Low-income country debt rises to record $860 billion

Governments around the world responded to the Covid-19 pandemic with massive fiscal, monetary, and financial stimulus packages. While these measures were aimed at addressing the health emergency, cushioning the impact of the pandemic on the poor and vulnerable and putting countries on a path to recovery, the resulting debt burden of the world’s low-income countries rose by 12 per cent  to a record $860 billion in 2020, according to a new World Bank report.

Even prior to the pandemic, many low- and middle-income countries were in a vulnerable position, with slowing economic growth and public and external debt at elevated levels. External debt stocks of low- and middle-income countries combined rose by 5.3 per cent in 2020 to $8.7 trillion, according to the new International Debt Statistics 2022 report, which encompasses approach to managing debt is needed to help low- and middle-income countries assess and curtail risks and achieve sustainable debt levels.

"We need a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency," World Bank Group president David Malpass said, adding that sustainable debt levels are vital for economic recovery and poverty reduction.

The deterioration in debt indicators was widespread and impacted countries in all regions, it reads, adding that across all low- and middle-income countries, the rise in external indebtedness outpaced Gross National Income (GNI) and export growth. "Low- and middle-income countries’ external debt-to-GNI ratio (excluding China) rose to 42 per cent in 2020 from 37 per cent in 2019 while their debt-to-export ratio increased to 154 per cent in 2020 from 126 per cent in 2019."

In response to the unprecedented challenges posed by the pandemic and at the urging of the World Bank Group and the International Monetary Fund (IMF), in April 2020, the G20 launched the Debt Service Suspension Initiative (DSSI) to provide temporary liquidity support for low-income countries. The G-20 countries agreed to extend the deferral period through the end of 2021. In November 2020, the G20 agreed on a Common Framework for Debt Treatments beyond the DSSI, an initiative to restructure unsustainable debt situations and protracted financing gaps in DSSI-eligible countries.

Overall, in 2020, net inflows from multilateral creditors to low- and middle-income countries rose to $117 billion, the highest level in a decade. Net debt inflows of external public debt to low-income countries rose by 25 per cent to $71 billion, also the highest level in a decade. Multilateral creditors, including the IMF, provided $42 billion in net inflows while bilateral creditors accounted for an additional $10 billion.

"Economies across the globe face a daunting challenge posed by high and rapidly rising debt levels,” senior vice president and chief economist of the World Bank Group Carmen Reinhart said, adding that policymakers need to prepare for the possibility of debt distress when financial market conditions turn less benign, particularly in emerging market and developing economies.

Greater debt transparency is critical in addressing the risks posed by rising debt in many developing countries. To facilitate transparency, International Debt Statistics 2022 was expanded to provide more detailed and disaggregated data on external debt than ever before. The data now gives the breakdown of a borrowing country’s external debt stock to show the amount owed to each official and private creditor, the currency composition of this debt, and the terms on which loans were extended, according to the World Bank. "For DSSI-eligible countries the dataset was expanded to include the debt service deferred in 2020 by each bilateral creditor and the projected month-by-month debt-service payments owed to them through 2021."

International Debt Statistics (IDS) is a longstanding annual publication of the World Bank featuring external debt statistics and analysis for the 123 low- and middle-income countries that report to the World Bank Debt Reporting System (DRS).

Since the start of the Covid-19 pandemic, the World Bank Group has deployed over $157 billion to fight the health, economic, and social impacts of the pandemic, the fastest and largest crisis response in its history. The financing is helping more than 100 countries strengthen pandemic preparedness, protect the poor and jobs, and jump start a climate-friendly recovery. The bank is also supporting over 50 low- and middle-income countries, more than half of which are in Africa, with the purchase and deployment of Covid-19 vaccines, and is making available $20 billion in financing for this purpose until the end of 2022.

Nepal improves ranking in doing business

As the country readies to announce Investment Year 2012, Nepal's rank improved by three places to 107 reversing the earlier trend in Doing Business 2012 report launched today by the World Bank and IFC.
Improved ranking in the annual report is a good signal to investors that Nepal is creating a better environment for entrepreneurs.
The improvement is attributed to improved oversight and monitoring in the legal system, and speeding up the process for filing claims by investors that has strengthened enforcement of contracts.
The rankings in indicators like registering property, getting credit, paying taxes, and trading across borders have improved, whereas rankings fell in starting a business, dealing with construction permits, protecting investors, and resolving insolvency.
On getting electricity – the newest indicator – the country is ranked 99.However, there is significant scope for further significant improvements in selected Doing Business indicators like starting a business, dealing with construction permits, paying taxes, and trading across borders, which can help build investors' confidence on Nepal for Investment Year 2012.
'Doing Business 2012: Doing Business in a More Transparent World' assessed regulations affecting domestic firms in 183 economies and ranked the economies in 10 areas of business regulation like starting a business, resolving insolvency and trading across borders.
Among South Asian countries, Nepal ranked fourth. In South Asia, Bangladesh’s rank fell from 118 to 122, and Maldives’s rank fell from 78 to 79. However, the ranks of Bhutan (146 to 142), India (139 to 132) and Sri Lanka (98 to 89) improved.
New data revealed that improving access to information on business regulations can aid entrepreneurs. In five of South Asia’s economies, traders have access to relevant documentation requirements online or through public notices. Meanwhile, fee schedules for electricity connections are easily accessible in three economies.
"South Asian economies have an opportunity to increase access to information for entrepreneurs,” said lead author of the report Sylvia Solf, "One route is new technology, which is increasingly used by governments to provide electronic services for filing taxes or registering businesses. It not only enhances efficiency but opens opportunities to increase transparency.
"Similarly, among Low Income Countries (LICs) Nepal is ranked third.
This year, the ease of doing business ranking has expanded to include indicators on getting electricity. Over the past six years, all eight economies in South Asia have made their regulatory environment more business-friendly.
"Entrepreneurs in developing economies have a vital role in creating economic opportunities,” said director at the Global Indicators and Analysis, World Bank Group Augusto Lopez-Claros. "South Asia’s governments have empowered entrepreneurs by implementing regulations that are efficient, accessible, and sustainable, and they should continue to seek avenues for improvement."
Doing Business analysed regulations that apply to an economy’s businesses during their life cycle, including start-up and operations, trading across borders, paying taxes, and resolving insolvency. The aggregate ease of doing business rankings are based on 10 indicators and cover 183 economies.
Meanwhile, previous year’s rankings are back-calculated to account for the addition of new indicators, data corrections, and methodology changes in existing indicators so as to provide a meaningful comparison with the new rankings. Otherwise Nepal was ranked at 116 in Doing Business 2011 from ayear ago's 112 rank.
Doing Business does not measure all aspects of the business environment that matter to firms and investors like it does not measure security, macroeconomic stability, corruption, the level of skills, or the strength of financial systems.

South Asian Ranking
1. Maldives
2. Sri Lanka
3. Pakistan
4. Nepal
5. Bangladesh
6. India
7. Bhutan
8. Afghanistan

Global Ranking
1. Singapore
2. Hong Kong
3. New Zealand
4. United States
5. Denmark
6. Norway
7. United Kingdom
8. South Korea

Low Income Countries (LICs) Ranking
1. Rwanda
2. Kyrgyz Republic
3. Nepal
4. Kenya
5. Ethiopia
6. Bangladesh
7. Uganda
8. Tanzania

IMF projects above five per cent growth in Sub-Saharan Africa

The International Monetary Fund (IMF) Regional Economic Outlook projected that growth in sub-Saharan African economies will remain on average above five per cent in 2011.
The growth rate is expected to increase in 2012 to nearly six per cent, because of one-off boosts to production in a number of countries, it said, adding that beneath the good overall trends for sub-Saharan African, however, there is considerable diversity.
"Growth has remained strong in the region in recent years, and most low-income countries in Africa weathered the global economic slowdown well," according to the IMF that has released the report on Wednesday.
Most low income countries (LICs) have been doing very well. One third of LICs are expected to grow by more than six per cent in 2011 but poor households have been hit hard by rising food and fuel prices, and famine is devastating the Horn of Africa, it added.Some middle income countries were severely affected by the global crisis and in South Africa, with unemployment stubbornly high, growth will be limited to at most 3.5 per cent this year, the report added.
Oil exporters have enjoyed the fruits of elevated oil prices, and the non-oil sectors in their economies are projected to grow by 7.5 per cent. "But there are significant downside risks to this outlook," it has warned, adding that global financial volatility and a sharp slowdown in growth in advanced countries would affect sub-Saharan Africa by subduing export demand and private financing flows, restricting growth particularly in the region’s more integrated economies.
Volatility in commodity markets could cause further disruptions in macroeconomic balances, with both winners and losers within the region.
“There are also risks from within the region like inflation rates that have begun to rise again, driven in the first instance by rising food and fuel prices. Consumer prices rose on average by 10 per cent in the year to June 2011, up from 7.5 per cent a year earlier and some countries have seen much sharper increases in inflation, extending beyond the immediate impact of higher food and fuel prices.
Policies need to tread a fine line between addressing the challenges posed by strong growth and preparing to ward off the potentially adverse effects of another global downturn. At the same time, Sub-Saharan Africa needs to continue to invest in growth and employment, which are critical for sustained poverty reduction.
"New evidence from household surveys shows that the average living standards of relatively poor households in some fast-growing economies rose strongly in the early 2000s," according to the report. "Comparing across countries, the poorest 25 per cent of households fared best in countries where economic growth was higher. This evidence sheds some light on an apparent enigma in aggregate data showing — at best — a very weak relationship between poverty and growth. It suggests that one important link in the chain between economic growth and poverty reduction is growth in agricultural employment. Cross-country differences in agricultural employment growth explain a large part of observed differences in the relative consumption growth of the poorest households among the countries sampled.
"Similarly, a fast-paced reorientation in sub-Saharan Africa toward new markets is under way, with nontraditional partners now accounting for about 50 per cent of the region’s exports and almost 60 per cent of its imports, it said, adding that the region’s exports are but still heavily concentrated in oil, gas, and minerals, particularly in the case of its largest emerging partners — China, India, and Brazil — many emerging markets purchase a wider range of products.
The FDI into the region is also diversified, including infrastructure, agriculture, and telecommunications. The reorientation brings the usual benefits of greater international trade, but should also boost long-term growth by reducing volatility in exports and output.
The emergence of new partners provides the region with both significant opportunities — lower cost of inputs and consumption goods, transfer of technology, and economies of scale — and challenges — managing high concentration of exports on commodities and rapid sectoral changes.

World Bank commits $400m in next two years

The World Bank Group reaffirmed its support to Nepal’s efforts at achieving durable peace with investments in development and poverty reduction.
Launched its new assistance strategy for Nepal for the next two years here today, World Bank country director Ellen Goldstein said that Nepal can potentially benefit from an allocation of about $400 million from International Development Association (IDA), subject to good performance and prudent economic management, over the next two years.
"The funds could finance four to five new operations per year and International Finance Corporation (IFC) can potentially commit $25-30 million on average annually, depending on the availability of viable investments and improvements in the business climate," she said, adding that the assistance programme will help improve food security, reduce malnutrition, improve immunisation coverage and enhance the access to and the quality of education apart from accelerating the economic growth and generate employment.
"It will also support efforts at strengthening governance and accountability, fostering gender equality and social inclusion, and removing key bottlenecks to higher economic growth and more jobs through investments in rural finance, transport and the energy sector,” Goldstein added.
The government is committeed to strengthening governance, replied Finance Minister Barsha Man Pun launching the Interim Strategy Notgdpe for Nepal (1012-2013).
He also urged for the support from international community — both public and private sector to help utilise resources. "Total FDI inflow to Nepal comes to a mere 0.1 per cent of gross domestic production (GDP), much lesser than in other Low Income Countries (LICs), where FDI's contribution comes to around 1.9 per cent," he said, adding that the international community can contribute to economic growth and job creation.
"The bank hopes to create a positive impact on private sector growth through investments in infrastructure, clean growth, and by providing advice which will enhance trade and support a better business environment for the private sector, including small and medium enterprises," said IFC Resident Representative in Nepal Rajeev Gopal.
Given the political transitional – with a new constitution being written and elections to follow – the World Bank Group has prepared an Interim Strategy after discussing in the bank’s Board of Executive Directors in Washington DC last month.
Supporting Nepal’s overarching goal to build a peaceful, prosperous and just Nepal, the strategy is organised around three ‘pillars’ that emerged during consultations within the World Bank Group and with Nepal, donor partners and key stakeholders.
The first pillar intends to enhance connectivity and productivity for growth, whereas the second focuses on reducing vulnerabilities and improving resilience and the third pillar concentrates on promoting access to better quality services.
Governance, accountability, gender equality and social inclusion are themes that run across all three pillars. "Within each of the pillars, the strategy identifies specific areas where the World Bank Group can make a difference," Goldstein said.
The new strategy sets out the basic parameters of the World Bank Group programme but remains flexible to respond to the challenges of implementing the proposed federal structure, once it is formally adopted. It proposes development programmes that are consistent with the government's Three Year Interim Plan and reflects considerable continuity, largely building on programmes with successful track records that are adapted to local conditions.
It also emphasised greater selectivity, focusing on areas considered vital to development and complementing programmes supported by other development partners during the transitional phase.
The World Bank Group in Nepal includes the IDA, the concessionary financing arm and IFC, the private sector arm. Two more World Bank Group organisations — the Multilateral Investment Guarantee Agency (MIGA) and the World Bank Institute (WBI) — offer investment insurance and capacity building services.
For IDA, these include roads, food security and livelihood vulnerability, education, health, urban services, and disaster management. For IFC, these include improving access to finance and investment climate, trade facilitation, lending to Small and Medium Enterprises and trade finance facilities for local commercial banks. IDA and IFC expect to work together on power development, agriculture and climate change.


Modernisation of Rani Jamara Kulariya Irrigation Scheme
KATHMANDU: World Bank country director Ellen Goldstein and Finance Secretary Krishnahari Baskota on Tuesday signed an assistance package of $43 million for the implementation of Phase 1 of the Modernisation of Rani Jamara Kulariya Irrigation Scheme. Located in Kailali district in the far western Tarai region of Nepal, Rani Jamara Kulariya is one of the most prominent Farmer Managed Irrigation Schemes, with a total command area of 14,300 hectares. It constitutes three independent, traditional irrigation systems constructed, operated and managed by generations of farmers, mainly from the indigenous Tharu community. The Rani system dates back to 1896. Nepal has a long tradition of farmer managed irrigation systems with a strong sense of ownership and farmer organisations are typically strong and dedicated to rural development. “About 25,000 farming households comprising close to 160,000 people are expected to benefit directly from the project,” Goldstein said. In the first phase, it will support the modernisation of the irrigation system by substantially rehabilitating and upgrading the main and secondary irrigation and drainage systems and flood management infrastructure, and by training Water Users Associations to improve their ability to manage the water and maintain the infrastructure. It will also carry out a series of agriculture production support activities in the project area through demonstrations, farmers’ field schools, and other adaptive processes.

Domestic demand sundues on investor concerns

In Nepal, domestic demand was subdued on investor concerns over bankingsystem fragilities and a decline in remittances from the Middle East, according to a report by the International Monetary Fund (IMF).
The report 'World Economic and Financial Surveys regional economic outlook for Asia and Pacific titled 'Navigating an Uncertain Global Environment, While Building Inclusive Growth," in South Asia, private consumption remained robust in India on account of rising disposableincome, but investment was subdued partly on concerns over governance and the global outlook.
Similarly, in Bangladesh, buoyant credit growth amid a still-accommodative monetary stance continued to fuel domestic demand, while in Sri Lanka activity benefited from greater political stability. Wage pressures in Nepal, Mongolia, Timor-Leste, and Vietnam have been rising in recent months, it said, adding that a few factors suggest inflationary pressure may continue in the near future in Asian Low Income Countries (LICs).
Asian LICs’ core (or nonfood) inflation has been lower for the most part in the current episode, even though it is increasing in some countries. Core rates have also risen more slowly than in emerging Asia suggesting that inflation may not yet have run its course in Asian LICs, the report added.
Similarly, headline inflation for Asian LICs reached a three-year high in 2011. Generally, food inflation has been the main driver of inflation, it said, adding that in some cases, however, the procyclicality of macroeconomic policies, along with second-order effects of higher food prices, contributed to raise core inflation rates. "As of September 2011, futures prices for rice and wheat imply price increases for these major staples of about 10 per cent through end-2012. Higher food and commodity prices carry with them a risk of more generalised inflation, if they destabilise inflation expectations."
The report also suggested Asian policy makers to balance growth considerations against inflation and balance sheet risks from prolonged easy financial conditions. "In economies where inflation pressures are still elevated and monetary conditions accommodative, the return to more neutral monetary stances should continue," it said, adding, "However, for economies where expected inflation is within central banks’ target ranges and the exposure to severe external shocks is greater, a pause in monetary tightening may be warranted.
Meanwhile, fiscal policy consolidation is rightly continuing in many economies as structural fiscal deficits are still above pre-crisis levels.
Asian countries have taken comprehensive reforms over the past decade to strengthen their financial, corporate and public sector balance sheets that are now providing strong buffers for the renewed global uncertainties.
Thus, if the downside risks to the global outlook were to materialise, the IMF said that Asian economies have the scope to reverse course and use a range of measures to cushion the impact on economic activity, as many did in response to the global crisis in 2008.
Fears about the spillovers from global growth amid still high inflation pressures in much of the region mean that policymakers in Asia face a delicate balancing act, according to the IMF.

Tighten loop holes
KATHMANDU: In low-income economies, including Cambodia and Nepal, as well as emerging economies like the Philippines, significant revenue enhancement can be achieved by efforts to strengthen tax administration, the IMF report said, adding that revenue measures can also play a role in creating fiscal space. In Japan, comprehensive tax reform with a gradual increase in the consumption tax and a reduction of the corporate tax rate — with revenue losses offset by reforms of personal income tax that reduce allowances and base exemptions — will help ensure fiscal sustainability in the face of reconstruction costs and the need to promote private investment.

Asia needs to navigate uncertain global environment, build inclusive growth, says IMF’s Asia-Pacific Regional Economic Outlook

Fears about the spillovers from global growth amid still high inflation pressures in much of the region mean that policymakers in Asia face a delicate balancing act, the International Monetary Fund (IMF) said in its latest Regional Economic Outlook for Asia and the Pacific, which was released in Asia today.
Growth in Asia has moderated since the second quarter of 2011, mainly reflecting a weakening of external demand. Domestic demand is still resilient, and it should continue to sustain activity across the region, contributing to relatively robust growth of 6.3 per cent in 2011 and 6.7 per cent in 2012 on average, slightly below our forecast last April.
In Japan, the tragic earthquake and tsunami earlier this year had grave social and humanitarian costs and also set back the recovery; however, domestic demand is picking up as reconstruction efforts get under way and growth is expected to reach 2.3 per cent next year.
Meanwhile, inflation pressures have been elevated in a number of other Asian economies amid accommodative financial conditions, but should recede as food and energy prices gradually moderate.
Nevertheless, the report cautions that risks for the Asia and Pacific region are decidedly tilted to the downside. An escalation of the euro area financial turbulence and a more severe slowdown than anticipated in the US would have clear macroeconomic and financial spillovers to Asia. While domestic demand remains strong, 'Asia has clearly not 'decoupled' from advanced economies,” the IMF says.
The report welcomed the successive measures Asian policymakers have taken to normalize monetary and fiscal policy stances following the stimulus that was put in place in response to the global financial crisis. What does the emergence of renewed global downside risks imply for policies? Asian policy makers need to balance growth considerations against inflation and balance sheet risks from prolonged easy financial conditions.
In economies where inflation pressures are still elevated and monetary conditions accommodative, the return to more neutral monetary stances should continue. However, for economies where expected inflation is within central banks’ target ranges and the exposure to severe external shocks is greater, a pause in monetary tightening may be warranted. Meanwhile, fiscal policy consolidation is rightly continuing in many economies as structural fiscal deficits are still above pre-crisis levels.
Asian countries have taken comprehensive reforms over the past decade to strengthen their financial, corporate and public sector balance sheets that are now providing strong buffers for the renewed global uncertainties. Thus, if the downside risks to the global outlook were to materialise, the IMF said that Asian economies have the scope to reverse course and use a range of measures to cushion the impact on economic activity, as many did in response to the global crisis in 2008.
Looking ahead, the crisis in advanced economies is a reminder of the need for Asia to now make further progress with economic rebalancing and develop stronger domestic engines of growth. In addition to structural reforms, this would require a reprioritisation of fiscal spending, in order to create fiscal space for critical infrastructure investment and social priority expenditure.
Despite fast growth and progress in poverty reduction, income inequality in Asia has increased over the last decade — and by more than it has done in other regions. Key elements of a strategy to reduce the share of vulnerable households in Asia would include better social safety nets and more investment in health and education. The report suggests that measures that would help increase domestic demand over time, and make the region more resilient to external shocks, would also help to make growth in Asia more 'inclusive'.
In sum, economies in the Asia Pacific region are still expected to continue growing at solid rates. However, downside risks from a weakening global economy have greatly intensified and underscore the need to shift the growth model for Asia. In the near-term, policy makers face the challenging task of navigating opposing risks to growth and financial stability amid a highly uncertain global environment, and a pause in monetary tightening may be warranted in some countries until such uncertainties have lessened. Looking farther ahead, strengthening Asia’s domestic sources of growth and making growth more inclusive are key to increase economic resilience over the medium-term.