price and exchange rate changes -2.3 -0.4 -0.5 … … … … … … … … 5 10 Residual 3/ 3.3 3.9 0.8 0.5 -0.6 1.5 1.0 0.4 -0.6 -0.5 -0.3 0.1 -0.1 of which: exceptional financing -0.7 -1.1 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4 8 Sustainability indicators 3 6 PV of PPG external debt-to-GDP ratio ... ... 12.4 12.1 12.3 14.9 17.3 19.7 22.2 30.9 62.9 2 4 PV of PPG external debt-to-exports ratio ... ... 41.2 43.1 48.9 60.7 72.7 83.3 97.3 158.0 471.6 PPG debt service-to-exports ratio 6.5 7.3 7.6 7.9 7.6 5.8 8.6 10.2 11.1 22.0 68.2 1 2 PPG debt service-to-revenue ratio 16.3 16.5 15.8 14.8 13.1 11.3 15.7 18.6 19.4 34.7 80.6 Gross external financing need (Million of U.S. dollars) 186.3 -770.0 145.8 294.6 588.8 679.3 786.5 1137.3 1437.9 1986.7 6558.4 0 0 2024 2028 2032 2036 2040 Key macroeconomic assumptions Real GDP growth (in percent) 0.3 4.1 4.8 3.2 2.9 3.5 2.7 3.2 2.5 3.2 3.5 2.0 3.1 GDP deflator in US dollar terms (change in percent) 12.6 1.7 2.8 5.2 4.0 2.1 1.9 1.8 2.5 2.2 2.4 -0.7 2.6 External debt (nominal) 1/ Effective interest rate (percent) 4/ 2.2 1.9 2.1 2.6 4.4 2.8 3.5 4.3 4.8 5.6 6.7 3.0 4.3 Growth of exports of G&S (US dollar terms, in percent) 33.4 35.4 -7.6 1.5 -4.8 3.5 1.4 4.7 1.3 3.1 2.3 4.5 1.7 of which: public and publicly guaranteed (PPG) of which: Private Growth of imports of G&S (US dollar terms, in percent) 14.8 -0.2 9.2 3.5 3.2 5.4 0.6 2.1 2.1 2.2 2.3 1.7 2.1 70 Grant element of new public sector borrowing (in percent) ... ... ... 14.3 12.9 12.7 7.8 9.9 10.6 5.8 1.8 ... 9.3 Government revenues (excluding grants, in percent of GDP) 10.8 15.5 14.6 15.1 14.6 12.7 13.0 12.9 13.1 12.4 11.3 10.7 13.1 60 Aid flows (in Million of US dollars) 5/ 233.3 198.9 178.0 443.1 455.7 571.4 504.4 606.7 662.7 848.6 1437.7 Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 2.0 1.9 2.2 2.0 2.2 2.2 2.2 2.2 ... 2.1 50 Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 45.6 46.6 35.4 32.2 32.0 32.3 29.0 16.2 ... 34.8 Nominal GDP (Million of US dollars) 16881 17867 19250 20889 22349 23623 24720 25955 27279 35490 61804.1 40 Nominal dollar GDP growth 12.9 5.8 7.7 8.5 7.0 5.7 4.6 5.0 5.1 5.5 6.0 1.3 5.7 Memorandum items: 30 PV of external debt 7/ ... ... 12.4 12.1 12.3 14.9 17.3 19.7 22.2 30.9 62.9 In percent of exports ... ... 41.2 43.1 48.9 60.7 72.7 83.3 97.3 158.0 471.6 20 Total external debt service-to-exports ratio 6.5 7.3 7.6 7.9 7.6 5.8 8.6 10.2 11.1 22.0 68.2 PV of PPG external debt (in Million of US dollars) 2387.5 2534.7 2741.8 3518.5 4271.9 5124.6 6063.2 10967 38870.9 10 (PVt-PVt-1)/GDPt-1 (in percent) 0.8 1.0 3.5 3.2 3.4 3.6 3.5 6.9 Non-interest current account deficit that stabilizes debt ratio 1.0 -1.4 2.1 1.2 2.9 0.9 1.0 0.2 0.3 -0.4 -2.4 0 2024 2028 2032 2036 2040 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency- denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 21 >>> Actual Projections Average 6/ 2021 2022 2023 2024 2025 2026 2027 2028 2029 2034 2044 Historical Projections Public sector debt 1/ 40.5 31.3 30.2 29.4 28.0 30.6 33.0 35.7 38.6 55.1 102.8 35.4 39.6 Definition of external/domestic debt Residency-based of which: external debt 21.6 17.9 16.1 15.8 16.1 18.9 21.3 23.9 26.5 33.4 64.7 20.2 25.0 Is there a material difference between the Yes two criteria? Change in public sector debt 0.6 -9.2 -1.1 -0.8 -1.4 2.6 2.3 2.8 2.9 3.7 5.7 Identified debt-creating flows 1.0 -7.7 -1.7 -0.5 -1.1 2.2 2.2 2.5 2.7 3.9 6.0 -0.5 2.3 Primary deficit 0.8 -4.6 0.4 -1.1 0.2 2.6 2.5 2.9 2.9 4.0 5.7 -0.2 2.6 Public sector debt 1/ Revenue and grants 11.5 16.3 15.1 16.7 16.2 14.3 14.7 14.6 14.8 14.3 13.3 12.3 14.8 of which: grants 0.7 0.8 0.5 1.6 1.6 1.6 1.7 1.7 1.7 1.9 2.0 of which: local-currency denominated Primary (noninterest) expenditure 12.3 11.7 15.5 15.6 16.4 17.0 17.2 17.5 17.7 18.3 19.0 12.0 17.4 of which: foreign-currency denominated Automatic debt dynamics -1.0 -4.3 -0.9 -0.9 -0.1 -0.5 -0.3 -0.4 -0.1 -0.1 0.4 120 Contribution from interest rate/growth differential -1.8 -4.3 -1.0 -0.9 -0.1 -0.5 -0.3 -0.4 -0.1 -0.1 0.4 of which: contribution from average real interest rate -1.7 -2.7 0.4 0.1 0.7 0.4 0.5 0.7 0.7 1.5 3.6 100 of which: contribution from real GDP growth -0.1 -1.6 -1.4 -0.9 -0.8 -0.9 -0.8 -1.0 -0.9 -1.6 -3.3 Contribution from real exchange rate depreciation 0.8 0.0 0.1 ... ... ... ... ... ... ... ... 80 Other identified debt-creating flows 1.3 1.2 -1.2 1.4 -1.2 0.1 0.0 0.0 0.0 0.0 0.0 -0.6 0.0 Privatization receipts (negative) 0.0 0.0 0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recognition of contingent liabilities (e.g., bank recapitalization) 0.2 0.0 0.0 0.0 0.4 0.4 0.0 0.0 0.0 0.0 0.0 60 Debt relief (HIPC and other) -0.2 -0.3 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Deposit accumulation/withdrawals 1.3 1.4 -1.6 1.4 -1.6 -0.2 0.0 0.0 0.0 0.0 0.0 40 Residual -0.4 -1.4 0.6 -0.3 -0.2 0.3 0.1 0.3 0.2 -0.1 -0.4 1.3 0.0 Sustainability indicators 20 PV of public debt-to-GDP ratio 2/ ... ... 26.4 25.7 24.2 26.6 29.0 31.6 34.4 52.6 100.9 PV of public debt-to-revenue and grants ratio ... ... 174.7 153.4 149.1 185.3 197.4 216.5 231.9 368.5 758.5 0 Debt service-to-revenue and grants ratio 3/ 19.7 21.6 26.5 35.6 44.7 44.2 44.5 44.1 42.8 123.0 307.4 2024 2028 2032 2036 2040 Gross financing need 4/ 4.3 0.1 3.2 4.9 7.5 9.0 9.1 9.3 9.2 21.6 46.6 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 0.3 4.1 4.8 3.2 2.9 3.5 2.7 3.2 2.5 3.2 3.5 2.0 3.1 Average nominal interest rate on external debt (in percent) 2.0 2.0 2.1 2.5 4.3 2.8 3.6 4.3 4.8 5.6 6.7 3.0 4.3 Average real interest rate on domestic debt (in percent) -6.1 -9.4 5.2 0.3 2.3 2.5 1.8 1.4 0.6 1.7 2.2 1.6 1.4 Real exchange rate depreciation (in percent, + indicates depreciation) 3.7 0.1 0.5 … ... ... ... ... ... ... ... 4.4 ... Inflation rate (GDP deflator, in percent) 8.5 14.2 0.1 4.4 3.3 1.8 2.1 1.8 2.5 2.2 2.4 1.1 2.4 Growth of real primary spending (deflated by GDP deflator, in percent) -6.8 -1.1 38.7 4.2 8.0 6.9 4.1 4.9 3.7 3.8 3.7 3.4 4.7 Primary deficit that stabilizes the debt-to-GDP ratio 5/ 0.2 4.5 1.5 -0.3 1.6 0.0 0.2 0.1 0.0 0.3 0.0 2.1 0.3 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central, state, and local governments, central bank, government-guaranteed debt . Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 22 >>> PV of Debt-to-GDP Ratio PV of Debt-to-Exports Ratio 50 400 45 350 40 300 35 30 250 25 200 20 150 15 100 10 5 Most extreme shock: Exports 50 Most extreme shock: Exports 0 0 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Debt Service-to-Exports Ratio Debt Service-to-Revenue Ratio 60 60 50 50 40 40 30 30 20 20 10 10 Most extreme shock: Exports Most extreme shock: Exports 0 0 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Baseline Historical scenario Most extreme shock 1/ Threshold Response to a Natural Disaster Shock Borrowing assumptions on additional financing needs resulting from the stress Customization of Default Settings tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Stress Terms of marginal debt Combined CL Yes Avg. nominal interest rate on new borrowing in USD 6.2% 6.2% Natural disaster n.a. n.a. USD Discount rate 5.0% 5.0% Commodity price No No Avg. maturity (incl. grace period) 16 16 Market financing n.a. n.a. Avg. grace period 3 3 Note: "Yes" indicates any change to the size or interactions of * Note: All the additional financing needs generated by the shocks under the stress tests are the default settings for the stress tests. "n.a." indicates that the assumed to be covered by PPG external MLT debt in the external DSA. Default terms of stress test does not apply. marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2034. The stress test with a one-off breach is also presented (if any), while the one- off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one- off breach, only that stress test (with a one-off breach) would be presented. Note: Consistent with the 2018 contract with Glencore, the 4 million barrels transferred to the refinery are valued at market prices when estimating the revenue and external debt service in 2024. 23 >>> PV of Debt-to-GDP Ratio 120 100 80 60 40 20 Most extreme shock: Commodity price 0 2024 2026 2028 2030 2032 2034 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 800 300 700 250 600 200 500 400 150 300 100 200 50 100 Most extreme shock: Commodity price Most extreme shock: Commodity price 0 0 2024 2026 2028 2030 2032 2034 2024 2026 2028 2030 2032 2034 Baseline Most extreme shock 1/ TOTAL public debt benchmark Historical scenario 0 Response to a Natural Disaster Shock Borrowing assumptions on additional financing needs resulting from the stress tests* Default User defined Shares of marginal debt External PPG medium and long-term 42% 26% Domestic medium and long-term 21% 21% Domestic short-term 38% 53% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 6.2% 6.2% Avg. maturity (incl. grace period) 16 16 Avg. grace period 3 3 Domestic MLT debt Avg. real interest rate on new borrowing 4.2% 4.2% Avg. maturity (incl. grace period) 1 1 Avg. grace period 0 0 Domestic short-term debt Avg. real interest rate 0.0% 5.0% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2034. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 24 >>>