Third Edition Private Sector Non-Guaranteed Debt For many years the prevailing myth was that the external debt of the private sector in low- and middle-income countries was either so small as to be inconsequential or, that, in any event, it was market determined and therefore presumed to be allocated efficiently.
This notion was dispelled by the rapid changes of the late s and early s when barriers to international capital movements were removed without a commensurate strengthening of financial systems and regulatory frameworks, rendering economies highly vulnerable to the fallout from excessive or inappropriate borrowing by private banks and corporations.
The Asian financial crisis of and its knock-on effect in countries like Russia and, subsequently, the global financial crisis of threw into stark reality the strong linkage between private sector external borrowing and the wider macro-economy.
This underscores the importance of strengthening debt management, including compilation of comprehensive and timely external debt statistics, including those related to private sector debt. IBRD and IDA borrowers, who must provide detailed loan-by-loan reporting information on public and publicly guaranteed debt as a condition of borrowing, have been encouraged to provide aggregate annual reports on private non-guaranteed debt where such debt is deemed to be significant.
Of the low- and middle-income countries currently reporting to the DRS, 39 included data on the external debt of their private sector, more than double the 17 countries that provided a comparable report in Figure 1.
The annual publication International Debt Statistics IDS provides important information on overall trends and composition of private non-guaranteed external debt.
Around one third of low- and middle-income countries, particularly those at the lower end of the per capita income scale, have been slow to develop systems to monitor the external obligations of their private sector and only partial, creditor-based information is available.
In some cases, national compilers argue supervision runs counter to the spirit of liberalization and governments should refrain from intrusion. The private sector often employs similar arguments when confronted with survey questionnaires or other information requests. More often however, policymakers recognize the importance of these data but are challenged by lack of resources and technical capacity. Monitoring private non-guaranteed debt is more complex than tracking flows to public sector borrowers.
Detailed data are only readily available when countries have registration requirements in place and these typically disappear when exchange controls are liberalized, leaving national compilers reliant on balance of payments data and financial surveys. Measurement is compounded by the multiplicity of participants involved and often, the complex structure of borrowing instruments. Private non-guaranteed external debt is still concentrated in the more advanced emerging market countries in East Asia and the Pacific, Europe and Central Asia, and Latin America and the Caribbean but their combined share of total private non-guaranteed debt stock of low- and middle-income countries is declining Figure 2.
It is estimated to have fallen from 92 percent at end to around 80 percent at end , as private sector borrowers in other regions increasingly attract external financing. Moreover, the trend is almost certainly understated on account of weak monitoring mechanisms, particularly in Sub-Saharan Africa.
Private sector external borrowing accounts for an increasing share of external debt Over the past decade, the external debt of low- and middle-income countries has been characterized by an important shift in the type of borrower.
In the past, external borrowing by sovereign governments and other public sector borrowers with a government guarantee was the most prevalent form of external borrowing. More recently there has been a rapid rise in external borrowing by private sector entities without any government guarantee Figure 3. In private non-guaranteed debt accounted for 38 percent of total long-term external debt stock.
By end the comparable share had risen to over 50 percent. Paralleling the expansion in private sector borrowing has been a change in the composition of this debt with bond issuance by private sector entities constituting an increasingly important component.
It averaged over 40 percent of net long-term external debt inflows to private sector entities in the past years. The number of low- and middle-income countries whose private sector borrows externally has also risen sharply. In Sub-Saharan Africa, excluding South Africa, over 15 percent of long-term external debt stock is now owed by the private sector and this share looks set to continue its upwards trajectory given that net inflows of private non-guaranteed debt accounted for around 25 percent of net inflows of long-term external debt over the past two years.
Moreover, the figure could be much higher: This represented an increase of 26 percent over the comparable figure for FY15 and registered the highest annual increase in commitments in 15 years excluding the years of the global financial crisis FY The target audience was policy-makers and practitioners from national debt management offices. Also present were international and regional technical assistance providers, representatives of civil society, bilateral donors and multilateral development banks.
However large gaps in coverage and quality remain, particularly regarding countries in Sub-Saharan Africa. Information on domestic public sector debt and external private non-guaranteed debt and more technical assistance is required.
The main focus of the conference was to take stock of the key achievements of the first phase of the DGI and to formulate and prioritize implementation of the second phase of the DGI. The recommendations for DGI-2 aim to ensure continuity with DGI-1 but at the same time, reflect the evolving needs of policymakers for datasets that aid in monitoring financial sector risks and analysis of the inter-linkages across economic and financial systems.
For Recommendation 16, which relates to public sector debt, the target is that by all G economies report comprehensive data on central and general government debt, with broad instrument coverage, on a quarterly basis.