Geneva, 23th – 25th November 2015

Sustainable Development Goals and the Challenges Ahead

by

Mr. Adam Elhiraika Director, Macroeconomic Policy Division

UN Economic Commission for Africa

The views expressed are those of the author and do not necessarily reflect the views of UNCTAD

Debt Management in Africa

Adam Elhiraika

Director, Macroeconomic Policy Division

United Nations Economic Commission for Africa

2

Context

The year 2015 - busy year for development practioners

SDGs replacing MDGs- Sept. 2015

FfD3 - July 2015 -AAAA

CoP21 in Paris- Climate Summit Dec. 2015

The implmentation of SDGs necessitate a large amount

of develpment finance

3

What does Agenda 2063 say about

debt & its sustainability?

Agenda 2063 – Africa’s roadmap of

development

Leaders committed to reduced unsustainable

levels of debts and to DRM(p.18)

Africa benefitted from global debt reduction

initiatives (HIPC, MDRI…etc)

4

What is Africa’s growth and debt

outlook?

Growth remains largely unchanged

Medium term prospects remain good

Weak global economy, monetary tightening,

weather related shocks and security concerns in

some countries remain a challenge

5

Africa’s growth remains on track despite

global economic slowdown

6 Source: UN-DESA (2015)

5.2

3.7

3.7 4.0 3.9 3.7

4.3

9.1

7.2

5.8 6.1 6.1 5.6

5.9 5.9

4.3

2.7 2.7

1.0

-0.6

0.7

1.5 1.7

-0.7

2.4

0.1

1.7

2.7

-2

0

2

4

6

8

10

2010 2011 2012 2013 2014e 2015e 2016f

Rea

l G

DP

G

row

th (

%)

Africa (excluding Libya) East and South Asia

Latin America and the Caribbean South-Eastern Europe

Mainly underpinned

by:

• Increasing domestic

demand

• Improving

macroeconomic

environment in a

number of countries

• Increasing public

expenditure

(infrastructure )

• Increasing investment

ties with emerging

economies

Chinese slowdown remains a risk to

Africa’s growth

7

Sources: UNCTADstat (2015)

0

10

20

30

40

50

60

70

80

90

100

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mill

ion

s, U

SD

GD

P G

row

th, C

hin

a

Total exports to China Commodities exports to China GDP growth, China

• Despite China’s growth

decline, Africa’s exports

to China have remained

relatively high;

• The effect of China’s

slowdown may remain

small for Africa due to

the recovery in Europe.

Debt and SDGs

Africa needs to grow at double digits with large

financing gaps to achieve SDG 1 by 2030

It needs 70 Billion USD per year for climate

change adaptation & mitigation (SDGs 13)

A responsible borrowing in the next 15 years &

beyond is required to achieve the agreed SDGs

8

Trends of Africa’s Total Debt

0

50

100

150

200

250

1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: AfDB data portal

Total Extenral Debt (% of GDP)

Total Extenral Debt (% of Exports)

Total Debt Service (% of Exports)

Multilateral debt (of total debt outstanding)

Africa’s net debt increased

10

Sources: ECA calculations based on EIU (2015)

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2014 2015 2016

• Net debt of Africa

increased from 5.8 per

cent to 9.9 per cent of

GDP between 2014 and

2015, relative to 1.6 per

cent in 2013.

• But there is a

considerable fall in the

net debt of North

African and oil

exporting countries.

Debt Trends

The key drivers of debt dynamics include:

high growth

low interest rates and debt relief

Africa’s external debts improved significantly over the past

decades but net debt increased

Total debt-to-GDP ratio dropped from 53.4 to 23.7 % in

2014

However, huge variations exist across countries

11

Sources of Debt

Compositions of debts is changing from external to

domestic, also from public to private

Multilateral loans- only 21% of total debt

South-South bilateral loans also emerging

Private lending constituted 49% of total external

outstanding debts

Sovereign bonds issued reached to $18bln in 2014 from

less than $1bln in 2008

12

Macroeconomic Determinants of

Debt Sustainability

1.Declining commodity prices reduce debt repayment

capacity & ability to borrow

They also lead to weak fiscal sustainability

However, fiscal sustainability can be enhanced with

sufficient DRM efforts

For key commodity importers (e.g. Ethiopia, Rwanda

…etc), commodity price decline narrows the fiscal deficit

and can serve as an opportunity

13

2. Interest rate rises in developed countries lead to increases

interest payments & threaten repayment ability

Interest rate increases can also reduce risk appetite of

investors

For Africa, this might mean a decline in FDI inflows and

limited GDP growth

3. Increase in government expenditure unmatched by

government revenue

14

Macroeconomic Determinants of Debt

Sustainability

4. Exchange rate risks often follows rise in interest

rates

Currency deprecation induced by monetary tightening

(e.g. rise in interest rate in the US)

This, in turn, reduces debt sustainability potential

15

Macroeconomic Determinants of Debt

Sustainability

Strategies for better debt management

Developing & maintaining strong institutions & sound

macro policies

Prepare bankable projects with return investments with

debt servicing potential

Reduce heavy reliance on commodity exports and

diversify the economic structures (e.g. via

industrialization)

16

Conclusions

Africa continued to grow at a reasonable rate with a rate

above the global average

There are increasing financial needs for its development

plans and visions

Both internal and external macroeconomic factors

determine the outlook of Africa’s debt sustainability in

the short-term

Medium to long-term debt sustainability outlook are

uncertain

17

THANK YOU!

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