76455 INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND BANGLADESH Joint Bank-Fund Debt Sustainability Analysis Update Prepared by the Staffs of the International Development Association and the International Monetary Fund Approved by Jeffrey D. Lewis and Ernesto May (IDA) and Masahiko Takeda and Peter Allum (IMF) February 20, 2013 This debt sustainability analysis (DSA) updates the joint IMF/IDA DSA from October 14, 2011, reflecting the most recent macroeconomic developments and borrowing needs.1 While this DSA includes new external borrowing on nonconcessional terms envisaged over the near and medium term, its results indicate that Bangladesh remains at a low risk of debt distress, consistent with the previous DSA. Further improvements in debt management and project planning capacity will be key to using nonconcessional resources productively.2 1 In line with the 2010 Staff Guidance Note, a full joint LIC DSAs is expected to be prepared once every three years for PRGT- eligible IDA-only countries. In between, short annual updates are expected to be produced unless macroeconomic conditions since the last full DSA have significantly changed. See Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework for Low-Income Countries (www.imf.org) and IDA/SECM2010-0029. 2 The DSA presented in this document is based on the standard low-income countries (LIC) DSA framework. See Debt Sustainability in Low-Income Countries: Further Considerations on an Operational Framework, Policy Implications (www.imf.org) and IDA/SECM2004/0629. Under the Country Policy and Institutional Assessment (CPIA), Bangladesh is rated as a medium performer, with an average rating of 3.43 during 2009–11, and the DSA uses the indicative threshold for countries in this category. 2 1. At end-FY12 (i.e., end-June 2012), Bangladesh: Public and Publicly Guaranteed External Debt Bangladesh’s debt stock comprised of: (At end-June 2012) In Millions of In Percent of U.S. Dollars Total  External  Debt  Public and publicly-guaranteed external debt Multilateral debt 18,963 81.9 with a face value equivalent to 21 percent of World Bank Asian Development Bank 10,646 7,196 46.0 31.1 GDP. About 82 percent of the debt was owed International  Monetary Fund 522 2.3 International  Fund for 311 1.3 to multilateral creditors. Agricultural  development Islamic Development Bank 200 0.9 Other 88 0.4  Domestic debt that amounted to 21 percent of Bilateral debt 2,522 10.9 GDP, comprising of Treasury bonds and bills Japan Kora, Republic of 1,935 202 8.4 0.9 (53 percent), National Savings Certificates Kuwait  United States 163 91 0.7 0.4 (34 percent), and government overdrafts at the Other 132 0.6 central bank (14 percent). Short‐term debt 1,680 7.3 Total 23,165 100.0 2. Main changes in assumptions. Since the (Percent of GDP) 20.7 Source: IMF staff  estimates. previous DSA in the staff report for the 2011 Article IV Consultation, key updates are:3  A slightly revised macroeconomic framework. Over the near and medium term, real GDP growth has been marked down to an average of 6.4 percent during FY13–15 (compared to 6.7 percent in the previous DSA) given global uncertainties, reflected primarily in lower export growth as a result of the euro area crisis. All growth assumptions are based on the government’s maintenance of macroeconomic stability, pursuit of broad-ranging structural reforms, and strengthening of its trade and investment climate, as necessary to put Bangladesh’s economy on a higher growth trajectory. However, weak governance, policy indecision, and capacity constraints could dampen the growth outlook if not dealt with upfront.  Primary fiscal deficit. Over the medium term, the primary deficit is smaller than in the previous DSA mainly as a result of fiscal policy commitments under the Extended Credit Facility (ECF) arrangement with the IMF to: (i) accelerate tax policy and revenue administration reforms; (ii) contain subsidy-related costs and improve public financial management; and (iii) strengthen debt management.  Higher external borrowing. Bangladesh has large investment needs in power generation and other basic infrastructure. Compared to the previous DSA, the external borrowing by the central government is assumed to increase by about 0.4 percentage points of GDP a year over the medium term and by 0.2 percentage points of GDP a year over the long term to meet these investment needs. In addition, the current DSA assumes higher nonconcessional borrowing by the public sector (including state-owned enterprises) than in the previous DSA, mainly for high-impact infrastructure projects. 4 It 3 See IMF Country Report No. 11/314. 4 Under the ECF arrangement, the performance criterion (ceiling) on new nonconcessional external debt is assumed to rise over time to accommodate the new borrowing. 3 also includes US$1.5 billion in new nonconcessional external borrowing recently contracted with the Russian Federation. 5 Relative to the previous DSA, private sector borrowing is assumed to increase by about 0.2 percentage points of GDP a year over the medium term and 0.4 percentage points of GDP a year over the long term, in line with envisaged improvements in the business climate and access to external resources.  Lower domestic borrowing. In line with the authorities’ fiscal policy commitments, central government domestic debt is projected to remain constant at about 20 percent of GDP over the medium term and then decrease to 17 percent of GDP by the end of the projection period. The previous DSA projected a gradual increase in domestic debt to 28 percent of GDP by the end of the projection period. I. BASELINE SCENARIO 3. The external sector DSA projects the present value (PV) of external debt-to-GDP falling over the long run to 14 percent by FY33. While all external debt indicators remain well below the policy-dependent debt burden thresholds under the baseline scenario, one threshold is breached temporarily under the standardized stress tests. The debt service-to-revenue ratio would exceed the 20 percent threshold in FY14 in the case of a one-time 30 percent nominal depreciation relative to the baseline in FY14, but the breach is temporary and caused by maturing short-term oil-related suppliers’ credits, most of which are expected to be rolled over and refinanced by new short-term credits. 4. The public sector DSA, in its baseline, sees the present value (PV) of public sector debt- to-GDP ratio fall gradually to 29 percent of GDP in FY33. That said, at least two pertinent risks exist in addition to those tested in the scenario analysis that could raise the debt service-to-revenue ratio: (i) underperforming tax collections could call for a scaling back of fiscal spending, with possible negative growth effects; and (ii) large operating losses in energy- and fertilizer-related state-owned enterprises (SOEs) could create contingent fiscal liabilities and crowd out more growth-critical fiscal spending. II. ALTERNATIVE SCENARIO 5. Alternative assumptions and outcome. The alternative scenario (see Figure 4 and Table 6) assumes that Bangladesh proceeds with new nonconcessional borrowing of US$6.0 billion to construct two 1,000MW nuclear reactors during FY17-21. Within the range of current cost estimates cited in Bangladesh (US$4-8 billion), the risk of external debt distress remains low, but the total cost of construction remains to be verified by feasibility studies. The introduction of nuclear power would create health, safety, and environmental challenges especially given the high population density in Bangladesh, which are likely to require ample investment in technical expertise and regulatory capacity. Feasibility studies need to ascertain 5 Under separate agreements signed in January 2013 between Bangladesh and the Russian Federation, the latter will provide nonconcessional loans to assess the technical feasibility and overall viability of nuclear power in Bangladesh (US$500 million) and for defense-related purchases (US$1.0 billion). However, the baseline scenario excludes actual construction costs for the nuclear power plant, as feasibility studies are expected to inform the analysis whether construction will be pursued in the future, including possible funding arrangements. Staffs assume the nuclear-related loan is disbursed during FY14-16 and the defense- related loan during FY14-17. 4 such costs to make sure that sufficient fiscal resources are set aside for proper risk mitigation. In this context, staffs would encourage Bangladesh to continue to pursue a full range of alternatives in developing the power sector and evaluate the potential investment in nuclear power in the context of least-cost options for generating electricity. Staffs would also encourage Bangladesh to establish fiscal contingencies to ensure adequate safeguards are in place, in the event the government proceeds with constructing the new reactors. On the upside, nuclear power will expand the electricity supply —a major growth constraint in Bangladesh, and possibly increase growth over the long run. 6. Nonconcessional borrowing in Bangladesh reinforces the need to protect the overall quality of public expenditure and keep debt levels manageable. In view of the relatively high cost of nonconcessional borrowing, all projects tied to this type of borrowing should be closely vetted, properly evaluated, and carefully monitored to ensure sound governance and oversight in the contracting and use of these funds. Staffs urge the government to continue to avail the large pool of existing commitments (mainly concessional) and undertake additional external borrowing mainly on concessional terms, consistent with Bangladesh’s debt management capacity. Appendix Table 1. DSA Update: Key Variables 2010 2011 2012 2013 2014 2015 2016 2017 2018 2023 2028 2033 (Percent of GDP, unless otherwise indicated) Nominal GDP (US$ billions) 100 112 116 128 139 151 165 180 196 300 435 631 Real GDP (percentage change) 6.1 6.7 6.3 5.8 6.4 7.0 7.1 7.2 7.3 6.6 6.0 6.0 GDP deflator (percentage change) 6.5 7.5 8.0 7.5 6.2 6.2 5.9 5.7 4.6 4.5 4.5 4.5 Fiscal (central government) Total Revenue and Grants 11.5 11.9 13.0 13.8 14.4 15.0 15.4 15.6 15.9 16.7 17.0 17.3 Foreign grants 0.6 0.3 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.3 0.2 0.2 Total expenditure 14.6 16.0 16.4 17.7 18.2 18.4 18.7 19.0 19.1 19.3 19.1 18.6 Interest payments 2.1 2.0 2.2 2.3 2.1 2.1 1.9 1.8 1.9 1.9 1.9 1.7 Overall balance -3.1 -4.1 -3.4 -3.9 -3.8 -3.5 -3.3 -3.4 -3.2 -2.6 -2.1 -1.3 Primary balance -0.9 -2.2 -1.2 -1.7 -1.7 -1.4 -1.5 -1.5 -1.3 -0.7 -0.2 0.4 Net domestic financing 1.3 3.8 2.4 2.9 2.4 2.0 1.7 2.3 2.4 2.1 1.6 1.1 Net external financing 0.9 0.4 0.8 1.0 1.4 1.5 1.6 1.1 0.8 0.5 0.5 0.2 Balance of payments 5 Exports of goods and services 18.6 22.5 23.1 21.9 21.9 22.6 23.1 23.7 24.1 26.7 31.1 36.3 Imports of goods and services 25.5 34.3 34.1 32.3 33.5 34.2 34.3 34.6 35.0 38.1 41.6 45.3 Workers' remittances 10.9 10.4 11.1 11.4 11.4 11.5 11.6 11.7 11.7 11.1 10.2 9.4 Current account, incl. official transfers 3.2 -2.0 -0.5 0.1 -1.0 -0.9 -0.5 -0.1 -0.1 -1.4 -1.4 -0.7 Foreign direct investment 0.9 0.7 1.0 0.9 1.0 1.0 1.0 1.1 1.2 1.8 2.1 2.5 External borrowing by central government 1.6 0.9 1.5 1.7 2.1 2.1 2.2 1.6 1.5 1.3 1.3 1.0 by public enterprises with guarantee 0.0 0.0 0.0 0.1 0.5 0.6 0.5 0.5 0.5 0.5 0.5 0.5 debt service by public enterprises … … … 0.0 0.0 0.0 0.1 0.2 0.2 0.4 0.4 0.4 Gross official reserves 3.2 3.1 2.9 3.2 3.4 3.7 4.1 4.3 4.5 4.7 4.6 5.0 (Months of imports of goods and services) Sources: Bangladesh authorities; and staff estimates and projections. 6 Appendix Figure 1. Bangladesh: Current Projections of External DSA Indicators Compared with Estimates Made in 2011 PV of debt-to-GDP ratio (percent) PV of debt-to-exports ratio (percent) 45 160 40 140 35 120 30 100 25 80 20 15 60 10 40 5 20 0 0 2013 2018 2023 2028 2033 2013 2018 2023 2028 2033 PV of debt-to-revenue ratio Debt service-to-exports ratio 300 25 250 20 200 15 150 10 100 5 50 0 0 2013 2018 2023 2028 2033 2013 2018 2023 2028 2033 Debt service-to-revenue ratio 30 Current baseline 25 20 Baseline 2011 15 Most extreme shock, current 10 Most extreme shock, 2011 5 Threshold 0 2013 2018 2023 2028 2033 Sources: Bangladesh authorities; and staff estimates and projections. 7 Appendix Figure 2. Bangladesh: Indicators of Public and Publicly Guaranteed External Debt under Different Scenarios, 2013–33 1/ a. Debt Accumulation b. PV of debt-to-GDP ratio 2.0 25 45 1.8 40 1.6 20 35 1.4 1.2 15 30 1.0 25 0.8 10 20 0.6 15 0.4 5 0.2 10 0.0 0 5 2013 2018 2023 2028 2033 Rate of Debt Accumulation 0 Grant-equivalent financing (% of GDP) 2013 2018 2023 2028 2033 Grant element of new borrowing (%, right scale) c. PV of debt-to-exports ratio d. PV of debt-to-revenue ratio 160 300 140 250 120 200 100 80 150 60 100 40 50 20 0 0 2013 2018 2023 2028 2033 2013 2018 2023 2028 2033 e. Debt service-to-exports ratio f. Debt service-to-revenue ratio 25 25 20 20 15 15 10 10 5 5 0 0 2013 2018 2023 2028 2033 2013 2018 2023 2028 2033 Baseline Historical scenario Most extreme shock 1/ Threshold Sources: Bangladesh authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2023. 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 Non-debt flows shock and in figure f. to a One-time depreciation shock 8 Appendix Figure 3. Bangladesh: Indicators of Public Debt under Different Scenarios, 2013–33 1/ Baseline Fix Primary Balance Most extreme shock Non-debt flows Historical scenario 50 45 PV of Debt-to-GDP Ratio 40 35 30 25 20 15 10 5 0 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 350 PV of Debt-to-Revenue Ratio 2/ 300 250 200 150 100 50 0 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 35 Debt Service-to-Revenue Ratio 2/ 30 25 20 15 10 5 0 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 Sources: Bangladesh authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2023. 2/ Revenues are defined inclusive of grants. Appendix Table 2. Bangladesh: External Debt Sustainability Framework, Baseline Scenario, 2010–33 1/ (In percent of GDP, unless otherwise indicated) 6/ Actual Historical Standard 6/ Projections Average Deviation 2013-2018 2019-2033 2010 2011 2012 2013 2014 2015 2016 2017 2018 Average 2023 2033 Average External debt (nominal) 1/ 22.3 22.7 22.2 20.7 21.2 21.5 21.6 21.1 20.8 19.3 16.5 of which: public and publicly guaranteed (PPG) 21.1 21.4 20.7 19.4 19.9 20.2 20.4 20.0 19.7 17.8 14.4 Change in external debt -3.3 0.3 -0.5 -1.4 0.5 0.3 0.1 -0.4 -0.3 -0.3 -0.5 Identified net debt-creating flows -7.0 -1.0 -1.2 -2.2 -1.2 -1.5 -1.9 -2.4 -2.4 -1.6 -2.7 Non-interest current account deficit -3.5 1.8 0.2 -0.8 1.5 -0.5 0.6 0.5 0.2 -0.3 -0.2 1.0 0.3 0.7 Deficit in balance of goods and services 6.8 11.8 11.0 10.4 11.6 11.5 11.3 10.8 10.9 11.4 9.0 Exports 18.6 22.5 23.1 21.9 21.9 22.6 23.1 23.7 24.1 26.7 36.3 Imports 25.5 34.3 34.1 32.3 33.5 34.2 34.3 34.6 35.0 38.1 45.3 Net current transfers (negative = inflow) -11.6 -11.1 -11.8 -9.5 2.1 -11.8 -11.8 -11.9 -11.9 -12.0 -12.0 -11.3 -9.6 -10.8 of which: official -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 Other current account flows (negative = net inflow) 1.2 1.1 1.0 0.8 0.8 0.8 0.9 0.9 0.9 0.9 0.9 Net FDI (negative = inflow) -0.9 -0.7 -1.0 -0.9 0.2 -0.9 -1.0 -1.0 -1.0 -1.1 -1.2 -1.8 -2.5 -1.9 Endogenous debt dynamics 2/ -2.6 -2.1 -0.4 -0.7 -0.8 -1.0 -1.0 -1.1 -1.0 -0.8 -0.6 Contribution from nominal interest rate 0.2 0.2 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Contribution from real GDP growth -1.4 -1.3 -1.4 -1.2 -1.2 -1.4 -1.4 -1.4 -1.4 -1.2 -0.9 Contribution from price and exchange rate changes -1.4 -1.0 0.7 … … … … … … … … Residual (3-4) 3/ 3.6 1.3 0.7 0.8 1.7 1.8 2.0 2.0 2.1 1.3 2.2 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/ ... ... 16.7 15.6 16.0 16.4 16.6 16.4 16.3 15.6 13.6 In percent of exports ... ... 72.2 71.2 73.0 72.3 72.0 69.2 67.5 58.3 37.5 PV of PPG external debt ... ... 15.2 14.2 14.7 15.1 15.4 15.3 15.2 14.1 11.5 In percent of exports ... ... 65.8 65.0 67.1 66.8 66.8 64.3 62.9 52.7 31.6 In percent of government revenues ... ... 122.1 107.2 105.7 104.3 103.1 100.4 98.0 85.4 67.3 Debt service-to-exports ratio (in percent) 5.5 4.1 5.7 12.7 11.2 8.7 6.8 5.3 4.6 5.3 4.2 PPG debt service-to-exports ratio (in percent) 5.2 3.8 4.8 11.1 9.7 7.3 5.4 4.1 3.4 4.0 2.7 PPG debt service-to-revenue ratio (in percent) 8.8 7.4 8.8 18.3 15.2 11.3 8.4 6.4 5.3 6.5 5.8 Total gross financing need (Billions of U.S. dollars) -3.3 2.4 1.3 3.3 4.3 3.3 1.9 0.3 -0.4 2.0 -3.9 Non-interest current account deficit that stabilizes debt ratio -0.1 1.5 0.7 0.9 0.1 0.2 0.0 0.2 0.1 1.3 0.8 9 Key macroeconomic assumptions Real GDP growth (in percent) 6.1 6.7 6.3 6.2 0.4 5.8 6.4 7.0 7.1 7.2 7.3 6.8 6.6 6.0 6.4 GDP deflator in US dollar terms (change in percent) 5.9 4.5 -2.8 3.0 4.1 4.8 1.8 1.8 1.8 1.8 1.7 2.3 1.6 1.6 1.6 Effective interest rate (percent) 5/ 1.1 0.9 1.5 1.1 0.2 2.2 2.1 2.0 1.9 1.8 1.9 2.0 2.1 2.4 2.2 Growth of exports of G&S (US dollar terms, in percent) 7.5 34.5 6.0 14.9 8.5 5.1 8.4 12.5 11.3 12.3 11.0 10.1 11.0 11.2 11.1 Growth of imports of G&S (US dollar terms, in percent) 5.7 50.0 2.7 16.5 14.0 4.9 12.3 11.3 9.6 10.0 10.4 9.7 10.2 9.6 10.0 Grant element of new public sector borrowing (in percent) ... ... ... ... ... 21.1 18.5 17.4 17.3 16.1 18.0 18.1 17.7 17.3 17.7 Government revenues (excluding grants, in percent of GDP) 10.9 11.7 12.4 13.3 13.9 14.5 14.9 15.2 15.5 16.5 17.1 16.6 Aid flows (in Billions of US dollars) 7/ 2.2 1.3 2.3 1.3 1.6 1.6 1.6 1.3 1.3 1.7 2.9 of which: Grants 0.6 0.3 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.8 1.2 of which: Concessional loans 1.6 1.1 1.7 0.6 0.9 0.9 0.9 0.6 0.6 0.9 1.7 Grant-equivalent financing (in percent of GDP) 8/ ... ... ... 1.0 1.0 1.0 0.9 0.7 0.7 0.6 0.4 0.6 Grant-equivalent financing (in percent of external financing) 8/ ... ... ... 37.0 30.9 29.0 28.8 29.3 31.2 28.8 26.5 27.9 Memorandum items: Nominal GDP (Billions of US dollars) 100.4 111.9 115.6 128.2 138.8 151.3 165.0 180.1 196.5 299.6 631.2 Nominal dollar GDP growth 12.3 11.5 3.3 10.9 8.3 9.0 9.1 9.1 9.1 9.2 8.3 7.7 8.1 INTERNATIONAL MONETARY FUND PV of PPG external debt (in Billions of US dollars) 17.0 18.0 20.0 22.4 25.0 27.1 29.4 41.5 75.4 (PVt-PVt-1)/GDPt-1 (in percent) 0.9 1.5 1.8 1.7 1.3 1.3 1.4 0.9 0.6 0.9 Gross workers' remittances (Billions of US dollars) 11.0 11.7 12.8 14.6 15.9 17.5 19.2 21.1 23.0 33.2 59.5 PV of PPG external debt (in percent of GDP + remittances) ... ... 13.7 12.8 13.2 13.5 13.8 13.7 13.6 12.7 10.5 PV of PPG external debt (in percent of exports + remittances) ... ... 44.4 42.7 44.1 44.3 44.4 43.1 42.4 37.2 25.1 Debt service of PPG external debt (in percent of exports + remittances) ... ... 3.2 7.3 6.4 4.8 3.6 2.7 2.3 2.8 2.2 Sources: Bangladesh authorities; and 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 refers to fiscal years. For example, 2012 refers to July 2011-June 2012. 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). 9 Appendix Table 3. Bangladesh: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2013–33 (In percent) Projections 2013 2014 2015 2016 2017 2018 2023 2033 PV of debt-to GDP ratio Baseline 14 15 15 15 15 15 14 11 A. Alternative Scenarios A1. Key variables at their historical averages in 2013-2033 1/ 14 13 12 12 12 12 8 7 A2. New public sector loans on less favorable terms in 2013-2033 2/ 14 15 16 17 17 18 18 18 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2014-2015 14 14 15 15 15 15 14 12 B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/ 14 15 17 17 17 16 15 12 B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015 14 15 16 16 16 16 15 13 B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/ 14 18 23 23 22 22 18 13 B5. Combination of B1-B4 using one-half standard deviation shocks 14 17 21 21 21 20 17 13 B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/ 14 20 21 21 21 21 20 17 PV of debt-to-exports ratio Baseline 65 67 67 67 64 63 53 32 A. Alternative Scenarios 10 A1. Key variables at their historical averages in 2013-2033 1/ 65 60 55 52 50 48 32 18 A2. New public sector loans on less favorable terms in 2013-2033 2/ 65 69 71 74 73 73 68 50 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2014-2015 65 66 65 66 63 62 52 33 B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/ 65 68 79 78 75 73 59 36 B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015 65 66 65 66 63 62 52 33 B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/ 65 84 100 98 93 89 67 35 B5. Combination of B1-B4 using one-half standard deviation shocks 65 76 91 89 85 82 63 34 B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/ 65 66 65 66 63 62 52 33 PV of debt-to-revenue ratio Baseline 107 106 104 103 100 98 85 67 A. Alternative Scenarios A1. Key variables at their historical averages in 2013-2033 1/ 107 94 86 81 78 75 51 38 A2. New public sector loans on less favorable terms in 2013-2033 2/ 107 108 111 114 114 114 110 107 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2014-2015 107 104 104 103 101 98 86 71 B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/ 107 106 114 112 109 106 90 71 B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015 107 106 108 107 105 102 89 74 B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/ 107 132 157 151 145 139 109 74 B5. Combination of B1-B4 using one-half standard deviation shocks 107 124 147 142 137 132 106 75 B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/ 107 147 145 143 140 137 119 99 Appendix Table 3. Bangladesh: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2013–33 (concluded) (In percent) Debt service-to-exports ratio Baseline 11 10 7 5 4 3 4 3 A. Alternative Scenarios A1. Key variables at their historical averages in 2013-2033 1/ 11 10 7 5 4 3 3 1 A2. New public sector loans on less favorable terms in 2013-2033 2/ 11 10 7 6 4 4 4 4 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2014-2015 11 10 7 5 4 3 4 3 B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/ 11 10 8 6 5 4 5 3 B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015 11 10 7 5 4 3 4 3 B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/ 11 10 8 6 5 4 5 3 B5. Combination of B1-B4 using one-half standard deviation shocks 11 9 7 6 5 4 5 3 B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/ 11 10 7 5 4 3 4 3 Debt service-to-revenue ratio Baseline 18 15 11 8 6 5 6 6 A. Alternative Scenarios 11 A1. Key variables at their historical averages in 2013-2033 1/ 18 15 11 8 6 5 5 3 A2. New public sector loans on less favorable terms in 2013-2033 2/ 18 15 11 9 7 6 7 8 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2014-2015 18 15 12 9 7 5 7 6 B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/ 18 15 11 9 7 5 7 6 B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015 18 16 12 9 7 6 7 6 B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/ 18 15 12 9 7 6 9 7 B5. Combination of B1-B4 using one-half standard deviation shocks 18 15 12 9 7 6 8 7 B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/ 18 22 16 12 9 8 9 8 Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 14 14 14 14 14 14 14 14 Sources: Bangladesh authorities; 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/ Export value 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. Appendix Table 4. Bangladesh: Public Sector Debt Sustainability Framework, Baseline Scenario, 2010–33 (In percent of GDP, unless otherwise indicated) Actual Estimate Projections 5/ 5/ Standard 2013-18 2019-33 Average 2010 2011 2012 Deviation 2013 2014 2015 2016 2017 2018 Average 2023 2033 Average Public sector debt 1/ 41.4 42.4 41.4 40.5 41.0 40.8 40.2 39.8 39.8 38.0 31.6 of which: foreign-currency denominated 21.1 21.4 20.7 19.4 19.9 20.2 20.4 20.0 19.7 17.8 14.4 of which: guarantee-supported external borrowing … … … 0.1 0.6 1.2 1.6 2.0 2.3 3.4 5.0 Change in public sector debt -4.1 1.0 -1.0 -0.9 0.5 -0.2 -0.5 -0.4 -0.1 -0.3 -1.2 Identified debt-creating flows -2.0 0.1 -0.1 -0.9 0.6 -0.2 -0.3 -0.3 -0.2 -0.4 -1.2 Primary deficit 0.9 2.2 1.1 1.3 0.5 1.5 1.6 1.3 1.5 1.5 1.3 1.5 0.7 -0.3 0.4 Revenue and grants 11.5 11.9 13.0 13.8 14.4 15.0 15.4 15.6 15.9 16.7 17.3 of which: grants 0.6 0.3 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.3 0.2 Primary (noninterest) expenditure 12.4 14.1 14.1 15.3 16.0 16.3 16.8 17.1 17.2 17.5 16.9 Automatic debt dynamics -2.9 -2.1 -1.3 -2.6 -1.5 -2.1 -2.2 -2.3 -2.0 -1.6 -1.3 Contribution from interest rate/growth differential -1.8 -2.3 -2.1 -1.5 -1.7 -2.0 -2.2 -2.2 -2.0 -1.6 -1.1 of which: contribution from average real interest rate 0.8 0.3 0.4 0.8 0.8 0.7 0.5 0.5 0.8 0.8 0.7 of which: contribution from real GDP growth -2.6 -2.6 -2.5 -2.3 -2.4 -2.7 -2.7 -2.7 -2.7 -2.4 -1.9 Contribution from real exchange rate depreciation -1.1 0.2 0.8 -1.1 0.1 -0.1 -0.1 -0.1 0.0 ... ... Other identified debt-creating flows 0.0 0.0 0.0 0.1 0.5 0.6 0.4 0.4 0.4 0.4 0.4 Guarantee-supported external borrowing 0.0 0.0 0.0 0.1 0.5 0.6 0.4 0.4 0.4 0.4 0.4 Residual, including asset changes -2.1 1.0 -0.9 0.0 -0.1 -0.1 -0.2 -0.1 0.1 0.0 0.0 12 Other Sustainability Indicators PV of public sector debt ... ... 35.9 35.3 35.8 35.7 35.3 35.1 35.3 34.3 28.7 of which: foreign-currency denominated ... ... 15.2 14.2 14.7 15.1 15.4 15.3 15.2 14.1 11.5 of which: external ... ... 15.2 14.2 14.7 15.1 15.4 15.3 15.2 14.1 11.5 PV of contingent liabilities (not included in public sector debt) ... ... ... ... ... ... ... ... ... ... ... Gross financing need 2/ 3.9 4.9 4.9 7.3 6.6 5.5 4.8 4.3 3.8 3.4 2.1 PV of public sector debt-to-revenue and grants ratio (in percent) … … 276.8 256.2 248.4 238.5 229.5 225.0 222.1 204.8 166.5 PV of public sector debt-to-revenue ratio (in percent) … … 288.7 266.6 257.5 246.2 236.0 230.7 227.3 208.3 168.3 of which: external 3/ … … 122.1 107.2 105.7 104.3 103.1 100.4 98.0 85.4 67.3 Debt service-to-revenue and grants ratio (in percent) 4/ 25.2 22.1 24.3 32.7 27.7 23.4 18.8 16.4 15.2 16.1 14.2 Debt service-to-revenue ratio (in percent) 4/ 26.6 22.6 25.3 34.0 28.7 24.2 19.3 16.8 15.6 16.4 14.3 Primary deficit that stabilizes the debt-to-GDP ratio 5.0 1.1 2.1 2.5 1.1 1.6 2.0 1.9 1.4 1.1 0.8 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 6.1 6.7 6.3 6.2 0.4 5.8 6.4 7.0 7.1 7.2 7.3 6.8 6.6 6.0 6.4 Average nominal interest rate on forex debt (in percent) 1.1 0.9 1.2 1.0 0.1 1.8 1.7 1.6 1.5 1.4 1.5 1.6 1.5 1.6 1.5 Average real interest rate on domestic debt (in percent) 3.6 2.3 3.0 3.5 1.0 3.6 3.6 3.6 2.9 3.1 4.2 3.5 4.3 4.3 4.3 Real exchange rate depreciation (in percent, + indicates depreciation) -4.9 1.2 4.1 -0.3 4.7 -5.5 ... ... ... ... ... ... ... ... ... Inflation rate (GDP deflator, in percent) 6.5 7.5 8.0 6.3 1.5 7.5 6.2 6.2 5.9 5.7 4.6 6.0 4.5 4.5 4.5 Growth of real primary spending (deflated by GDP deflator, in percent) 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Grant element of new external borrowing (in percent) ... ... ... … … 21.1 18.5 17.4 17.3 16.1 18.0 18.1 17.7 17.3 17.7 Sources: Bangladesh authorities; and Fund 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 refers to fiscal years. For example, 2012 refers to July 2011-June 2012. 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. 13 Appendix Table 5. Bangladesh: Sensitivity Analysis for Key Indicators of Public Debt 2013–33 Projections 2013 2014 2015 2016 2017 2018 2023 2033 PV of Debt-to-GDP Ratio Baseline 35 36 36 35 35 35 34 29 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 35 36 36 36 36 36 38 40 A2. Primary balance is unchanged from 2013 35 36 36 35 35 36 37 40 A3. Permanently lower GDP growth 1/ 35 36 36 35 35 36 35 31 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2014-2015 35 36 37 36 37 37 37 33 B2. Primary balance is at historical average minus one standard deviations in 2014-2015 35 36 36 36 36 36 35 29 B3. Combination of B1-B2 using one half standard deviation shocks 35 36 36 36 36 36 36 32 B4. One-time 30 percent real depreciation in 2014 35 42 41 40 40 40 38 32 B5. 10 percent of GDP increase in other debt-creating flows in 2014 35 45 44 43 43 42 40 33 PV of Debt-to-Revenue Ratio 2/ Baseline 256 248 238 229 225 222 205 166 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 256 247 239 231 228 227 229 231 A2. Primary balance is unchanged from 2013 256 248 239 231 226 224 222 233 A3. Permanently lower GDP growth 1/ 256 249 239 230 226 224 210 181 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2014-2015 256 250 245 237 234 232 220 189 B2. Primary balance is at historical average minus one standard deviations in 2014-2015 256 250 243 234 229 226 207 168 B3. Combination of B1-B2 using one half standard deviation shocks 256 249 243 235 232 230 216 184 B4. One-time 30 percent real depreciation in 2014 256 291 276 263 256 251 227 186 B5. 10 percent of GDP increase in other debt-creating flows in 2014 256 311 296 281 273 266 238 190 Debt Service-to-Revenue Ratio 2/ Baseline 33 28 23 19 16 15 16 14 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 33 28 23 18 17 15 19 21 A2. Primary balance is unchanged from 2013 33 28 23 19 17 15 18 22 A3. Permanently lower GDP growth 1/ 33 28 23 19 16 15 17 16 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2014-2015 33 28 24 19 17 16 18 17 B2. Primary balance is at historical average minus one standard deviations in 2014-2015 33 28 23 19 18 16 16 14 B3. Combination of B1-B2 using one half standard deviation shocks 33 28 24 19 17 16 17 16 B4. One-time 30 percent real depreciation in 2014 33 31 29 24 21 20 21 20 B5. 10 percent of GDP increase in other debt-creating flows in 2014 33 28 27 43 21 25 19 21 Sources: Bangladesh authorities; and 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. 14 Appendix Figure 4. Bangladesh: Comparison of External DSA Indicators in Baseline and Alternative Scenario, 2013-33 1/ PV of debt-to-GDP ratio (percent) PV of debt-to-exports ratio (percent) 45 160 40 140 35 120 30 100 25 80 20 15 60 10 40 5 20 0 0 2013 2018 2023 2028 2033 2013 2018 2023 2028 2033 PV of debt-to-revenue ratio Debt service-to-exports ratio 300 25 250 20 200 15 150 10 100 5 50 0 0 2013 2018 2023 2028 2033 2013 2018 2023 2028 2033 Debt service-to-revenue ratio 25 Baseline 20 Alternative scenario 15 Most extreme shock, baseline 10 Most extreme shock, alternative Threshold 5 0 2013 2018 2023 2028 2033 Sources: Bangladesh authorities; and staff estimates and projections. 1/ The alternative scenario assumes new nonconcessional borrowing of US$6.0 billion to construct two 1.000MW nuclear reactors during FY17-21. Appendix Table 6. Bangladesh: External Debt Sustainability Framework, Alternative Scenario, 2010–33 1/ (In percent of GDP, unless otherwise indicated) 6/ 6/ Actual Historical Standard Projections Average Deviation 2013-2018 2019-2033 2010 2011 2012 2013 2014 2015 2016 2017 2018 Average 2023 2033 Average External debt (nominal) 1/ 22.3 22.7 22.2 20.7 21.2 21.5 21.6 21.9 22.1 21.4 16.9 of which: public and publicly guaranteed (PPG) 21.1 21.4 20.7 19.4 19.9 20.2 20.4 20.7 21.0 19.9 14.7 Change in external debt -3.3 0.3 -0.5 -1.4 0.5 0.3 0.1 0.2 0.3 -0.5 -0.6 Identified net debt-creating flows -7.0 -1.0 -1.2 -2.2 -1.2 -1.5 -1.9 -1.6 -1.7 -1.7 -2.7 Non-interest current account deficit -3.5 1.8 0.2 -0.8 1.5 -0.5 0.6 0.5 0.2 0.5 0.5 1.0 0.3 0.9 Deficit in balance of goods and services 6.8 11.8 11.0 10.4 11.6 11.6 11.3 11.7 11.7 11.4 9.1 Exports 18.6 22.5 23.1 21.9 21.9 22.6 23.1 23.8 24.2 26.7 36.3 Imports 25.5 34.3 34.1 32.3 33.5 34.2 34.4 35.5 35.8 38.1 45.4 Net current transfers (negative = inflow) -11.6 -11.1 -11.8 -9.5 2.1 -11.8 -11.8 -11.9 -12.0 -12.0 -12.0 -11.3 -9.6 -10.8 of which: official -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 Other current account flows (negative = net inflow) 1.2 1.1 1.0 0.8 0.8 0.8 0.9 0.9 0.9 0.9 0.9 Net FDI (negative = inflow) -0.9 -0.7 -1.0 -0.9 0.2 -0.9 -1.0 -1.0 -1.0 -1.1 -1.2 -1.8 -2.5 -1.9 Endogenous debt dynamics 2/ -2.6 -2.1 -0.4 -0.7 -0.8 -1.0 -1.0 -1.0 -1.0 -0.8 -0.6 Contribution from nominal interest rate 0.2 0.2 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.4 Contribution from real GDP growth -1.4 -1.3 -1.4 -1.2 -1.2 -1.4 -1.4 -1.4 -1.5 -1.3 -1.0 Contribution from price and exchange rate changes -1.4 -1.0 0.7 … … … … … … … … Residual (3-4) 3/ 3.6 1.3 0.7 0.8 1.7 1.8 2.0 1.8 1.9 1.2 2.1 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/ ... ... 16.7 15.6 16.0 16.4 16.6 17.3 17.8 17.9 14.0 In percent of exports ... ... 72.2 71.2 73.0 72.3 72.0 72.6 73.7 66.9 38.5 PV of PPG external debt ... ... 15.2 14.2 14.7 15.1 15.4 16.1 16.7 16.4 11.9 In percent of exports ... ... 65.8 65.0 67.1 66.8 66.8 67.8 69.1 61.2 32.6 In percent of government revenues ... ... 122.1 107.2 105.7 104.4 103.2 105.9 107.8 99.4 69.4 Debt service-to-exports ratio (in percent) 5.5 4.1 5.7 12.7 11.2 8.7 6.8 5.4 4.8 5.8 4.4 PPG debt service-to-exports ratio (in percent) 5.2 3.8 4.8 11.1 9.7 7.3 5.4 4.2 3.6 4.5 3.0 PPG debt service-to-revenue ratio (in percent) 8.8 7.4 8.8 18.3 15.2 11.4 8.4 6.5 5.7 7.3 6.4 Total gross financing need (Billions of U.S. dollars) -3.3 2.4 1.3 3.3 4.3 3.3 1.9 1.8 1.2 2.3 -3.1 Non-interest current account deficit that stabilizes debt ratio -0.1 1.5 0.7 0.9 0.1 0.2 0.0 0.3 0.3 1.5 1.0 15 Key macroeconomic assumptions Real GDP growth (in percent) 6.1 6.7 6.3 6.2 0.4 5.8 6.4 7.0 7.1 7.2 7.3 6.8 6.6 6.0 6.4 GDP deflator in US dollar terms (change in percent) 5.9 4.5 -2.8 3.0 4.1 4.8 1.8 1.8 1.8 1.8 1.7 2.3 1.6 1.6 1.6 Effective interest rate (percent) 5/ 1.1 0.9 1.5 1.1 0.2 2.2 2.1 2.0 1.9 1.9 2.1 2.0 2.4 2.5 2.4 Growth of exports of G&S (US dollar terms, in percent) 7.5 34.5 6.0 14.9 8.5 5.1 8.4 12.5 11.3 12.3 10.9 10.1 11.0 11.1 11.1 Growth of imports of G&S (US dollar terms, in percent) 5.7 50.0 2.7 16.5 14.0 4.9 12.3 11.3 9.6 12.7 10.2 10.1 10.2 9.6 9.8 Grant element of new public sector borrowing (in percent) ... ... ... ... ... 21.1 18.5 17.4 17.3 6.3 7.8 14.7 17.7 17.3 15.8 Government revenues (excluding grants, in percent of GDP) 10.9 11.7 12.4 13.3 13.9 14.5 15.0 15.2 15.5 16.5 17.1 16.6 Aid flows (in Billions of US dollars) 7/ 2.2 1.3 2.3 1.3 1.6 1.6 1.6 1.3 1.3 1.7 2.9 of which: Grants 0.6 0.3 0.6 0.7 0.7 0.7 0.7 0.7 0.7 0.8 1.2 of which: Concessional loans 1.6 1.1 1.7 0.6 0.9 0.9 0.9 0.6 0.6 0.9 1.7 Grant-equivalent financing (in percent of GDP) 8/ ... ... ... 1.0 1.0 1.0 0.9 0.6 0.6 0.6 0.4 0.5 Grant-equivalent financing (in percent of external financing) 8/ ... ... ... 37.0 30.9 29.0 28.8 17.9 19.5 28.8 26.5 25.9 Memorandum items: Nominal GDP (Billions of US dollars) 100.4 111.9 115.6 128.2 138.8 151.2 164.8 179.8 196.1 299.1 630.1 Nominal dollar GDP growth 12.3 11.5 3.3 10.9 8.3 8.9 9.0 9.1 9.1 9.2 8.3 7.7 8.1 PV of PPG external debt (in Billions of US dollars) 17.0 18.0 20.0 22.4 25.0 28.6 32.3 48.3 77.6 (PVt-PVt-1)/GDPt-1 (in percent) 0.9 1.5 1.8 1.7 2.2 2.1 1.7 0.8 0.5 0.9 Gross workers' remittances (Billions of US dollars) 11.0 11.7 12.8 14.6 15.9 17.5 19.2 21.1 23.0 33.2 59.5 PV of PPG external debt (in percent of GDP + remittances) ... ... 13.7 12.8 13.2 13.6 13.8 14.4 15.0 14.7 10.8 PV of PPG external debt (in percent of exports + remittances) ... ... 44.4 42.7 44.1 44.3 44.4 45.4 46.5 43.3 25.9 Debt service of PPG external debt (in percent of exports + remittances) ... ... 3.2 7.3 6.4 4.8 3.6 2.8 2.4 3.2 2.4 Sources: Bangladesh authorities; and 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 refers to fiscal years. For example, 2012 refers to July 2011-June 2012. 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).