Highly Indebted Poor Countries Research Articles

Do debt relief and fiscal rules improve public debt sustainability? The experience of sub-Sahara African countries

The sub-Sahara African (SSA) region accounts for 33 of the 39 Highly Indebted Poor Countries (HIPCs) with many of these countries facing challenges in public debt management. This paper examines issues that are key to improving the debt situation in the region. Specifically, the study investigates two key questions namely whether the adoption of fiscal rules and debt relief improve public debt sustainability. What factors reduce the public debt of SSA countries? Interestingly, the findings reveal that while debt relief improves debt sustainability, the imposition of fiscal rules threatens the debt sustainability of the region. Further, higher economic growth and increasing government balance are instrumental to reducing public debt. These findings have far-reaching policy implications for public debt management in developing countries.

External Debt Default and Foreign Direct Investments

Abstract We analyze the effect of a country’s defaults and restructuring its’ official and private external debt on its ability to attract foreign direct investment. We use different types of foreign direct investments: FDI Flows, Horizontal FDI, vertical FDI, cross-border mergers & acquisitions, and greenfield FDI. Using the Poisson-Pseudo Maximum Likelihood (PPML) estimation method, which has never been used in the literature to do a similar analysis, we find that external debt default decreases all types of FDIs. Furthermore, we also conduct a more granular sensitivity analysis by analyzing the effect of political risk ratings, effect on non-advanced economies, and effect on highly indebted poor countries (HIPC). We find that cross-border mergers and acquisitions (M&A) decrease as corruption risk decreases and increases as law and order improve. For HIPC countries, official external debt restructuring increases greenfield FDI. JEL classification number: C1, C33, D72, F21, H63, O57. Keywords: Debt Default, Restructuring, Foreign Direct Investment (FDI), External Debt, ICRG, Poisson-Pseudo Maximum Likelihood (PPML), Political Risk.

Towards a reconstructed society: Hope for a better today and tomorrow in a world of unstable economic systems and increasing poverty, with a focus on Zambia

The social value of this article is a demonstration of the impact of the Highly Indebted Poor Countries (HIPC) initiative on Zambia and how, in response, faith-based organisations had attempted to influence public economic policy for the betterment of 80% of Zambians who lived under the ‘poverty datum line’ and spent one U.S. dollar a day per capita by 2002, when compared to almost a decade earlier, and who experienced a reduction in life expectancy from 54 years in the late 1980s to 37 years in 2002. The knowledge gap which this article sought to narrow is a lack of adequate reflections on the role of faith-based organisations in addressing economic instability and increasing poverty among majority citizens. The methods used were mainly qualitative in nature, which examined both primary and secondary sources of data. The findings were that the situation of adverse social dislocation of the majority was unlikely to be any better in and beyond 2002. Experience showed that in the year 2005, the socio-economic situation of the majority was still pathetic.Intradisciplinary and/or interdisciplinary implications: This article sought to highlight the specific role which faith-based organisations played in the orientation of the state towards a ‘reconstructed society’ in Zambia. The paper challenged the view that socio-economic development matters are a preserve of development experts and politicians only. Instead, the paper argued that the path towards economic stability and prosperity called for the involvement of all stakeholders, including faith-based organisations.

Moderating effect of institutional quality on the external debt-economic growth nexus: Insights from highly indebted poor countries (HIPC)

Moderating effect of institutional quality on the external debt-economic growth nexus: Insights from highly indebted poor countries (HIPC)

Uganda\u2019s experience with debt and economic growth: an empirical analysis of the effect of public debt on economic growth\u20141980\u20132016

BackgroundEmpirical evidence on the effect of public debt on the economic growth of a country remains ambiguous. No theoretical convergence on the respective nexus has been attained. For the case of Uganda in particular, the public debt question remains critical in the country’s development trajectory. Under the Highly Indebted Poor Countries (HIPCs) initiative, Uganda was the first country to receive a debt relief of worth US$650 million in the 1990s and later in 2006, under the Multilateral Debt Relief Initiative (MDRI), the country generously received 100% debt forgiveness/cancelation which consequently reduced the stock of country’s debt to $1.6 billion. However, of recent, the debt stock has kept on increasing from UGX 14.257 trillion ($5.5 billion) in 2000 to the current UGX 35.3 trillion (9.8b) in July 2017 and it is projected to continue increasing in the short to medium term given the robust NDPII core projects and priorities which are set to attract more borrowing. The study employs the Auto Regressive Distributed Lag (ARDL)-bounds testing approach which is superior and suitable for our small sample.ResultsThe results reveal that public debt has a significant negative impact on economic growth in short run whereas in long-run debt has a mixed impact on Uganda’s economy. The total debt service has a negative impact whereas Gross debt as a share of GDP has a positive impact on the economy. The findings also reveal that Public debt has a negative effect on Uganda’s economic growth in the short run. The impact is however found to be positive in the long run. This result is in line with the study expectations and some findings by earlier researchers who found a negative impact of public debt on GDP and investment. The results suggest that the current trend of Uganda’s borrowing is to continue constraining the resources in the short run.ConclusionThe conclusion of the study in view of emerging findings especially on debt, various policy implications have emerged. At the current rate of borrowing, Uganda is likely to have deteriorating economic growth partly because such public borrowing adversely affects investment. The study thus recommends for policies geared toward efficient use of borrowed funds especially for such projects that have high potential to unlock the production capabilities of the country. There is a need for the government of Uganda to institute mechanisms to ensure efficient use of borrowed funds.

DEBT LAFFER CURVE ANALYSIS: A CASE STUDY OF HEAVILY INDEBTED POOR COUNTRIES

This study explores that whether the debt financing or debt forgiving would be suitable for the Highly Indebted Poor Countries (HIPCs). Debt Laffer curve theory has been tested in 21 HIPCs by applying price equation of debt, maximized value of debt and price elasticity approach over the period of 1980 to 2014. The maximized value of debt criterion implies that Chad is not eligible for the debt write-off strategy in comparison with the rest of the countries. By applying price elasticity approach, it is observed that only Burkina Faso, Cameroon, Chad, and Republic of Congo are eligible for debt financing while the remaining countries should adopt debt write-off facility. The crux of the study is that overall debt forgiveness is suitable for the HIPCs. Moreover, it is also in the favor of both the creditor countries and various international financial institutions such as World Bank and IMF and HIPCs itself. The study suggests that the creditors should continue to be financing along with improving structural policies and institutions of the HIPCs

Dış Borçların Sürdürülebilirliği: ECOWAS Ülkeleri Örneği

External debt sustainability is a pressing issue in developing countries, particularly for Highly Indebted Poor Countries (HIPC). The main purpose of this study is to investigate the sustainability of external debt in the Economic Community of West African States (ECOWAS). To test external debt sustainability, unit root test and Johansen & Juselius (1990) co-integration and panel unit root and panel cointegration tests are employed. The unit root tests show that the total external debt to export ratio is not stationary in all countries verifying the unsustainability of external debts. Further, co-integration tests results based on time series and panel data indicate that total external debt stock and export are not co-integrated suggesting that external debt is not sustainable in all countries. Based on our results some policy recommendations are proposed.

Uganda’s Experience with Debt and Economic Growth 'An Empirical Analysis of the Effects of Public Debt on Economic Growth- 1980-2016'

Background: Empirical evidence on the effect of public debt on the economic growth of a country remains ambiguous. No theoretical convergence on the respective nexus has been attained. For the case of Uganda in particular, the public debt question remains critical in the country’s development trajectory. Under the Highly Indebted Poor Countries (HIPCs) initiative, Uganda was the first country to receive a debt relief of worth US$650 million in the 1990s and later in 2006, under the Multilateral Debt Relief Initiative (MDRI), the country generously received 100 % debt forgiveness/cancellation which consequently reduced the stock of country’s debt to $1.6bn. However, of recent, the debt stock has kept on increasing from UGX 14.257 trillion ($5.5 billion) in 2000 to the current UGX 35.3 trillion (9.8b) in July 2017 and it is projected to continue increasing in the short to medium term given the robust NDPII core projects and priorities which are set to attract more borrowing. The study employs the Auto Regressive Distributed Lag (ARDL)-bounds testing approach which is superior and suitable for our small sample. Results: The results have revealed that public debt has a significant negative impact on economic growth in short-run whereas in long-run debt has a mixed impact on Uganda’s economy, which is; Total debt service has a negative impact whereas Gross debt as a share of GDP has a positive impact on the economy. The findings reveal that Public debt has a negative effect on Uganda’s economic growth in the short run. The impact is however found to be positive in the long run. This result is in line with the study expectations and some findings by earlier researchers who found a negative impact of public debt on GDP and investment. The results suggest that the current trend of Uganda’s borrowing is to continue constraining the resources in the short run. Conclusion: The conclusion of the study in-view of emerging findings especially on debt, various policy implications have emerged. At the current rate of borrowing, Uganda is likely to have deteriorating economic growth partly because such public borrowing adversely affects investment. The study thus recommends policies geared towards efficient use of borrowed funds especially for such projects that have high potential to unlock the production capabilities of the country. There is a need for the government of Uganda to institute mechanisms to ensure efficient use of borrowed funds.

AFRICA’S SOVEREIGN BOND DEBTS: ALTERNATIVE TO DEAD AID AND CATALYST FOR DEVELOPMENT

Purpose: The study sought to examine viability of sovereign bond debts, the alternative to foreign aid, which Dambisa Moyo calls ‘Dead Aid’, for financing economic development in Africa.Methodology: The research is a desk research via the qualitative methodology where information was derived from published scholarly works of various authors on the issue of aid, debt and development of African countries.Findings: The study shows that several African countries, such as Angola, Kenya, Zambia, Côte d’Ivoire, Senegal and Gabon have ventured into international capital markets and accessed the sovereign bond debts. Second, these countries’ debts have grown exponentially while most of their economies are still commodity based and have not grown in tandem with the debt. Volatile commodity prices have made it difficult for some of these countries to raise enough resources to service these debts. Some of the debt is now maturing and these countries are now potentially facing debt crises akin to what they went through in the 1990s.Unique contribution to theory, practice and policy: Since 2006, many African countries have issued debt in the international bond markets but are now faced with prospects of default and accumulation of excessive debts. This has the potential of wiping out the gains achieved under the Highly Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI), which sought to reduce debt levels for the beneficiaries of these initiatives. Accessing international bond markets is not a panacea for Africa’s development problems. Indeed it seems to compound the African Sovereigns’ problems by creating conditions for future debt distress. Deliberate policy decisions and efforts are required in managing the risks that come with these kinds of debt.

Ghana’s Growing Debt and Its Implications for the Economy

Management of public debt remains a major economic challenge to governments across the globe. Public debt management is more challenging to countries classified as least developed, less developed, and developing than those termed as developed or advanced economies. Challenges to economic management in some countries led to their description as highly indebted poor countries (HIPC) and low-income countries (LICS). In spite of high interest charges, most governments of developing economies borrow from international financial institutions to support their annual budgets; and to embark on social and institutional infrastructural developments in their respective economies. However, many economic experts and citizens in most of these developing economies have raised concerns about whether or not their governments use the contracted loans for the purposes intended. The purpose of this research was to assess trends in Ghana's debt, and the relative effect of debt on the economy. The present study relied on the quantitative approach to scientific inquiry. Specifically, a cross-sectional design, an example of survey design, was adapted and used in the research. This allowed the researcher to gather relevant research data over a specific period of time. Data required for the research were obtained from secondary sources including text books, journals, research papers, newspaper publications; Google search engine, index mundi, and electronic databases of the bank of Ghana and international bodies such as the international monetary fund, and world economic outlook, among others. Descriptive statistics and regression models were used to describe the research variables; and to evaluate their behavior over the stated time frame in the Ghanaian and other economies. Findings from the research revealed a positive relationship between debt and the economy; the findings revealed debt accounts for about 98% of the variation in GDP. The study recommended the need for redefinition of debt sustainability and effective implementation of the succession plan principle. Government must ensure relative stability of the cedi against the major foreign currencies to avert the possibility of issuing more notes to settle the same outstanding debts at maturity dates. Intensification of the industrialization campaign is necessary to reduce unemployment rate; and minimize the need for regular borrowing to balance government's annual economic budget.

Impact of External Debt and its Services Burden to Economic Growth in Africa: Econometric Evidence from Nigeria 1990-2016

Nigeria as a nation falls under the classification of the highly indebted poor countries (HIPCS). Countries that fall under this have continued to experience problems in managing and servicing their huge stocks of external debt. The relatively high level of Nigeria’s external indebtedness and rising debt burden despite effort by different government to pay off or receive debt fugitiveness has a serious implication on the country’s development and suitability initiatives. This work empirical analyzed the impact of external debts on the economic growth in Nigeria, 1990-2016. The objective of this study is to assess the impact external debts on the economic growth in Nigeria and to determine the impact external debts service to gross domestic products (GDP). The study made use of ordinary least square regression model for short run and Johansson cointegration for long run relationship, Result reveals that external debt positively and significantly impacted on economic growth of Nigeria but external debts services negatively and significantly impacted on economic growth in Nigeria. The findings of the study show that Nigeria external debt is play significant roles in improving economic growth of Nigerians but accumulation of external debt services has been rising over the years with debt burden indicators increase steadily in the 1990s and early 2016,even after the Paris debt relief granted to Nigeria. This confirms that the existence of an external debt service over time has been a problem that refused to be arrested in Nigeria and must be carefully handled to enjoy the dividend of external debt as a package.

External debt among HIPCs in Africa: accounting and panel VAR analysis of some determinants

PurposeThe management of external debt among highly indebted poor countries (HIPCs) in Africa still remains a challenge despite numerous packages and attempts to ameliorate the consequences of such odious debt. The purpose of this paper is to establish the factors that contribute to the growth rate of external debt and how these factors respond to shocks to external debt growth rate in Africa.Design/methodology/approachData were obtained from 24 African countries and analyzed using a panel vector autoregression estimation methodology.FindingsThe study found that external debt growth rates respond positively to unit shock or changes in government investment spending, consumption spending, and domestic borrowings over a long period of time. In the medium term, external debt growth rates respond negatively to shocks in tax revenue, inflation, and output growth rates. The paper also provides empirical support that external debt may be consumed rather than invested among HIPCs in Africa.Research limitations/implicationsThe findings of this paper are limited to only HIPCs in Africa.Practical implicationsThis study has some few debilitating implications for external debt management among HIPCs in Africa. First, the paper suggests that debt repayment may be a problem. This is largely because external debt is consumed rather than invested. External debt sustainability needs a holistic approach in less developed countries. The findings place much emphasis on improvements in gross domestic product and tax revenues as the principal routes out of the debt doldrums. However, this option must be exploited with great caution as there is ample evidence that these poor countries increase their external borrowing capacities with improvements in economic outlook.Originality/valueThis paper fills a research gap that identifies specific components of government deficit budgets that may be contributing to the growth rate of external debts among HIPCs.

The impact of debt relief on under five mortality rate in Sub-Saharan Africa

ABSTRACTThis paper examines the impact of the Highly Indebted Poor Countries (HIPC) Initiative on under five mortality rate (U5MR) in Sub-Saharan Africa. The HIPC Initiative involves debt forgiveness and the redirection of funds that were meant to service external debt towards the provision of social services and poverty reduction in eligible countries. The Initiative is akin to a natural experiment since some countries benefited while some did not, and the timing of debt forgiveness varied across countries. We exploit these variations to identify the impact of HIPC Initiative on child mortality using a dynamic panel data estimator. We find that participation in HIPC Initiative is associated with statistically significant decreases in U5MR. On the other hand, the impact of actual debt cancelled is statistically insignificant.

External debt relief initiatives and economicgrowth in least developed countries

In the late 1990s, the World Bank and the International Monetary Fund (IMF) initiated a series of debt relief programs for highly indebted poor countries (HIPCs) based on the idea that high levels of indebtedness impede growth by discouraging domestic and foreign investment. This paper examines the relationship between external debt and growth with a focus on the effects of multilateral debt relief. In particular, we use a sample of 33 least developed countries (LDCs) over the period 1970-2010 to explore the impact of indebtedness on growth before and after participating in the debt relief initiatives. In contrast to previous studies, we employ a combination of parametric and non-parametric methods to investigate the linear and nonlinear aspects of the debt-growth relationship. In the non-parametric analysis, we model growth as a discreet-time Markov process and estimate the transition probabilities for HIPCs. The results show that lower debt levels stimulate economic growth. The average impact of debt on growth in HIPCs becomes negative at about 64 -78% of GDP depending on the initial growth conditions. In the period after joining the debt relief initiatives, HIPCs generally exhibited a higher chance of moving towards or persisting in the positive range of growth. However, this process was related to lower debt levels mostly in countries that had initially exhibited moderate to rapid growth, while debt relief seems to have been less relevant for future growth in countries that started off in a state of moderate economic decline. Furthermore, the results of the regression analysis show that the marginal effect of public and publicly guaranteed (PPG) debt on growth is negative and significant. Debt relief programs were found to mitigate the negative impact of debt, both after their initiation in 1996 and after the HIPCs reached their decision point. Generally, the overarching policy that can be drawn from this paper is that LDCs, and HIPCs in particular, should strive to reduce their PPG debt levels to at least below 64%-78% of GDP in order to experience and maintain positive growth rates, ceteris paribus . Notwithstanding, our findings also suggest that if HIPCs, and LDCs in general, want to reduce or maintain their debt to sustainable levels, they should adopt some of the conditions imposed by the international financial institutions on HIPCs as part of their macroeconomic policy framework, such as developing and implementing a poverty reduction strategy through a broad based participatory process.

‘When we have nothing we all eat grass’: debt, donor dependence and the food crisis in Malawi, 2001 to 2003

In 2002, Malawi faced a devastating food crisis, an event in which hundreds of people died of hunger, while over a thousand succumbed to a country-wide cholera epidemic. By June of that year, over 3.2 million people needed emergency food aid, one-third of Malawi's population. This article assesses the crisis through the lens of donor–government relations. Beginning with the restructuring of the agricultural sector under a World Bank-sponsored structural adjustment programme, a process that discouraged food production by small-holder farmers, the article explains how the Malawian government's reliance on external sources of funding, and its deteriorating relations with key international creditors, rendered it impotent in the face of the oncoming crisis. Having sold its strategic grain reserve (SGR) to service mounting debts, the government could not rein in a food price spiral that peaked in March 2002. Allegations of financial irregularities surrounding the sale of the SGR served to make matters worse. The United States, Britain, Denmark and the European Union cancelled direct development funding and the International Monetary Fund (IMF) and World Bank suspended Malawi from the Highly Indebted Poor Country (HIPC) initiative. With limited access to credit, the Government of Malawi could neither re-stock its food reserves nor fund emergency imports in time to mitigate the worst effects of the crisis. Relief aid was further delayed by disagreements between the government and key donors and aid agencies regarding genetically modified (GM) food. While accepting Amartya Sen's basic entitlements framework – the 2002 crisis was one of pricing and access rather than absolute shortages of food – the article posits the following theoretical argument: in the context of highly indebted poor countries, it is a government's relationship with its principal donors and creditors that determines the outcome of food crises by shaping the policy responses available both leading up to and during the event.

Ghana: Budget Monitoring by SEND-Ghana and its Partners Helps Improve Nutrition for Children and Support Local Farmers

Between 2007 and 2010, the Social Enterprise Development (SEND-Ghana) Foundation, one of the IBP’s partners, monitored the performance of the Ghana School Feeding Programme (GSFP, a government program that integrates social protection interventions), engaging with 50 district assemblies, 50 focal civil society organizations (CSOs), and 50 District Highly Indebted Poor Countries (HIPC)/Citizens Monitoring Committees (DCMC) in seven regions across the country. SEND-Ghana used information from this monitoring exercise to promote improvements in the program with district assemblies and officials from collaborating ministries, departments, and agencies directly at the national, regional, and district levels, but also indirectly through the media.

English

  The objective of the paper is to examine the sustainability of current account in Malawi. The study employs econometric analysis and solvency approaches to complement each other. Results from both approaches confirm that Malawi’s current account deficits were excessive and unsustainable during the period of 1980 to 2010. Results from the econometric analysis reveal that for Malawi’s current account to move towards a sustainable path, particular attention should be paid to the following factors: external debt, terms of trade, openness, real exchange rate, net foreign assets and growth. Furthermore, the current account deficit was excessively above the norm, deviating by an average of 5.0% during the study period. The solvency approach to current account sustainability further confirms that the country was running an unsustainable current account deficit. Interestingly, even after the highly indebted poor countries (HIPC) relief, the current account was still unsustainable. In this regard, policies should ensure that the real exchange rate is not overvalued, growth is enhanced particularly in the export sector and also ensure that external debt is sustainable. These will ensure sustainable current account.   Key words: Current account deficit, external sustainability, Malawi.

Republic of Congo: 2010 Article IV Consultation and Fourth Review Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria�Staff Report; Staff Supplement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Congo.

In this study, economic performance remained robust throughout the global downturn, and shows signs of further strengthening. In 2010, the external position improved significantly, as fiscal surpluses raised official foreign assets, and the Highly Indebted Poor Countries (HIPC) debt relief significantly reduced external liabilities. Macroeconomic stability is well established, and the external position has improved. Private sector development has reduced oil dependence and is assuring sustained poverty-reducing growth. Efforts should be supported by policies to increase the private sector’s access to credit, and deepen financial intermediation to improve the financial performance of state-owned enterprises.

The External Debt‐Servicing Constraint and Public‐Expenditure Composition in Sub‐Saharan Africa

Abstract: In the light of the current global financial and economic crises, how would governments in sub‐Saharan Africa (SSA) allocate their budgets across sectors in response to a binding debt‐servicing constraint? Within a framework of public‐expenditure choice, the present paper estimates constraint‐consistent debt‐service ratios and employs them in a Seemingly Unrelated Regression involving a five‐year panel for up to 35 African countries over 1975–94, a period preceding the Highly Indebted Poor Countries (HIPC) initiatives. While observed debt service is found to be a poor predictor of expenditure allocation, constraining debt servicing shifts spending away from the social sector, with similar impacts on education and health. The implied partial elasticity of the sector's expenditure share with respect to debt is estimated at 1.5, the highest responsiveness by far among all the explanatory variables considered, including external aid. Thus, if the social sector is to be protected, sufficient debt relief for SSA countries should be pursued.

From a ‘success’ story to a highly indebted poor country: Ghana and neoliberal reforms

Drawing on the experience of Ghana, which the World Bank itself proclaimed as an African success story in the early 1990s, this paper sheds important light on why neoliberal policies have had limited success in Africa and what strategies are likely to be necessary to foster growth and industrialisation in Ghana and elsewhere in Africa. In 2001, a few short years after being proclaimed as an economic miracle, Ghana joined the growing ranks of highly indebted poor countries (HIPC) – an especially humbling development for this once proud nation. Why did Ghana's economy collapse after recovering so well? Ghana's experience highlights both the promise and limitation of neoliberal reforms.