89603 INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND PEOPLE’S REPUBLIC OF BANGLADESH Joint Bank-Fund Debt Sustainability Analysis 2014 Update Prepared by the staffs of the International Development Association and the International Monetary Fund Approved by Jeffrey D. Lewis and Ernesto May (IDA) Markus Rodlauer and Peter Allum (IMF) June 2, 2014 This debt sustainability analysis (DSA) updates the joint Bank-Fund DSA Update from November 11, 2013. 1 The results indicate that Bangladesh remains at a low risk of external or public debt distress. 2 I. UNDERLYING ASSUMPTIONS 1. There are two major changes in the assumptions relative to the last update to the DSA: • First, nominal GDP in U.S. dollars grows slightly faster from FY17 onwards. 3 This reflects the impact of higher US inflation (from revised WEO projections) on domestic inflation and the GDP deflator. In consequence, nominal GDP in FY34 is now estimated to be about 8 percent higher. 1 Based on the end-June 2011 stock of debt, the last full DSA was prepared in late 2011 (IDA/SECM2011-0683 and SM/11/278, Supplement 1). In line with the Staff Guidance Note on the Application of the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries (SM/13/292, IDA/SEC……), a full DSA is expected to be prepared once every three years for PRGT-eligible, IDA-only countries. In between short periodic updates are expected to be produced unless macroeconomic conditions since the last full DSA have significantly changed. 2 This analysis is based on the standard debt sustainability framework for conducting debt sustainability analysis in low-income countries. Under IDA’s Country Policy and Institutional Assessment (CPIA), Bangladesh is assessed to be a medium performer, with an average rating of 3.35 during 2010–12. This DSA update uses the indicative thresholds for countries for this category. 3 Data are on a fiscal year basis unless otherwise noted; FY17 is the fiscal year July 2016–June 2017. 2 • Second, the balance in the General Provident Fund (GPF)—equivalent to about 2 percent of GDP at end-FY13—is now included in the DSA as government debt. The GPF is a mandatory savings vehicle for civil servants. Participants may borrow from the GPF against their cumulative contributions and at retirement withdraw their remaining contributions plus accrued interest. The GPF holds no assets and participants’ net contributions to the Fund are therefore considered a government debt obligation. II. EXTERNAL DSA 2. Under the baseline scenario, Bangladesh’s public and publicly guaranteed (PPG) external debt is projected to trend down slightly. All associated PPG indicators remain well within the respective policy-dependent solvency thresholds under the baseline scenario and all associated standard bound tests. III. PUBLIC DSA 3. The PV of public debt is projected to remain well below the respective solvency and liquidity thresholds. These results continue to hold under all standard bounds tests. IV. ALTERNATIVE SCENARIO 4. The alternative scenario—similar to the one discussed in the November 2013 DSA update—assumes the following combination of shocks to the baseline: (1) issuance of a US$1 billion (0.6 percent of GDP) 10-year sovereign bond in FY15, to be rolled over in FY25; (2) new nonconcessional borrowing of US$6 billion (2.3 percent of GDP in FY19) to construct two 1,000 megawatt nuclear reactors during FY17–21, repayment of which is assumed to be financed by additional sovereign bond issuances starting in FY24; and (3) an additional recapitalization of the state-owned banks of 1.3 percent of FY15 GDP, beyond what is already considered in the baseline. This additional recapitalization would restore the banks’ tangible capital to the regulatory minimum after deducting the estimated impact on capital positions arising from the temporary relaxation in loan rescheduling rules in December 2013 and also assuming a full write-off of all nonperforming loans (NPLs) and fraudulent loans not yet classified as NPLs. This is clearly a worst-case scenario. 5. Under this alternative scenario, no policy-dependent sustainability thresholds are breached even when key variables are subjected to standard bound tests. Thus, the risk of external debt distress remains low also in the alternative scenario. Similarly, the PV of public debt remains below the respective solvency and liquidity thresholds. V. CONCLUSION 6. The macroeconomic framework is broadly unchanged from the November 2013 DSA update. With no major changes to prospective borrowing assumptions (volumes and costs), the debt sustainability assessment remains unchanged and the risk of external and public debt distress continues to be classified as low. 3 Table 1. Bangladesh: DSA Update: Key Variables 1/ 2011 2012 2013 2014 2015 2016 2017 2018 2019 2024 2029 2034 (Percent of GDP, unless otherwise indicated) Nominal GDP (US$ billions) 112 116 130 153 175 192 212 234 258 412 656 1044 Real GDP (percentage change) 6.7 6.2 6.0 5.5 6.3 6.5 7.0 7.0 7.0 6.5 6.5 6.5 GDP deflator (percentage change) 7.5 8.5 6.6 8.7 7.5 6.4 6.2 5.9 6.1 5.2 4.5 4.5 Fiscal (central government) Total revenue and grants 11.9 12.9 12.9 13.0 13.2 13.4 14.2 14.9 15.3 15.2 15.2 15.1 Foreign grants 0.3 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.3 0.2 0.2 0.1 Total expenditure 16.0 16.3 16.9 16.8 16.9 17.1 17.5 17.7 17.8 18.1 18.1 18.3 Interest payments 2.0 2.2 2.3 2.2 2.1 2.0 2.0 2.0 1.9 1.8 1.9 2.1 Overall balance -4.1 -3.4 -4.0 -3.7 -3.7 -3.7 -3.3 -2.8 -2.5 -2.9 -3.0 -3.2 Primary balance -2.2 -1.2 -1.7 -1.5 -1.6 -1.7 -1.3 -0.8 -0.6 -1.1 -1.0 -1.1 Net domestic financing 3.8 2.6 2.5 2.9 2.5 2.4 2.1 1.9 1.7 2.4 2.6 3.0 Net external financing 0.4 0.8 1.2 0.8 1.2 1.3 1.2 0.9 0.8 0.6 0.4 0.2 Balance of payments Exports of goods and services 22.5 23.0 22.6 21.4 19.8 20.5 20.4 20.5 20.5 22.2 24.7 27.7 Imports of goods and services 34.3 33.6 30.5 27.5 27.3 27.7 27.4 27.1 26.8 27.6 29.5 31.5 Workers' remittances 10.4 11.0 11.0 9.0 8.3 8.1 7.7 7.4 7.1 6.0 5.0 4.2 Current account, including official transfers -2.0 -0.4 1.9 1.3 -0.6 -0.7 -0.8 -0.9 -0.9 -1.3 -1.7 -1.6 Foreign direct investment 0.7 1.0 1.3 1.0 1.0 1.0 1.1 1.1 1.1 1.6 2.1 2.5 External borrowing Central government 0.9 1.5 1.9 1.5 1.8 1.8 1.6 1.4 1.4 1.1 1.0 0.8 Public enterprises with guarantee 0.0 0.0 0.0 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Gross official reserves 3.0 3.1 4.3 4.8 5.0 5.1 5.2 5.2 5.2 4.9 4.7 4.9 (Months of imports of goods and services) Sources: Bangladesh authorities; and IMF staff estimates and projections. 1/ Data on a fiscal year basis, with 2014 corresponding to July 2013–June 2014. 4 Figure 1. Bangladesh: Indicators of Public and Publicly Guaranteed External Debt under Different Assumptions, 2014-2034 1/ a. Debt accumulation b.PV of debt-to-GDP+remittances ratio 1.8 30 40 1.6 35 25 1.4 30 1.2 20 25 1.0 15 20 0.8 0.6 10 15 0.4 10 5 0.2 5 0.0 0 0 2014 2019 2024 2029 2034 -5 Rate of debt accumulation 2014 2019 2024 2029 2034 Grant-equivalent financing (% of GDP) Grant element of new borrowing (%; right scale) c.PV of debt-to-exports+remittances ratio d.PV of debt-to-revenue ratio 140 300 120 250 100 200 80 150 60 100 40 50 20 0 0 -20 -50 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 e.Debt service-to-exports+remittances ratio f.Debt service-to-revenue ratio 18 25 16 20 14 12 15 10 8 10 6 4 5 2 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 Baseline Historical scenario Most extreme shock 1/ Threshold Sources: Bangladesh authorities; and IMF staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. In figure b. it corresponds to a one-time depreciation shock; in c. to a terms shock; in d. to a one-time depreciation shock; in e. to a growth shock and in figure f. to a one-time depreciation shock. 5 Figure 2. Bangladesh: Indicators of Public Debt Under Different Assumptions, 2014- 2034 1/ Baseline Fix Primary Balance Most extreme shock Historical scenario Public debt benchmark 60 PV of Debt-to-GDP Ratio 50 40 30 20 10 Most extreme shock: increase in debt-creating flows 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 400 PV of Debt-to-Revenue Ratio 2/ 350 300 250 200 150 100 50 Most extreme shock: increase in debt-creating flows 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 45 Debt Service-to-Revenue Ratio 2/ 40 35 30 25 20 15 10 5 Most extreme shock: increase in debt-creating flows 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Sources: Bangladesh authorities; and IMF staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. 2/ Revenues are defined inclusive of grants. Table 2. Bangladesh: External Debt Sustainability Framework, Baseline Scenario, 2014–2034 1/ (In percent of GDP, unless otherwise indicated) 6/ 6/ Actual Historical Standard Projections Average Deviation 2014-2019 2020-2034 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average 2024 2034 Average External debt (nominal) 1/ 22.7 22.0 19.6 18.2 17.7 17.8 17.6 17.3 17.0 15.8 13.0 of which: public and publicly guaranteed (PPG) 21.4 20.6 18.3 17.1 16.6 16.8 16.7 16.4 16.1 14.2 10.6 Change in external debt 0.3 -0.7 -2.4 -1.4 -0.5 0.1 -0.2 -0.3 -0.3 -0.2 -0.3 Identified net debt-creating flows -1.0 -1.4 -5.6 -3.2 -1.4 -1.3 -1.4 -1.3 -1.3 -1.2 -1.7 Non-interest current account deficit 1.8 0.1 -2.2 -1.0 1.6 -1.7 0.2 0.3 0.4 0.4 0.5 0.8 1.0 1.0 Deficit in balance of goods and services 11.8 10.6 7.8 6.1 7.4 7.2 6.9 6.6 6.3 5.4 3.8 Exports 22.5 23.0 22.6 21.4 19.8 20.5 20.4 20.5 20.5 22.2 27.7 Imports 34.3 33.6 30.5 27.5 27.3 27.7 27.4 27.1 26.8 27.6 31.5 Net current transfers (negative = inflow) -11.1 -11.6 -11.6 -10.0 1.9 -9.4 -8.8 -8.5 -8.1 -7.8 -7.5 -6.2 -4.4 -5.7 of which: official -0.1 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other current account flows (negative = net inflow) 1.1 1.0 1.5 1.6 1.5 1.6 1.6 1.6 1.6 1.6 1.6 Net FDI (negative = inflow) -0.7 -1.0 -1.3 -1.0 0.3 -1.0 -1.0 -1.0 -1.1 -1.1 -1.1 -1.6 -2.5 -1.9 Endogenous debt dynamics 2/ -2.1 -0.5 -2.1 -0.6 -0.6 -0.7 -0.7 -0.7 -0.7 -0.4 -0.2 Contribution from nominal interest rate 0.2 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.5 0.5 Contribution from real GDP growth -1.3 -1.4 -1.2 -0.9 -1.0 -1.0 -1.1 -1.1 -1.1 -1.0 -0.8 Contribution from price and exchange rate changes -1.0 0.6 -1.2 … … … … … … … … Residual (3-4) 3/ 1.3 0.8 3.2 1.9 0.9 1.5 1.2 1.0 1.0 1.0 1.4 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 PV of external debt 4/ ... ... 13.3 12.6 12.5 12.8 12.8 12.7 12.6 12.3 10.7 In percent of exports ... ... 58.9 58.7 62.8 62.4 62.8 62.1 61.5 55.2 38.5 PV of PPG external debt ... ... 12.1 11.4 11.4 11.8 11.9 11.8 11.7 10.7 8.3 In percent of exports ... ... 53.3 53.4 57.6 57.6 58.2 57.7 57.1 48.0 30.0 In percent of government revenues ... ... 97.2 91.4 89.8 91.3 86.1 81.6 78.1 71.0 55.4 Debt service-to-exports ratio (in percent) 4.1 5.7 5.9 10.7 8.8 8.3 7.2 6.9 6.4 6.3 5.0 PPG debt service-to-exports ratio (in percent) 3.8 4.8 4.4 9.3 7.4 7.1 6.0 5.7 5.3 4.7 2.9 PPG debt service-to-revenue ratio (in percent) 7.4 8.8 8.1 15.9 11.6 11.3 8.9 8.1 7.3 7.0 5.4 Total gross financing need (Billions of U.S. dollars) 2.4 1.1 -1.2 0.9 2.7 3.2 2.7 2.7 2.5 2.9 -1.6 6 Non-interest current account deficit that stabilizes debt ratio 1.5 0.7 0.2 -0.3 0.8 0.2 0.6 0.8 0.8 1.1 1.3 Key macroeconomic assumptions Real GDP growth (in percent) 6.7 6.2 6.0 6.2 0.3 5.5 6.3 6.5 7.0 7.0 7.0 6.6 6.5 6.5 6.5 GDP deflator in US dollar terms (change in percent) 4.5 -2.4 5.5 3.3 4.1 11.7 7.5 2.9 3.3 3.0 3.3 5.3 3.0 3.0 3.0 Effective interest rate (percent) 5/ 0.9 1.5 1.4 1.1 0.2 2.1 2.3 2.5 2.6 2.7 2.8 2.5 3.5 4.5 3.8 Growth of exports of G&S (US dollar terms, in percent) 34.5 6.0 10.2 15.1 8.3 11.4 5.9 13.1 10.4 10.6 10.6 10.3 11.6 12.3 12.0 Growth of imports of G&S (US dollar terms, in percent) 50.0 1.6 1.4 15.2 14.9 6.5 13.2 11.3 9.2 9.2 9.2 9.8 10.5 11.2 11.0 Grant element of new public sector borrowing (in percent) ... ... ... ... ... 23.4 23.7 21.8 22.8 24.3 23.3 23.2 19.0 12.1 16.9 Government revenues (excluding grants, in percent of GDP) 11.7 12.4 12.4 12.5 12.7 12.9 13.8 14.5 15.0 15.0 15.0 15.0 Aid flows (in Billions of US dollars) 7/ 1.3 2.3 3.1 1.6 1.7 1.7 1.8 1.9 1.9 2.2 2.7 of which: Grants 0.3 0.6 0.6 0.8 0.8 0.9 0.9 0.9 0.9 1.0 1.2 of which: Concessional loans 1.1 1.7 2.4 0.8 0.9 0.9 1.0 1.1 1.1 1.2 1.5 Grant-equivalent financing (in percent of GDP) 8/ ... ... ... 1.0 1.0 0.9 0.8 0.8 0.7 0.5 0.3 0.4 Grant-equivalent financing (in percent of external financing) 8/ ... ... ... 38.1 36.9 35.8 36.0 37.0 35.6 29.8 20.2 26.9 Memorandum items: Nominal GDP (Billions of US dollars) 111.9 116.0 129.9 153.0 174.9 191.8 212.0 233.7 258.3 412.5 1044.3 Nominal dollar GDP growth 11.5 3.7 11.9 17.8 14.3 9.6 10.5 10.2 10.5 12.2 9.7 9.7 9.8 PV of PPG external debt (in Billions of US dollars) 16.1 17.5 20.0 22.3 24.9 27.3 29.9 43.5 86.1 (PVt-PVt-1)/GDPt-1 (in percent) 1.1 1.6 1.3 1.3 1.1 1.1 1.3 0.8 0.6 0.7 Gross workers' remittances (Billions of US dollars) 11.7 12.7 14.3 13.8 14.6 15.5 16.4 17.4 18.4 24.7 44.1 PV of PPG external debt (in percent of GDP + remittances) ... ... 10.9 10.5 10.6 10.9 11.1 11.0 10.9 10.1 8.0 PV of PPG external debt (in percent of exports + remittances) ... ... 35.8 37.6 40.6 41.4 42.3 42.3 42.4 37.8 26.0 Debt service of PPG external debt (in percent of exports + remittances) ... ... 3.0 6.6 5.2 5.1 4.4 4.2 4.0 3.7 2.5 Sources: Bangladesh authorities; and IMF staff estimates and projections. 1/ Central government gross debt, including debt owed to the IMF, plus external borrowing by public enterprises that is supported by central government guarantees, including short-term oil-related suppliers' credits. The years in the table rrefr to fiscal years. For example, 2014 refers to July 2013-June 2014. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 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/ Assumes that PV of private sector debt is equivalent to its face value. 5/ Current-year interest payments divided by previous period debt stock. 6/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 7/ Defined as grants, concessional loans, and debt relief. 8/ 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 Table 3. Bangladesh: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014–2034 (In percent) Projections 2014 2015 2016 2017 2018 2019 2024 2034 PV of debt-to-GDP+remittances ratio Baseline 10 11 11 11 11 11 10 8 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 10 10 9 8 7 6 2 -1 A2. New public sector loans on less favorable terms in 2014-2034 2 10 11 12 12 13 13 14 13 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 10 11 11 11 11 11 10 8 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 10 10 11 12 11 11 10 8 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 10 11 12 12 12 12 11 9 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 10 11 12 12 12 12 11 8 B5. Combination of B1-B4 using one-half standard deviation shocks 10 11 11 11 11 11 10 8 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 10 14 15 15 15 15 13 11 PV of debt-to-exports+remittances ratio Baseline 38 41 41 42 42 42 38 26 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 38 38 34 32 28 24 6 -4 A2. New public sector loans on less favorable terms in 2014-2034 2 38 43 44 47 49 50 51 43 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 38 41 41 42 42 42 37 26 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 38 40 45 46 46 46 41 27 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 38 41 41 42 42 42 37 26 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 38 45 46 46 46 46 40 26 B5. Combination of B1-B4 using one-half standard deviation shocks 38 37 37 38 38 38 35 25 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 38 41 41 42 42 42 37 26 PV of debt-to-revenue ratio Baseline 91 90 91 86 82 78 71 55 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 91 85 77 65 55 46 11 -8 A2. New public sector loans on less favorable terms in 2014-2034 2 91 95 98 96 94 93 96 91 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 91 90 91 86 81 78 71 55 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 91 89 96 90 85 81 73 56 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 91 97 101 96 91 87 79 62 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 91 96 101 94 89 85 75 56 B5. Combination of B1-B4 using one-half standard deviation shocks 91 92 93 88 84 80 74 59 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 91 125 125 118 112 107 97 76 8 Table 3. Bangladesh: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014–2034 (continued) (In percent) Projections 2014 2015 2016 2017 2018 2019 2024 2034 Debt service-to-exports+remittances ratio Baseline 7 5 5 4 4 4 4 3 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 7 5 5 4 4 4 2 0 A2. New public sector loans on less favorable terms in 2014-2034 2 7 5 5 4 4 4 4 4 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 7 5 5 4 4 4 4 3 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 7 5 5 5 4 4 4 3 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 7 5 5 4 4 4 4 3 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 7 5 5 5 4 4 4 3 B5. Combination of B1-B4 using one-half standard deviation shocks 7 5 5 4 4 4 3 2 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 7 5 5 4 4 4 4 3 Debt service-to-revenue ratio Baseline 16 12 11 9 8 7 7 5 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 16 12 11 9 8 7 4 0 A2. New public sector loans on less favorable terms in 2014-2034 2 16 12 11 9 8 7 7 8 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 16 12 11 9 8 7 7 5 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 16 12 11 9 8 7 7 6 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 16 13 13 10 9 8 8 6 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 16 12 12 9 8 8 8 6 B5. Combination of B1-B4 using one-half standard deviation shocks 16 12 12 9 9 8 7 6 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 16 16 16 12 11 10 10 7 Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 11 11 11 11 11 11 11 11 Sources:Bangladesh authorities; IMF and staff estimates and projections. 1/ Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline. 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels). 4/ Includes official and private transfers and FDI. 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent. 6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. Table 4. Bangladesh: Public Sector Debt Sustainability Framework, Baseline Scenario, 2011–2034 (In percent of GDP, unless otherwise indicated) Actual Estimate Projections 5/ 5/ Standard 2014-19 2020-34 Average 2011 2012 2013 Deviation 2014 2015 2016 2017 2018 2019 Average 2024 2034 Average Public sector debt 1/ 44.0 43.1 42.3 41.1 40.2 40.1 39.4 38.3 37.2 35.0 35.2 of which: domestic borrowing by nonfinancial public enterprises 1.8 1.4 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 of which: foreign-currency denominated 21.4 20.6 18.3 17.1 16.6 16.8 16.7 16.4 16.1 14.2 10.6 of which: guarantee-supported external borrowing … … 0.1 0.6 1.0 1.3 1.6 1.9 2.1 3.0 4.5 Change in public sector debt 1.4 -0.9 -0.9 -1.2 -0.9 -0.1 -0.7 -1.0 -1.2 -0.2 0.3 Identified debt-creating flows -0.1 -0.5 -1.8 -1.1 -1.1 0.1 -0.7 -1.0 -1.3 -0.2 0.2 Primary deficit 2.2 1.1 1.6 1.4 0.5 1.4 1.4 1.5 1.1 0.7 0.4 1.1 0.9 1.0 0.8 Revenue and grants 11.9 12.9 12.9 13.0 13.2 13.4 14.2 14.9 15.3 15.2 15.1 of which: grants 0.3 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.3 0.2 0.1 Primary (noninterest) expenditure 14.1 14.1 14.5 14.5 14.6 14.9 15.3 15.5 15.7 16.2 16.1 Automatic debt dynamics -2.3 -1.6 -3.6 -3.1 -2.9 -1.8 -2.2 -2.1 -2.1 -1.5 -1.2 Contribution from interest rate/growth differential -2.5 -2.3 -1.7 -1.9 -2.1 -1.9 -2.0 -1.9 -1.8 -1.3 -1.0 of which: contribution from average real interest rate 0.2 0.2 0.7 0.3 0.4 0.6 0.6 0.7 0.7 0.8 1.1 of which: contribution from real GDP growth -2.7 -2.6 -2.5 -2.2 -2.4 -2.5 -2.6 -2.6 -2.5 -2.2 -2.1 Contribution from real exchange rate depreciation 0.2 0.7 -1.8 -1.2 -0.8 0.1 -0.2 -0.2 -0.3 ... ... Other identified debt-creating flows 0.0 0.0 0.1 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recognition of implicit or contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (specify, e.g. bank recapitalization) 0.0 0.0 0.1 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Residual, including asset changes 1.6 -0.3 1.0 -0.1 0.2 -0.1 0.0 0.0 0.1 0.0 0.1 9 Other Sustainability Indicators PV of public sector debt ... ... 36.0 35.4 35.0 35.1 34.6 33.8 32.8 31.5 32.9 of which: foreign-currency denominated ... ... 12.1 11.4 11.4 11.8 11.9 11.8 11.7 10.7 8.3 of which: external ... ... 12.1 11.4 11.4 11.8 11.9 11.8 11.7 10.7 8.3 PV of contingent liabilities (not included in public sector debt) ... ... ... ... ... ... ... ... ... ... ... Gross financing need 2/ 6.3 6.4 7.3 6.9 6.0 6.0 5.2 4.6 4.1 4.2 4.1 PV of public sector debt-to-revenue and grants ratio (in percent) … … 279.2 271.9 265.1 262.3 242.9 227.2 213.9 206.4 217.5 PV of public sector debt-to-revenue ratio (in percent) … … 290.4 283.3 274.8 271.3 250.0 232.9 218.6 209.7 219.3 of which: external 3/ … … 97.2 91.4 89.8 91.3 86.1 81.6 78.1 71.0 55.4 Debt service-to-revenue and grants ratio (in percent) 4/ 22.1 24.3 24.6 31.0 25.9 24.8 21.5 20.0 18.4 17.4 17.9 Debt service-to-revenue ratio (in percent) 4/ 22.6 25.3 25.6 32.3 26.9 25.7 22.1 20.5 18.8 17.7 18.0 Primary deficit that stabilizes the debt-to-GDP ratio 0.7 2.0 2.5 2.7 2.3 1.6 1.8 1.7 1.6 1.1 0.7 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 6.7 6.2 6.0 6.2 0.3 5.5 6.3 6.5 7.0 7.0 7.0 6.6 6.5 6.5 6.5 Average nominal interest rate on forex debt (in percent) 0.9 1.2 1.0 1.0 0.1 1.7 2.0 2.1 2.3 2.4 2.5 2.2 2.9 3.5 3.1 Average real interest rate on domestic debt (in percent) 1.8 1.8 4.0 3.3 1.2 1.0 1.6 2.4 2.6 2.8 2.7 2.2 3.4 4.1 3.7 Real exchange rate depreciation (in percent, + indicates depreciation) 1.1 3.5 -9.4 -1.2 5.5 -6.6 ... ... ... ... ... ... ... ... ... Inflation rate (GDP deflator, in percent) 7.5 8.5 6.6 6.6 1.5 8.7 7.5 6.4 6.2 5.9 6.1 6.8 5.2 4.5 4.9 Growth of real primary spending (deflated by GDP deflator, in percent) 21.0 6.1 9.7 3.7 6.9 5.0 7.4 8.4 10.3 8.3 8.5 8.0 5.8 7.2 6.7 Grant element of new external borrowing (in percent) ... ... ... … … 23.4 23.7 21.8 22.8 24.3 23.3 23.2 19.0 12.1 ... Sources: Bangladesh authorities; and IMF staff estimates and projections. 1/ Central government gross debt including debt owed to the IMF, plus domestic bank borrowing by the nonfinancial public sector and external borrowing by public enterprises that is supported by central government guarantees, including short-term oil- related suppliers' credits. The years in the table refer to fiscal years. For example, 2014 refers to July 2013-June 2014. 2/ 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. 3/ Revenues excluding grants. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt. 5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 10 Table 5. Bangladesh: Sensitivity Analysis for Key Indicators of Public Debt, 2014–2034 (In percent) Projections 2014 2015 2016 2017 2018 2019 2024 2034 PV of Debt-to-GDP Ratio Baseline 35 35 35 35 34 33 31 33 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 35 35 35 35 35 35 37 42 A2. Primary balance is unchanged from 2014 35 35 35 35 35 35 36 40 A3. Permanently lower GDP growth 1/ 35 35 35 35 34 33 32 35 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016 35 35 36 35 34 34 33 35 B2. Primary balance is at historical average minus one standard deviations in 2015-2016 35 35 36 35 34 33 32 33 B3. Combination of B1-B2 using one half standard deviation shocks 35 35 36 35 34 34 32 34 B4. One-time 30 percent real depreciation in 2015 35 39 39 38 37 36 35 36 B5. 10 percent of GDP increase in other debt-creating flows in 2015 35 44 44 43 42 40 38 38 PV of Debt-to-Revenue Ratio 2/ Baseline 272 265 262 243 227 214 206 218 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 272 265 262 247 237 231 241 276 A2. Primary balance is unchanged from 2014 272 265 262 245 234 226 234 265 A3. Permanently lower GDP growth 1/ 272 265 263 243 228 215 210 229 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016 272 266 266 247 231 219 214 230 B2. Primary balance is at historical average minus one standard deviations in 2015-2016 272 269 269 248 232 218 210 220 B3. Combination of B1-B2 using one half standard deviation shocks 272 267 266 247 232 219 213 227 B4. One-time 30 percent real depreciation in 2015 272 298 293 269 251 236 227 240 B5. 10 percent of GDP increase in other debt-creating flows in 2015 272 336 329 302 281 264 248 250 Debt Service-to-Revenue Ratio 2/ Baseline 31 26 25 22 20 18 17 18 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 31 26 25 22 20 20 21 24 A2. Primary balance is unchanged from 2014 31 26 25 22 20 19 21 23 A3. Permanently lower GDP growth 1/ 31 26 25 22 20 18 18 19 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-2016 31 26 25 22 20 19 18 19 B2. Primary balance is at historical average minus one standard deviations in 2015-2016 31 26 25 23 21 19 18 18 B3. Combination of B1-B2 using one half standard deviation shocks 31 26 25 22 21 19 18 19 B4. One-time 30 percent real depreciation in 2015 31 28 30 26 25 23 23 24 B5. 10 percent of GDP increase in other debt-creating flows in 2015 31 26 30 40 28 26 23 24 Sources: Bangladesh authorities; and IMF staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period. 2/ Revenues are defined inclusive of grants. 11 Figure 3. Bangladesh: Alternative Scenario — Indicators of Public and Publicly Guaranteed External Debt under Different Assumptions, 2014-2034 1/ a. Debt accumulation b.PV of debt-to-GDP+remittances ratio 2.5 25 40 35 2.0 20 30 1.5 15 25 1.0 10 20 15 0.5 5 10 0.0 0 5 2014 2019 2024 2029 2034 0 Rate of debt accumulation 2014 2019 2024 2029 2034 Grant-equivalent financing (% of GDP) Grant element of new borrowing (%; right scale) c.PV of debt-to-exports+remittances ratio d.PV of debt-to-revenue ratio 140 300 120 250 100 200 80 150 60 100 40 20 50 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 e.Debt service-to-exports+remittances ratio f.Debt service-to-revenue ratio 18 25 16 20 14 12 15 10 8 10 6 4 5 2 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 Baseline Most extreme shock 1/ Threshold Sources: Bangladesh authorities; and IMF staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. In figure b. it corresponds to a one-time depreciation shock; in c. to a terms shock; in d. to a one-time depreciation shock; in e. to a growth shock and in figure f. to a one-time depreciation shock. 12 Figure 4. Bangladesh: Alternative Scenario — Indicators of Public Debt Under Different Assumptions, 2014-2034 1/ Baseline Fix Primary Balance Most extreme shock Historical scenario Public debt benchmark 60 PV of Debt-to-GDP Ratio 50 40 30 20 10 Most extreme shock: increase in debt-creating flows 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 400 PV of Debt-to-Revenue Ratio 2/ 350 300 250 200 150 100 50 Most extreme shock: increase in debt-creating flows 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 45 Debt Service-to-Revenue Ratio 2/ 40 35 30 25 20 15 10 5 Most extreme shock: increase in debt-creating flows 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Sources: Bangladesh authorities; and IMF staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2024. 2/ Revenues are defined inclusive of grants.