88875 INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND GHANA Joint Bank-Fund Debt Sustainability Analysis 2014 Update Prepared jointly by the staffs of the International Development Association and the International Monetary Fund Approved by Marcelo Giugale and Jeffrey D. Lewis (IDA) and Michael Atingi-Ego and Mark Joseph Flanagan (IMF) April 21, 2014 Based on an assessment of external public debt indicators, Ghana still faces a moderate risk of debt distress, but overall debt vulnerabilities have increased, and Ghana’s debt service-to-revenue ratio is approaching high-risk levels. Driven by loose fiscal policy, deteriorating financing terms and external pressures, several of Ghana’s public domestic and external debt indicators have deteriorated. Assuming fiscal policies are implemented as planned, total public debt is projected to hover around 55 to 60 percent of GDP, with rising debt service absorbing more than 40 percent of government revenue in the long run. The external debt service-to-revenue ratio temporarily breaches and subsequently stays close to its indicative threshold in the long term. Additional consolidation measures of about 2 percent of GDP in 2014, combined with a more ambitious medium-term adjustment, would greatly reduce the risk of worsening debt and debt service indicators. 2 I. KEY ASSUMPTIONS UNDER THE BASELINE SCENARIO 1. Macroeconomic assumptions are broadly in line with those in the 2013 DSA, with deviations mainly related to the projection of oil production and Table 1. Key Macroeconomic Assumptions higher cost of borrowing (Box 1, 2013 2014 2014-19 2020-33 Real Growth (annual percentage change) Tables 1–2). Revisions reflect: (i) DSA-2013 7.9 6.1 5.8 5.3 updated information on the timing of DSA-2014 5.4 4.8 6.1 4.7 oil production; (ii) an associated Inflation (GDP deflator) (annual percentage change) upward revision in real growth for DSA-2013 13.7 12.8 9.6 6.9 the medium term and lower growth DSA-2014 12.3 13.1 10.2 6.8 subsequently; and (iii) higher cost of Real interest Rate (foreign debt) (percent) borrowing, consistent with current DSA-2013 1.6 1.1 1.7 3.7 DSA-2014 3.0 2.4 2.6 3.8 lending conditions and projected Current account balance (in percent of GDP) rising world interest rates in the DSA-2013 -11.9 -9.1 -8.3 -6.0 medium term. As projections on DSA-2014 -13.2 -10.6 -7.7 -6.0 future oil discoveries and gas Primary fiscal balance (in percent of GDP) production are not available (and DSA-2013 -6.5 -5.1 -2.6 -0.4 thus, not captured), the growth DSA-2014 -5.6 -3.6 -0.9 -0.3 projections are conservative. 2. The projected debt dynamics are, however, contingent on successful fiscal consolidation. The baseline assumes fiscal consolidation that is consistent with the authorities’ 2014 nominal budget targets and stated policies, but a more conservative growth outlook and higher interest payments. This implies a gradual reduction in the fiscal deficit to 7½ percent of GDP in 2016, with subsequent changes driven primarily by the profile for oil revenue. II. EXTERNAL AND PUBLIC DEBT SUSTAINABILITY A. External Debt Sustainability Analysis Baseline scenario 3. Ghana’s external debt indicators are broadly in line with the 2013 DSA, with PV indicators moderated by a change in the discount rate (Table 3 and Figure A1). The deterioration in the PV of debt stock indicators compared to last year’s assessment was mitigated by an increase in the discount rate 3 Box 1. Baseline Macroeconomic Assumptions Real GDP-growth: While still solid, real growth has declined to a projected 5½ percent in 2013, due to disruptions in power supply from the West African Gas Pipeline in the first half of the year, crowding out from high real interest rates, higher import costs due to the depreciation, and falling gold production related to the drop in world prices. In 2014-15, growth is projected to remain at this more moderate level until production from new oil fields boosts output in 2016. In the long run, real growth is assumed to stabilize at 4¾ percent, with new oil discoveries and the associated gas production implying significant upside potential. Inflation: Inflation overshot the end of the year target range of 9+/-2 percent (end-year CPI inflation was 13.5 percent, partly due to large increases in utility prices), and is projected to remain at this elevated level in 2014. Supported by an improvement in the policy mix, inflation is expected to decline in the medium run, with the GDP deflator stabilizing at 6¾ percent in 2020–2033. Government balances: The overall fiscal balance fell only slightly to an estimated 10.9 percent of GDP in 2013, with interest expenditures amounting to some 5 percent of GDP. Based on the government’s policy pronouncements and updated macro-projections, including lower growth and higher interest rates than assumed in the budget, the deficit is expected to stay above 10 percent of GDP in 2014 (primary deficit of 3½ percent). Increased revenues from the production of oil and further consolidation in 2015 and 2016 would balance primary expenditures and revenues in the medium to long term. Current account balance: On the back of a higher fiscal deficit, declining gold and cocoa prices and large oil imports due to electricity disruptions in the first half of the year, the 2013 current account deficit rose above 13 percent of GDP. Owing to weak terms of trade, the deficit is expected to remain above 10 percent of GDP in 2014 and elevated until 2015. With increased oil production, the deficit is projected to decline to about 7 percent of GDP by 2017 and to fall gradually to about 4 percent of GDP in the long run, broadly in line with its optimal level according to staff’s external balance assessment. Reserves would build up to about 4 months of imports in the long run, consistent with the government’s own medium-term target. Financing flows: While still significant, FDI is estimated to have declined to about 7¼ percent of GDP in 2013. Driven by the discovery of new fields, FDI is projected to stay close to 7½ percent of GDP until 2018, and then to gradually decline to 4 percent of GDP in the long run. Consistent with Ghana’s improving income status and wealth, inflows from grants are projected to decline to less than ½ percent of GDP in the medium to long term. Table 2. Official Borrowing Assumptions (in Millions of U.S. Borrowing is projected to Dollars) 2014 2015 2016 2017 2018 2019 become increasingly Disbursements nonconcessional, with rates Multilateral 365 518 596 380 361 343 for external commercial Bilateral 231 474 545 339 339 339 borrowing revised upwards Commercial 1131 963 1403 2178 1822 1532 by 1 percentage point of which: CDB 525 567 567 395 400 0 compared to the last DSA. Total 1955 2543 2897 2522 2214 2371 4 from 3 to 5 percent.1 Export related indicators improve related to the update in the oil production profile. Most importantly, the debt service-to- Table 3. Indicators of External Debt revenue indicator deteriorates compared to the last Vulnerabilities (Baseline) assessment due to expected rising costs of 2018 2024 2033 external commercial borrowing (1 percentage PV of debt-to-GDP ratio DSA-2013 26 29 24 point above the assumptions in the last DSA), the DSA-2014 32 29 23 issuance of the 2013 Eurobond, and the Threshold 50 50 50 weakening of the cedi. PV of debt-to-exports ratio DSA-2013 83 96 76 DSA-2014 70 71 56 4. The external debt service-to-revenue Threshold 200 200 200 ratio breaches its indicative threshold PV of debt-to-revenue ratio temporarily in the long term, but a probability DSA-2013 121 137 110 approach confirms that the breach is not DSA-2014 134 134 112 Threshold 300 300 300 significant (Figure A2). Without assuming measures to smooth the amortization of the 2013 Debt service-to-exports ratio DSA-2013 6 14 14 Eurobond, the 2023 bullet repayment results in a DSA-2014 7 11 11 breach in the indicative external debt service-to- Threshold 25 25 25 revenue ratio. Issuance of another Eurobond in Debt service-to-revenue ratio 2014 would lead to a breach in two consecutive DSA-2013 9 19 20 years in the absence of measures to smooth the DSA-2014 13 20 22 amortization profile, and to a possibly more Threshold 22 22 22 sustained breach of the same threshold towards the end of the projection period. A complementary probability approach, which assesses Ghana’s external debt sustainability based on an indicative threshold derived from Ghana’s own institutional and growth characteristics, suggests that this breach is minor and temporary (1 year). Thus, the breach, which could be smoothed out in the course of the next 10 years, does not warrant a change in Ghana’s assessed risk of debt distress, but is nonetheless indicative of the longer-term perils of continued resorting to market financing to finance recurrent fiscal deficits. Standard stress tests 5. Standard stress tests confirm a moderate risk of debt distress (Figure A1 and A2, Table 3A). All three stock indicators as well as the external debt service-to-export ratio remain under their respective thresholds even under the standardized stress tests. However, the external debt service to- revenue-ratio—temporarily breaching its threshold level in the baseline scenario—increases to above 30 percent under the most extreme shock which constitutes a one-time 30 percent real depreciation relative to the baseline in 2015. While having a more moderate impact, standardized shocks to non- 1 The discount rate was increased to 5 percent as of October 2013. 5 debt creating flows, growth, or financing conditions would also imply breaches of the debt service-to- revenue threshold. B. Public Debt Sustainability Analysis Baseline scenario 6. Additional risks arise from the Table 4. Indicators of Public Debt Vulnerabilities high level and rising trend of domestic (Baseline) 2018 2024 2033 debt, as indicated by the total public PV of debt-to-GDP ratio debt dynamics (Table 4, Figure A3). DSA-2013 53 56 52 Despite the upward revision in the DSA-2014 56 54 54 discount rate to 5 percent, stock indicators Benchmark 74 74 74 of public debt are still close to the 2013 PV of debt-to-revenue ratio assessment levels. However, owing to DSA-2013 240 257 243 deteriorated domestic and external DSA-2014 235 248 270 borrowing conditions, and in line with the external debt sustainability assessment, the Debt service to revenue ratio DSA-2013 29 38 40 total public debt service-to-revenue ratio DSA-2014 35 38 45 (including payments on external and domestic debt) has deteriorated. It is now projected to increase to 45 percent in the long run, thus absorbing a large part of revenues and leaving the country vulnerable to shocks. Stress tests and customized scenario 7. Fiscal policy will have to be tighter than in the past to prevent unsustainable debt dynamics (Figure A3, Table A4). Fixing the primary balance at its 2013 level, or growth and the primary balance at 10-year historical averages, confirms that the historical fiscal stance would not be sustainable in the long run; the PV of public debt-to-GDP ratio would be quickly approaching the benchmark (set at 74 percent for strong policy performers), and debt service would soon absorb most of revenues. Consistent with the results of the external debt sustainability analysis, a one-time 30 percent real depreciation in 2015, relative to the baseline, is the most extreme shock. It would set the debt service-to-revenue ratio on a rapidly increasing path, in the absence of corrective policy measures. The standardized shock to other debt creating flows captures contingent liabilities that could arise from SOE or other potential claims that have not been identified. Any potential financial sector contingent liabilities would also be subsumed in such a standardized shock. This shock would shift debt ratios upwards, but not change the dynamics. 8. Further consolidation of about 2 percentage points of GDP in 2014, combined with a more ambitious medium-term adjustment, would set the debt dynamics on a more favorable path (Figure 1). The additional fiscal adjustment would set off a virtuous cycle where lower fiscal deficits and falling interest rates would create room for higher social and infrastructure spending, a reduction in tax rates, and a crowding in of private sector activity. As a result, growth would be higher, 6 the public debt ratio would decline, and debt service would fall below 30 percent of revenue in the long run. Figure 1. Public Debt Vulnerabilities (Active Scenario) Public Debt-to-GDP Ratio Public Debt Service-to-Revenue Ratio 75 55 65 45 55 45 35 35 25 baseline baseline 25 alternative alternative 15 15 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 III. CONCLUSIONS 9. Ghana’s public debt situation has worsened since the last DSA. The updated assessment suggests that the risk of distress, while remaining moderate based on an assessment of external public debt, has increased, and Ghana’s debt service-to-revenue ratio is approaching high-risk levels. The analysis does not include the liabilities of the central bank—some of which result from the need to sterilize government financing operations—nor the debt of public enterprises that is not guaranteed by the government. Hence, risks could be heightened further, as a result of these institutions’ liabilities. 10. Robust growth and fiscal consolidation are essential to maintaining a moderate debt distress rating. Under the baseline, which incorporates the authorities’ gradual adjustment plans together with staff’s more conservative growth assumptions, the PV of public debt is expected to hover around a still high level of 54 percent of GDP, and the total public debt service-to-revenue ratio is projected to increase above 45 percent in the long run. Additional fiscal adjustment could set these indicators on a more favorable path. 11. The authorities agreed with the thrust of the analysis, but deemed staff’s macroeconomic projections too pessimistic. In particular, they stressed that the growth outturn for 2013 is likely to be revised upward and saw stronger economic growth also for 2014. 7 Figure A1. Indicators of Public and Publicly Guaranteed External Debt under Different Scenarios, 2013–2033 1/ a. Debt Accumulation b.PV of debt-to GDP ratio 4 15 60 4 10 50 3 3 5 2 40 2 0 30 1 -5 1 20 0 -10 -1 2014 2019 2024 2029 2034 10 -1 -15 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 ratio d.PV of debt-to-revenue ratio 250 350 300 200 250 150 200 150 100 100 50 50 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 e.Debt service-to-exports ratio f .Debt service-to-revenue ratio 30 40 35 25 30 20 25 15 20 15 10 10 5 5 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 Baseline Historical scenario Most extreme shock 1/ Threshold Sources: Country authorities; and 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 Exports shock; in d. to a One-time depreciation shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock 8 Figure A2. Probability of Debt Distress of Public and Publicly Guaranteed External Debt under Different Scenarios, 2013–2033 1/ a. Debt Accumulation b.PV of debt-to GDP ratio 4 15 16 10 14 3 12 5 2 10 0 8 1 -5 6 0 -10 4 2014 2019 2024 2029 2034 -1 -15 2 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 ratio d.PV of debt-to-revenue ratio 14 16 12 14 12 10 10 8 8 6 6 4 4 2 2 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 e.Debt service-to-exports ratio f .Debt service-to-revenue ratio 16 35 14 30 12 25 10 20 8 15 6 10 4 5 2 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 Baseline Historical scenario Most extreme shock One-time depreciation Threshold Sources: Country authorities; and 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 Exports shock; in d. to a One-time depreciation shock; and in e. to an Exports shock and in f. to a One-time depreciation shock 9 Figure A3. Indicators of Public Debt under Different Scenarios, 2013–2033 1/ Baseline Fix Primary Balance Most extreme shock 1/ Historical scenario Public debt benchmark 140 120 PV of Debt-to-GDP Ratio 100 80 60 40 20 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 700 PV of Debt-to-Revenue Ratio 2/ 600 500 400 300 200 100 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 120 Debt Service-to-Revenue Ratio 100 80 60 40 20 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Sources: Country authorities; and 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. 10 Table A1. External Debt Sustainability Framework, Baseline Scenario, 2010–2033 1/ (In percent of GDP, unless otherwise indicated) Actual Historical 6/ Standard 6/ Projections Average Deviation 2014-2019 2020-2034 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average 2024 2034 Average External debt (nominal) 1/ 25.6 26.1 31.4 35.9 35.6 36.6 36.6 36.2 35.7 35.4 31.9 of which: public and publicly guaranteed (PPG) 19.7 22.6 25.6 32.3 33.8 35.9 35.7 35.4 34.9 32.4 24.5 Change in external debt -0.4 0.5 5.3 4.5 -0.4 1.0 0.0 -0.3 -0.6 -0.4 -0.2 Identified net debt-creating flows -3.6 3.0 3.7 1.4 -1.6 -2.8 -3.1 -3.0 -1.1 -0.5 -2.5 Non-interest current account deficit 8.6 11.5 12.3 8.2 2.9 9.5 6.5 5.9 5.3 5.2 5.0 5.0 1.5 4.1 Deficit in balance of goods and services 12.7 12.9 14.6 12.3 8.8 8.4 7.5 7.1 6.9 6.6 2.7 Exports 37.7 41.6 36.3 41.8 42.8 45.9 45.8 45.1 42.7 40.3 41.2 Imports 50.3 54.4 50.9 54.1 51.6 54.3 53.2 52.3 49.6 46.8 43.9 Net current transfers (negative = inflow) -6.7 -5.9 -4.4 -7.7 1.7 -4.6 -4.1 -4.1 -3.7 -3.3 -3.1 -2.1 -0.2 -1.6 of which: official -0.6 -0.6 -0.2 -0.4 -0.1 -0.1 -0.1 0.0 0.0 0.0 0.0 Other current account flows (negative = net inflow) 2.6 4.6 2.1 1.8 1.8 1.6 1.5 1.4 1.3 0.5 -1.0 Net FDI (negative = inflow) -8.3 -8.1 -7.3 -5.8 3.5 -7.5 -7.5 -7.5 -7.5 -7.5 -6.5 -5.6 -4.0 -4.9 Endogenous debt dynamics 2/ -3.8 -0.4 -1.3 -0.6 -0.6 -1.3 -0.9 -0.7 0.4 0.1 0.0 Contribution from nominal interest rate 0.6 0.7 0.9 1.1 1.3 1.5 1.6 1.5 1.7 1.7 1.6 Contribution from real GDP growth -3.2 -1.9 -1.3 -1.7 -1.9 -2.7 -2.5 -2.2 -1.3 -1.6 -1.6 Contribution from price and exchange rate changes -1.2 0.9 -0.9 -1.3 -0.7 -0.3 -1.1 -0.6 -0.9 -0.7 ... Residual (3-4) 3/ 3.2 -2.5 1.6 3.1 1.2 3.9 3.1 2.7 0.5 0.1 2.3 0.4 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/ ... ... 29.7 32.0 33.1 32.1 32.5 32.5 32.0 31.7 29.8 In percent of exports ... ... 81.7 76.4 77.3 69.9 71.0 71.9 75.0 78.8 72.3 PV of PPG external debt ... ... 23.9 28.3 31.4 31.4 31.6 31.7 31.3 28.7 22.4 In percent of exports ... ... 65.9 67.8 73.3 68.5 69.2 70.1 73.4 71.3 54.4 In percent of government revenues ... ... 134.8 142.4 157.6 154.3 138.3 134.1 134.7 133.6 112.5 Debt service-to-exports ratio (in percent) 6.1 6.5 9.9 8.9 9.2 8.5 9.6 7.3 8.5 11.9 13.7 PPG debt service-to-exports ratio (in percent) 3.2 3.5 8.1 5.8 7.6 7.8 9.4 6.9 8.1 10.7 10.5 PPG debt service-to-revenue ratio (in percent) 6.9 8.2 16.6 12.1 16.4 17.6 18.7 13.3 14.9 20.1 21.7 Total gross financing need (Millions of U.S. dollars) 987 2447 3784 2224 1196 1013 1040 511 1221 3245 4839 Non-interest current account deficit that stabilizes debt ratio 9.0 11.0 7.0 5.0 6.8 4.9 5.3 5.5 5.6 5.4 1.7 4.3 Key macroeconomic assumptions Real GDP growth (in percent) 15.0 7.9 5.4 7.3 3.0 4.8 5.4 8.1 7.5 6.8 3.8 6.1 4.7 5.4 4.8 GDP deflator in US dollar terms (change in percent) 4.7 -3.3 3.7 7.5 10.3 -15.9 -1.2 -2.5 3.4 3.8 3.8 -1.4 2.5 2.0 2.1 Effective interest rate (percent) 5/ 2.7 2.7 3.9 2.5 0.7 3.2 3.7 4.3 4.9 4.6 5.0 4.3 5.1 5.3 5.3 Growth of exports of G&S (US dollar terms, in percent) 54.7 15.1 -4.4 18.4 15.7 1.4 6.7 13.0 10.7 9.3 1.9 7.2 6.1 8.9 6.7 Growth of imports of G&S (US dollar terms, in percent) 39.4 12.8 2.3 19.3 14.9 -6.4 -0.5 10.8 8.9 8.9 2.2 4.0 6.4 6.9 6.1 Grant element of new public sector borrowing (in percent) ... ... ... ... ... 7.3 12.8 8.8 -2.3 -0.6 -1.6 4.1 -5.8 -11.9 -8.1 Government revenues (excluding grants, in percent of GDP) 17.3 17.7 17.8 19.9 19.9 20.4 22.9 23.6 23.2 21.5 19.9 21.2 Aid flows (in Millions of US dollars) 7/ 784.1 641.8 223.5 798.5 864.0 834.5 677.0 644.5 553.0 263.4 115.9 of which: Grants 784.1 641.8 223.5 514.0 543.3 473.8 451.4 430.2 349.4 105.9 11.4 Grant-equivalent financing (in percent of GDP) 8/ ... ... ... 1.6 2.0 1.6 0.8 0.8 0.6 -0.1 -0.5 -0.2 Grant-equivalent financing (in percent of external financing) 8/ ... ... ... 28.6 31.8 23.1 11.5 14.0 12.2 -2.3 -11.7 -5.4 Memorandum items: Nominal GDP (Millions of US dollars) 38752 40436 44223 38944 40561 42756 47528 52661 56749 78101 155146 Nominal dollar GDP growth 20.4 4.3 9.4 -11.9 4.2 5.4 11.2 10.8 7.8 4.6 7.3 7.6 6.9 PV of PPG external debt (in Millions of US dollars) 9583 10772 11692 13062 14643 16264 17355 22197 33982 (PVt-PVt-1)/GDPt-1 (in percent) 2.7 2.4 3.4 3.7 3.4 2.1 2.9 1.3 1.2 1.2 Gross workers' remittances (Millions of US dollars) 1942 1760 1524 1341 1330 1402 1402 1424 1442 1344.4 275.0 PV of PPG external debt (in percent of GDP + remittances) ... ... 23.1 27.4 30.4 30.4 30.7 30.8 30.5 28.2 22.3 PV of PPG external debt (in percent of exports + remittances) ... ... 60.2 62.6 68.1 63.9 65.0 66.1 69.2 68.4 54.1 Debt service of PPG external debt (in percent of exports + remittanc ... ... 7.4 5.3 7.1 7.3 8.8 6.5 7.7 10.3 10.4 Sources: Country authorities; and staff estimates and projections. Ja ua y 00 1/ Includes both public and private sector external debt. 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). 11 Table A2. Public Sector Debt Sustainability Framework, Baseline Scenario, 2010–2033 (In percent of GDP, unless otherwise indicated) Actual Estimate Projections 5/ Standard 5/ 2014-19 2020-34 Average 2011 2012 2013 Deviation 2014 2015 2016 2017 2018 2019 Average 2024 2034 Average Public sector debt 1/ 42.5 51.2 57.4 64.2 67.2 68.1 63.9 60.9 59.6 57.3 55.9 of which: foreign-currency denominated 19.7 22.6 25.6 32.3 33.8 35.9 35.7 35.4 34.9 32.4 24.5 Public sector debt, exscluding domestic arrears 39.5 48.0 54.3 63.7 67.2 68.1 63.9 60.9 59.6 57.3 55.9 Change in public sector debt -3.2 8.7 6.2 6.8 3.0 0.9 -4.2 -3.0 -1.3 0.2 -0.1 Identified debt-creating flows -3.9 6.5 5.9 6.5 5.2 -1.2 -3.5 -3.2 -1.5 -0.6 -0.1 Primary deficit 1.3 8.8 5.6 4.1 2.6 3.6 2.7 1.5 -0.8 -0.9 -1.0 0.9 0.6 0.6 0.3 Revenue and grants 19.3 19.3 18.3 21.2 21.3 21.5 23.8 24.4 23.9 21.6 19.9 of which: grants 2.0 1.6 0.5 1.3 1.3 1.1 0.9 0.8 0.6 0.1 0.0 Primary (noninterest) expenditure 20.6 28.1 23.9 24.8 24.0 23.0 23.1 23.5 22.9 22.2 20.5 Automatic debt dynamics -6.1 -2.2 0.3 2.9 2.6 -2.7 -2.7 -2.3 -0.5 -1.2 -0.8 Contribution from interest rate/growth differential -6.1 -2.8 -0.6 -0.1 -0.4 -2.3 -2.1 -1.6 0.1 -0.4 -0.8 of which: contribution from average real interest rate -0.2 0.3 2.0 2.5 2.9 2.8 2.6 2.4 2.4 2.2 2.1 of which: contribution from real GDP growth -6.0 -3.1 -2.6 -2.6 -3.3 -5.0 -4.7 -4.0 -2.2 -2.6 -2.9 Contribution from real exchange rate depreciation 0.1 0.6 0.9 3.0 3.0 -0.4 -0.5 -0.6 -0.6 ... ... Other identified debt-creating flows 0.8 -0.1 0.0 -0.1 -0.1 -0.1 -0.1 -0.1 0.0 0.0 0.0 Privatization receipts (negative) 1.0 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) -0.2 -0.1 0.0 -0.1 -0.1 -0.1 -0.1 -0.1 0.0 0.0 0.0 Other (specify, e.g. bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual, including asset changes 0.8 2.2 0.3 0.4 -2.2 2.1 -0.7 0.3 0.2 0.8 0.0 Other Sustainability Indicators PV of public sector debt ... ... 55.7 60.3 64.8 63.6 59.8 57.2 56.0 53.6 53.7 of which: foreign-currency denominated ... ... 23.9 28.3 31.4 31.4 31.6 31.7 31.3 28.7 22.4 of which: external ... ... 23.9 28.3 31.4 31.4 31.6 31.7 31.3 28.7 22.4 PV of contingent liabilities (not included in public sector debt) ... ... ... ... ... ... ... ... ... ... ... Gross financing need 2/ 11.3 18.9 20.8 20.2 22.5 21.5 19.1 16.0 15.2 16.3 19.2 PV of public sector debt-to-revenue and grants ratio (in percent) … … 305.0 284.1 304.6 296.1 250.9 234.0 234.6 247.7 269.8 PV of public sector debt-to-revenue ratio (in percent) … … 313.6 302.9 325.1 312.2 261.3 242.1 240.8 249.3 269.9 of which: external 3/ … … 134.8 142.4 157.6 154.3 138.3 134.1 134.7 133.6 112.5 Debt service-to-revenue and grants ratio (in percent) 4/ 25.4 28.1 50.1 46.7 48.3 46.8 43.2 34.8 34.8 38.3 44.8 Debt service-to-revenue ratio (in percent) 4/ 28.4 30.6 51.5 49.8 51.6 49.4 45.0 36.0 35.8 38.5 44.8 Primary deficit that stabilizes the debt-to-GDP ratio 4.5 0.1 -0.6 -3.2 -0.3 0.7 3.5 2.0 0.3 0.4 0.8 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 15.0 7.9 5.4 7.3 3.0 4.8 5.4 8.1 7.5 6.8 3.8 6.1 4.7 5.4 4.8 Average nominal interest rate on forex debt (in percent) 3.6 2.9 4.5 1.1 1.8 3.9 4.1 4.5 4.9 4.7 5.1 4.5 5.5 6.8 6.0 Average real interest rate on domestic debt (in percent) -1.9 0.5 5.2 -0.6 4.3 6.5 7.2 6.4 5.5 5.9 5.5 6.2 5.0 3.4 4.0 Real exchange rate depreciation (in percent, + indicates depreciation 0.4 3.0 3.9 -3.6 7.7 12.0 9.5 -1.2 -1.6 -1.8 -1.7 2.5 -2.4 0.0 0.0 Inflation rate (GDP deflator, in percent) 13.0 13.3 12.3 16.2 5.0 13.1 11.2 9.4 9.4 9.3 9.0 10.2 6.8 6.6 6.8 Growth of real primary spending (deflated by GDP deflator, in percen 0.1 0.5 -0.1 0.1 0.2 0.1 0.0 0.0 0.1 0.1 0.0 0.1 0.1 0.0 0.0 Grant element of new external borrowing (in percent) ... ... ... … … 7.3 12.8 8.8 -2.3 -0.6 -1.6 4.1 -5.8 -11.9 ... Sources: Country authorities; and staff estimates and projections. 1/ [Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.] 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. 12 Table A3. Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2013–2033 Projections 2014 2015 2016 2017 2018 2019 2024 2034 PV of debt-to GDP ratio Baseline 28 31 31 32 32 31 29 22 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 28 33 35 39 43 44 42 33 A2. New public sector loans on less favorable terms in 2014-2034 /2 28 30 33 34 35 35 37 37 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 28 29 32 32 32 32 30 23 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 28 31 39 39 38 37 33 23 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 28 29 31 31 32 31 29 22 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 28 33 38 38 38 37 32 23 B5. Combination of B1-B4 using one-half standard deviation shocks 28 26 27 27 27 27 26 20 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 28 41 44 44 44 44 41 31 PV of debt-to-exports ratio Baseline 68 73 68 69 70 73 71 54 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 68 76 76 86 95 103 105 81 A2. New public sector loans on less favorable terms in 2014-2034 /2 68 71 73 75 78 83 91 89 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 68 67 67 67 68 72 71 53 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 68 74 97 97 97 100 92 63 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 68 67 67 67 68 72 71 53 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 68 76 83 83 83 86 80 55 B5. Combination of B1-B4 using one-half standard deviation shocks 68 62 61 62 63 67 67 52 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 68 67 67 67 68 72 71 53 PV of debt-to-revenue ratio Baseline 142 158 154 138 134 135 134 112 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 142 164 170 171 182 188 197 168 A2. New public sector loans on less favorable terms in 2014-2034 /2 142 152 164 150 149 152 170 184 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 142 146 157 141 137 138 139 115 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 142 154 191 170 163 161 151 114 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 142 147 153 138 134 134 135 112 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 142 164 187 166 159 158 149 113 B5. Combination of B1-B4 using one-half standard deviation shocks 142 132 131 118 115 117 120 102 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 142 208 215 193 188 189 190 158 13 Table A3. Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2013–2033 (continued) Debt service-to-exports ratio Baseline 6 8 8 9 7 8 11 10 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 6 7 7 8 7 9 13 9 A2. New public sector loans on less favorable terms in 2014-2034 /2 6 8 7 8 6 7 11 17 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 6 8 8 9 7 8 11 10 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 6 8 9 12 9 12 15 12 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 6 8 8 9 7 8 11 10 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 6 8 8 10 8 10 13 11 B5. Combination of B1-B4 using one-half standard deviation shocks 6 7 8 9 6 7 10 10 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 6 8 8 9 7 8 11 10 Debt service-to-revenue ratio Baseline 12 16 18 19 13 15 20 22 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 12 15 16 17 14 17 24 19 A2. New public sector loans on less favorable terms in 2014-2034 /2 12 16 16 17 11 13 20 34 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 12 17 18 20 14 16 21 23 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 12 16 18 21 16 19 24 23 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 12 17 18 19 14 15 21 22 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 12 16 19 21 16 19 23 22 B5. Combination of B1-B4 using one-half standard deviation shocks 12 16 16 17 12 13 18 20 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 12 23 25 27 19 21 29 31 Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) 6/ -14 -14 -14 -14 -14 -14 -14 -14 Sources: Country 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/ 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 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. 14 Table A4. Sensitivity Analysis for Key Indicators of Public Debt, 2013–2033 Projections 2014 2015 2016 2017 2018 2019 2023 2024 2034 PV of Debt-to-GDP Ratio Baseline 60 65 64 60 57 56 54 54 54 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 60 65 67 69 71 73 84 85 107 A2. Primary balance is unchanged from 2014 60 66 67 68 70 74 90 93 129 A3. Permanently lower GDP growth 1/ 60 65 65 62 60 60 65 66 95 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-20 60 66 68 65 64 64 67 68 80 B2. Primary balance is at historical average minus one standard deviations in 2015-201 60 69 74 70 67 66 64 64 64 B3. Combination of B1-B2 using one half standard deviation shocks 60 68 72 69 66 66 66 66 71 B4. One-time 30 percent real depreciation in 2015 60 83 80 76 74 74 78 78 100 B5. 10 percent of GDP increase in other debt-creating flows in 2015 60 76 74 70 68 66 65 64 65 PV of Debt-to-Revenue Ratio 2/ Baseline 284 305 296 251 234 235 246 248 270 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 284 307 314 289 292 308 382 392 537 A2. Primary balance is unchanged from 2014 284 309 312 285 287 310 412 429 650 A3. Permanently lower GDP growth 1/ 284 307 302 260 247 253 296 307 479 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-20 284 309 317 274 261 268 306 313 399 B2. Primary balance is at historical average minus one standard deviations in 2015-201 284 325 343 292 274 275 292 294 322 B3. Combination of B1-B2 using one half standard deviation shocks 284 318 335 287 271 275 300 304 355 B4. One-time 30 percent real depreciation in 2015 284 392 374 320 303 308 356 362 502 B5. 10 percent of GDP increase in other debt-creating flows in 2015 284 356 346 296 277 278 296 298 326 Debt Service-to-Revenue Ratio 2/ Baseline 47 48 47 43 35 35 44 38 45 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 47 48 47 45 40 43 61 58 86 A2. Primary balance is unchanged from 2014 47 48 47 45 39 44 67 64 105 A3. Permanently lower GDP growth 1/ 47 49 47 44 36 37 51 46 76 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-20 47 49 49 46 38 39 53 47 65 B2. Primary balance is at historical average minus one standard deviations in 2015-201 47 48 49 50 43 41 51 46 53 B3. Combination of B1-B2 using one half standard deviation shocks 47 48 49 49 41 40 52 47 59 B4. One-time 30 percent real depreciation in 2015 47 53 57 55 46 48 71 64 98 B5. 10 percent of GDP increase in other debt-creating flows in 2015 47 48 51 54 40 42 52 46 54 Sources: Country 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.