ࡱ> R|ij,( / 00DArialgsRomanlll.0"DTimes New Romanlll.0 DWingdingsRomanlll.00DBatanggsRomanlll.0 a .  @n?" dd@  @@`` 0e#            () 5 ()  M NPSTVWX 0AA@8( )oO ʚ;m&4ʚ;g4VdVdxV 0ppp@ <4dddd8A10lH.<4!d!d8A10lH. 0___PPT10 ^___PPT9@8  ?  %R#(Debt Sustainability and Debt Composition3UNCTAD Paper by Heiner Flassbeck and Ugo Panizza P " Introduction    Problems with DSA exercises Often mix the concept of external sustainability with that of fiscal sustainability Trend to focus on the level of debt without considering its compositionDj! $"   OutlineDisentangling Concepts of Sustainability External Sustainability and Fiscal Sustainability Interactions/Linkages Debt Decomposition analysis Debt composition Proposed composite debt indicator Determinants of debt crises L)IQ)IQDDifferent concepts of sustainability tied to different types of debtEE( External sustainability focuses upon the Transfer Problem: ability to generate foreign exchange Fiscal sustainability focuses upon the Budgetary Problem: ability to increase or broaden the tax base to generate revenue\<Z'Z:ZAZ<':A External Debt IndicatorsStandard external debt sustainability indicators: Debt to GDP ratio Debt to revenues ratio Debt to export ratio Weaknesses of these indicators These indicators are problematic if import growth outpaces export growth. Unless the external debt is issued in domestic currency, the foreign exchange needed will only result from a current account surplus. Not all types of debt carry the same risk features t2P>PPPP2>  )Fiscal Sustainability & Budgetary Problem**(Public debt has an external and domestic component. Fiscal sustainability analyses focus on adjustments to the level and composition of tax revenue or primary expenditures Both public debt (domestic vs. external) and fiscal sustainability lack a clear definitions Formal fiscal sustainability tests are problematic and are demanding in terms of data. The tests do not establish any necessary conditions for long-run sustainability.`ZPZ`P% Fiscal Sustainability Indicators   Common Rule of Thumb: d = (r  g) d  ps, where d is the debt to GDP ratio r is the steady state real interest rate g is the long run growth rate of real GDP ps is the primary surplus to GDP Problems: No well specified definition of sustainability or of the necessary conditions for LR sustainability Requires many assumptions on growth, interest rates, government expenditures and revenues These variables tend to be endogenous and correlated with one anothern5PP PP"""   f   }  /  ,(Considerations for Developing Countries ))((  3Fiscal sustainability indicator does not account for the fact that developing countries often: Have a limited capacity to raise taxes Have a volatile revenue base Are subject to large external shocks (real and financial) that increase the volatility of GDP growth Have high levels of liability dollarization(__&&    5Tradeoffs between External and Fiscal Sustainability 66(Consider a real devaluation: Positively impact external sustainability through increase EX competitiveness and FOREX earnings Negatively impact fiscal sustainability if a large share of public debt is denominated in foreign currency, result in a jump in the debt-to-GDP ratio..ZZ   xThese interactions highlight the need for domestic debt to be included in DSA exercises. Broad shift towards a greater proportion of domestic debt in developing countries Domestic debt has been excluded from DSA exercises thus far because Domestic debt has different risk characteristics Not appropriate to sum debt of different risk characteristics together Data are scarce .ZZ Important ConsiderationsAny attempt of measuring debt sustainability requires a thorough analysis of the causes of indebtedness Analysis purely based on debt levels and on the forecast of some macroeconomic variables will lead to nowhere. In a perfect worldDConstruct a composite debt indicator Decompose external and public debt by: Maturity and currency characteristics Type of lender Type of borrower Authors propose categorization of external debt across 12 different levels of risk. Assigning different weights to different risk categories to calculate a composite risk measure<LFLF @Back to reality& empirical study   Empirical study examines how debt level and composition affect the probability of a debt crisis Estimate a probit model on an unbalanced panel of 78 developing countries for the 1980-2006 period Explanatory variables: GDP growth; international reserves to GDP, trade openness; undervaulation of the exchange rate; growth rate of private credit; fiscal and CA balance; inflation; corruptionLa'` c ,lc-  Total external debt is decomposed into four components: Total short term external debt Long-term private external debt Long-term public external debt to private creditors Long-term public debt to official creditors (bilateral and multilateral)&88   Empirical findings(Examining separate components of total external debt, authors find evidence that debt composition matters Find significant evidence that crises are positively correlated with long term public debt owed to private creditors Find evidence suggesting that the relationship between default risk and debt with private creditors is more sensitive to external shocks than between default risk and debt with official creditors. Find evidence that there is less risk associated with borrowing abroad in their own currency..kPPk     ConclusionsDifferent types of debt may be ranked by risk: External public debt with private creditors in a foreign currency (highest risk) Domestic public debt External public debt with official creditors (lowest risk) The evidence wrt private debt do not yield consistent evidence</n//  Remaining ObstaclesbData availability International agreement to provide better and comparable data on debt statisticscc& Thank You       /    '   0` j\Vtff3Ÿ` fBff33` .6aR3fi` 3fff` 3fff̙` fff33` f` 3'\m3fff` 33Ţ>?" dd@,?oFd(@ nK<)oAd=nKko2 n?" dd@   @@``PT   = ` `6p>> L D  4 (  4 4 <Ԃ "P `   X Click to edit Master title style!! ( 4 0 " `  RClick to edit Master text styles Second level Third level Fourth level Fifth level!    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On-screen ShowQ5m' ArialTimes New Roman WingdingsBatang Quadrant)Debt Sustainability and Debt Composition IntroductionOutlineEDifferent concepts of sustainability tied to different types of debtExternal Debt Indicators*Fiscal Sustainability & Budgetary Problem!Fiscal Sustainability Indicators)Considerations for Developing Countries 6TradRoot EntrydO)l<Current User>(< PowerPoint Document(Q5d@  @@`` 0e#            () 5 ()  M NPSTVWX 0AA@8( )oO ʚ;m&4ʚ;g4VdVdxV0ppp@ <4ddddA10LH.<4!d!dA10LH. 0___PPT10 ^___PPT9@8  ?  %S#(Debt Sustainability and Debt Composition3UNCTAD Paper by Heiner Flassbeck and Ugo Panizza P " Introduction    Problems with DSA exercises Often mix the concept of external sustainability with that of fiscal sustainability Trend to focus on the level of debt without considering its compositionDj! $"   OutlineDisentangling Concepts of Sustainability External Sustainability and Fiscal Sustainability Interactions/Linkages Debt Decomposition analysis Debt composition Proposed composite debt indicator Determinants of debt crises L)IQ)IQDDifferent concepts of sustainability tied to different types of debtEE( External sustainability focuses upon the Transfer Problem: ability to generate foreign exchange Fiscal sustainability focuses upon the Budgetary Problem: ability to increase or broaden the tax base to generate revenue\<Z'Z:ZAZ<':A External Debt IndicatorsStandard external debt sustainability indicators: Debt to GDP ratio Debt to revenues ratio Debt to export ratio Weaknesses of these indicators These indicators are problematic if import growth outpaces export growth. Unless the external debt is issued in domestic currency, the foreign exchange needed will only result from a current account surplus. Not all types of debt carry the same risk features t2P?PPPP2?  )Fiscal Sustainability & Budgetary Problem**(Public debt has an external and domestic component. Fiscal sustainability analyses focus on adjustments to the level and composition of tax revenue or primary expenditures Both public debt (domestic vs. external) and fiscal sustainability lack a clear definitions Formal fiscal sustainability tests are problematic and are demanding in terms of data. The tests do not establish any necessary conditions for long-run sustainability.`ZPZ`P% Fiscal Sustainability Indicators   Common Rule of Thumb: d = (r  g) d  ps, where d is the debt to GDP ratio r is the steady state real interest rate g is the long run growth rate of real GDP ps is the primary surplus to GDP Problems: No well specified definition of sustainability or of the necessary conditions for LR sustainability Requires many assumptions on growth, interest rates, government expenditures and revenues These variables tend to be endogenous and correlated with one anothern5PP PP"""   f   }  /  ,(Considerations for Developing Countries ))((  3Fiscal sustainability indicator does not account for the fact that developing countries often: Have a limited capacity to raise taxes Have a volatile revenue base Are subject to large external shocks (real and financial) that increase the volatility of GDP growth Have high levels of liability dollarization(__&&    5Tradeoffs between External and Fiscal Sustainability 66(Consider a real devaluation: Positively impact external sustainability through increase EX competitiveness and FOREX earnings Negatively impact fiscal sustainability if a large share of public debt is denominated in foreign currency, result in a jump in the debt-to-GDP ratio..ZZ   xThese interactions highlight the need for domestic debt to be included in DSA exercises. Broad shift towards a greater proportion of domestic debt in developing countries Domestic debt has been excluded from DSA exercises thus far because Domestic debt has different risk characteristics Not appropriate to sum debt of different risk characteristics together Data are scarce .ZZ Important ConsiderationsAny attempt of measuring debt sustainability requires a thorough analysis of the causes of indebtedness Analysis purely based on debt levels and on the forecast of some macroeconomic variables will lead to nowhere. In a perfect worldDConstruct a composite debt indicator Decompose external and public debt by: Maturity and currency characteristics Type of lender Type of borrower Authors propose categorization of external debt across 12 different levels of risk. Assigning different weights to different risk categories to calculate a composite risk measure<LFLF @Back to reality& empirical study   Empirical study examines how debt level and composition affect the probability of a debt crisis Estimate a probit model on an unbalanced panel of 78 developing countries for the 1980-2006 period Explanatory variables: GDP growth; international reserves to GDP, trade openness; undervaulation of the exchange rate; growth rate of private credit; fiscal and CA balance; inflation; corruptionLa'` c ,lc-  Total external debt is decomposed into four components: Total short term external debt Long-term private external debt Long-term public external debt to private creditors Long-term public debt to official creditors (bilateral and multilateral)&88   Empirical findings(Examining separate components of total external debt, authors find evidence that debt composition matters Find significant evidence that crises are positively correlated with long term public debt owed to private creditors Find evidence suggesting that the relationship between default risk and debt with private creditors is more sensitive to external shocks than between default risk and debt with official creditors. Find evidence that there is less risk associated with borrowing abroad in their own currency..kPPk     ConclusionsDifferent types of debt may be ranked by risk: External public debt with private creditors in a foreign currency (highest risk) Domestic public debt External public debt with official creditors (lowest risk) The evidence wrt private debt do not yield consistent evidence</n//  Remaining ObstaclesbData availability International agreement to provide better and comparable data on debt statisticscc& Thank You       /    ' r##-1,( / 00DArialgsRomanLLl.Ԗ0Ԗ"  !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPlkTUVWXYZ[\]^_`abcdefghmnopqrstuvwxyz{}~SQDocumentSummaryInformation8- @n?" dd@  @@`` 0e#            () 5 ()  M NPSTVWX 0AA@8( )oO ʚ;m&4ʚ;g4VdVdxV0ppp@ <4ddddA10LH.<4!d!dA10LH. 0___PPT10 ^___PPT9@8  ?  %S#(Debt Sustainability and Debt Composition3UNCTAD Paper by Heiner Flassbeck and Ugo Panizza P " Introduction    Problems with DSA exercises Often mix the concept of external sustainability with that of fiscal sustainability Trend to focus on the level of debt without considering its compositionDj! $"   OutlineDisentangling Concepts of Sustainability External Sustainability and Fiscal Sustainability Interactions/Linkages Debt Decomposition analysis Debt composition Proposed composite debt indicator Determinants of debt crises L)IQ)IQDDifferent concepts of sustainability tied to different types of debtEE( External sustainability focuses upon the Transfer Problem: ability to generate foreign exchange Fiscal sustainability focuses upon the Budgetary Problem: ability to increase or broaden the tax base to generate revenue\<Z'Z:ZAZ<':A External Debt IndicatorsStandard external debt sustainability indicators: Debt to GDP ratio Debt to revenues ratio Debt to export ratio Weaknesses of these indicators These indicators are problematic if import growth outpaces export growth. Unless the external debt is issued in domestic currency, the foreign exchange needed will only result from a current account surplus. Not all types of debt carry the same risk features t2P?PPPP2?  )Fiscal Sustainability & Budgetary Problem**(Public debt has an external and domestic component. Fiscal sustainability analyses focus on adjustments to the level and composition of tax revenue or primary expenditures Both public debt (domestic vs. external) and fiscal sustainability lack a clear definitions Formal fiscal sustainability tests are problematic and are demanding in terms of data. The tests do not establish any necessary conditions for long-run sustainability.`ZPZ`P% Fiscal Sustainability Indicators   Common Rule of Thumb: d = (r  g) d  ps, where d is the debt to GDP ratio r is the steady state real interest rate g is the long run growth rate of real GDP ps is the primary surplus to GDP Problems: No well specified definition of sustainability or of the necessary conditions for LR sustainability Requires many assumptions on growth, interest rates, government expenditures and revenues These variables tend to be endogenous and correlated with one anothern5PP PP"""   f   }  /  ,(Considerations for Developing Countries ))((  3Fiscal sustainability indicator does not account for the fact that developing countries often: Have a limited capacity to raise taxes Have a volatile revenue base Are subject to large external shocks (real and financial) that increase the volatility of GDP growth Have high levels of liability dollarization(__&&    5Tradeoffs between External and Fiscal Sustainability 66(Consider a real devaluation: Positively impact external sustainability through increase EX competitiveness and FOREX earnings Negatively impact fiscal sustainability if a large share of public debt is denominated in foreign currency, result in a jump in the debt-to-GDP ratio..ZZ   xThese interactions highlight the need for domestic debt to be included in DSA exercises. Broad shift towards a greater proportion of domestic debt in developing countries Domestic debt has been excluded from DSA exercises thus far because Domestic debt has different risk characteristics Not appropriate to sum debt of different risk characteristics together Data are scarce .ZZ Important ConsiderationsAny attempt of measuring debt sustainability requires a thorough analysis of the causes of indebtedness Analysis purely based on debt levels and on the forecast of some macroeconomic variables will lead to nowhere. In a perfect worldDConstruct a composite debt indicator Decompose external and public debt by: Maturity and currency characteristics Type of lender Type of borrower Authors propose categorization of external debt across 12 different levels of risk. Assigning different weights to different risk categories to calculate a composite risk measure<LFLF @Back to reality& empirical study     !"#$%&'()*+,./0123456789:;<=?Empirical study examines how debt level and composition affect the probability of a debt crisis Estimate a probit model on an unbalanced panel of 78 developing countries for the 1980-2006 period Explanatory variables: GDP growth; international reserves to GDP, trade openness; undervaulation of the exchange rate; growth rate of private credit; fiscal and CA balance; inflation; corruptionLa'` c ,lc-  Total external debt is decomposed into four components: Total short term external debt Long-term private external debt Long-term public external debt to private creditors Long-term public debt to official creditors (bilateral and multilateral)&88   Empirical findings(Examining separate components of total external debt, authors find evidence that debt composition matters Find significant evidence that crises are positively correlated with long term public debt owed to private creditors Find evidence suggesting that the relationship between default risk and debt with private creditors is more sensitive to external shocks than between default risk and debt with official creditors. Find evidence that there is less risk associated with borrowing abroad in their own currency..kPPk     ConclusionsDifferent types of debt may be ranked by risk: External public debt with private creditors in a foreign currency (highest risk) Domestic public debt External public debt with official creditors (lowest risk) The evidence wrt private debt do not yield consistent evidence</n//  Remaining ObstaclesbData availability International agreement to provide better and comparable data on debt statisticscc& Thank You       /    '  (0N0 80(  8x 8 c $o4P `   o x 8 c $0(o4 ` o H 8 0޽h ? 33___PPT10i.0&+D=' = @B +r>> -1,( / 00DArialgsRomanLLl.Ԗ0Ԗ"DTimes New RomanLLl.Ԗ0Ԗ DWingdingsRomanLLl.Ԗ0Ԗ0DBatanggsRomanLLl.Ԗ0Ԗ a .  @n?" deoffs between External and Fiscal Sustainability Slide 10Important ConsiderationsIn a perfect world!Back to reality empirical study Slide 14Empirical findings ConclusionsRemaining Obstacles Thank You  Fonts UsedDesign Template Slide Titles--$ &_-551ԹUnited Nations--'fOh+'0 hp    ,4,Debt Sustainability and Debt Compositionk Quadrant Unctad User20Microsoft Office PowerPoint@0@@ @>^ p-G g  +  y--$xx--'f--$jj--'--$ ---- $  --'f--$ ---- $  --'f--$   ---- $ --'f--$  ---- $ --'--%> >--'-- $jj--'@Times New Roman-. B+2 *Debt Sustainability and ."System:-@Times New Roman-. B2 8Debt Composition  .-@"Arial-. 2 IUNCTAD Paper byn.-@"Arial-. 2 RHeiner.-@"Arial-. 2 R$ Flassbeckp.-@"Arial-.  2 RBand .-@"Arial-.  2 RNUgo.-@"Arial-. 2 R[Panizza.-՜.+,0    DTimes New RomanLLl.Ԗ0Ԗ DWingdingsRomanLLl.Ԗ0Ԗ0DBatanggsRomanLLl.Ԗ0Ԗ a .  @n?" dd@  @@`` 0e#            () 5 ()  M NPSTVWX 0AA@8( )oO ʚ;m&4ʚ;g4VdVdxV0ppp@ <4ddddA10LH.<4!d!dA10LH. 0___PPT10 ^___PPT9@8  ?  %I#(Debt Sustainability and Debt Composition3UNCTAD Paper by Heiner Flassbeck and Ugo Panizza P " Introduction    Problems with DSA exercises Often mix the concept of external sustainability with that of fiscal sustainability Trend to focus on the level of debt without considering its compositionDj! $"   OutlineDisentangling Concepts of Sustainability External Sustainability and Fiscal Sustainability Interactions/Linkages Debt Decomposition analysis Debt composition Proposed composite debt indicator Determinants of debt crises L)IQ)IQDDifferent concepts of sustainability tied to different types of debtEE( External sustainability focuses upon the Transfer Problem: ability to generate foreign exchange Fiscal sustainability focuses upon the Budgetary Problem: ability to increase or broaden the tax base to generate revenue\<Z'Z:ZAZ<':A External Debt IndicatorsStandard external debt sustainability indicators: Debt to GDP ratio Debt to revenues ratio Debt to export ratio Weaknesses of these indicators These indicators are problematic if import growth outpaces export growth. Unless the external debt is issued in domestic currency, the foreign exchange needed will only result from a current account surplus. Not all types of debt carry the same risk features t2P?PPPP2?  )Fiscal Sustainability & Budgetary Problem**(Public debt has an external and domestic component. Fiscal sustainability analyses focus on adjustments to the level and composition of tax revenue or primary expenditures Both public debt (domestic vs. external) and fiscal sustainability lack clear definitions Formal fiscal sustainability tests are problematic and are demanding in terms of data. The tests do not establish any necessary conditions for long-run sustainability.^ZPZ^P% Fiscal Sustainability Indicators   Common Rule of Thumb: d = (r  g) d  ps, where d is the debt to GDP ratio r is the steady state real interest rate g is the long run growth rate of real GDP ps is the primary surplus to GDP Problems: No well specified definition of sustainability or of the necessary conditions for LR sustainability Requires many assumptions on growth, interest rates, government expenditures and revenues These variables tend to be endogenous and correlated with one anothern5PP PP"""   f   }  /  ,(Considerations for Developing Countries ))((  3Fiscal sustainability indicator does not account for the fact that developing countries often: Have a limited capacity to raise taxes Have a volatile revenue base Are subject to large external shocks (real and financial) that increase the volatility of GDP growth Have high levels of liability dollarization(__&&    5Tradeoffs between External and Fiscal Sustainability 66(Consider a real devaluation: Positively impacts external sustainability through increased export competitiveness and FOREX earnings Negatively impacts fiscal sustainability if a large share of public debt is denominated in foreign currency, results in a jump in the debt-to-GDP ratio..ZZ   xThese interactions highlight the need for domestic debt to be included in DSA exercises. Broad shift towards a greater proportion of domestic debt in developing countries Domestic debt has been excluded from DSA exercises thus far because Domestic debt has different risk characteristics Not appropriate to sum debt of different risk characteristics together Data are scarce .ZZ Important ConsiderationsAny attempt of measuring debt sustainability requires a thorough analysis of the causes of indebtedness Analysis purely based on debt levels and on the forecast of some macroeconomic variables will lead to nowhere. In a perfect worldDConstruct a composite debt indicator Decompose external and public debt by: Maturity and currency characteristics Type of lender Type of borrower Authors propose categorization of external debt across 12 different levels of risk. Assigning different weights to different risk categories to calculate a composite risk measure<LFLF @Back to reality& empirical study   Empirical study examines how debt level and composition affect the probability of a debt crisis Estimate a probit model on an unbalanced panel of 78 developing countries for the 1980-2006 period Explanatory variables: GDP growth; international reserves to GDP, trade openness; undervaluation of the exchange rate; growth rate of private credit; fiscal and CA balance; inflation; corruptionLa'` c l-  Total external debt is decomposed into four components: Total short term external debt Long-term private external debt Long-term public external debt to private creditors Long-term public debt to official creditors (bilateral and multilateral)&88   Empirical findings(Examining separate components of total external debt, authors find evidence that debt composition matters Find significant evidence that crises are positively correlated with long term public debt owed to private creditors Find evidence suggesting that the relationship between default risk and debt with private creditors is more sensitive to external shocks than between default risk and debt with official creditors. Find evidence that there is less risk associated with borrowing abroad in their own currency..kPPk     ConclusionsDifferent types of debt may be ranked by risk: External public debt with private creditors in a foreign currency (highest risk) Domestic public debt External public debt with official creditors (lowest risk) The evidence wrt private debt does not yield consistent evidence</ZnZ/1  Remaining ObstaclesbData availability International agreement to provide better and comparable data on debt statisticscc& Thank You       /    '  (0N0 P0(  x  c $o4 `  o x  c $|o4 ` o H  0޽h ? 33___PPT10i.+D=' = @B + (0N0 `0(  x  c $o4 `P  o x  c $o4PP o H  0޽h ? 33___PPT10i.3+D=' = @B + ( 0N0 $0(  $x $ c $`o4P `   o x $ c $8o4 ` o H $ 0޽h ? 33___PPT10i.+D=' = @B + ( 0N0 ,@(  ,x , c $0o4P `   o  , c $to4 ` o yH , 0޽h ? 33___PPT10i.@T+D=' = @B +r$W M*, / H235-1