Back Matter

Back Matter

Author(s):
Paolo Mauro, Herve Joly, Ari Aisen, Emre Alper, Francois Boutin-Dufresne, Jemma Dridi, Nikoloz Gigineishvili, Tom Josephs, Clara Mira, Vimal Thakoor, Alun Thomas, and Fan Yang
Published Date:
August 2015
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    References
    Appendix I: Descriptive Statistics for Key EAC Macroeconomic Data

    Appendix Tables 1.1 and 1.2 report the assumptions for the volatility (standard deviation) and correlations of the key macroeconomic variables—growth, interest rates, exchange rate—used to produce the fan charts presented in Chapter 1. These are estimated using pooled quarterly data for 1993–2013 for the EAC countries (subject to data availability).

    Appendix Table 1.1.Standard Deviation of Key Variables Used in Simulations(quarterly rates, 1993–2013)
    Real GDP growth2.0
    Domestic real interest3.0
    Foreign real interest0.5
    Real exchange depreciation4.6
    Sources: EAC authorities; and IMF staff projections.Note: Historical data for Burundi and Rwanda start in 2003 and 2002, respectively.
    Appendix Table 1.2.Correlations among Key Drivers of Debt in EAC(quarterly data, 1993–2013)
    Real GDP growthDomestic real interestForeign real interestReal exchange rate depreciation
    (in percent)
    Real GDP growth100
    Domestic real interest3100
    Foreign real interest322100
    Real exchange rate depreciation−1372100
    Sources: EAC authorities; and IMF staff estimates.Note: Historical data for Burundi and Rwanda start in 2003 and 2002, respectively.
    Appendix II: Debt Profiles in EAC Countries under DSA Assumptions

    Appendix Figure 2.1.Debt Profiles in EAC Countries under DSA Assumptions

    Sources: EAC authorities; and IMF staff estimates.

    Note: The light cone in the center is the 20-percent standard error interval around the median projection, and the overall cone marks the 99-percent confidence interval. The solid dark blue line shows the staff’s baseline projection, and the solid red line denotes the EAMU ceiling on gross debt-to-GDP ratio in PV terms.

    The Protocol for EAMU was signed in November 2013 by the EAC heads of state. http://www.eac.int/legal/index.php?option=com_docman&task=doc_download&gid=204&Itemid=47).

    Recent IMF technical assistance to EAC countries provided a detailed proposal for the design of a statement of fiscal risks and modalities for the surveillance, monitoring, and enforcement of fiscal variables and criteria in the context of convergence to EAMU. The outline currently under discussion for medium-term convergence programs includes a sensitivity analysis of key risks and the impact of changes in the main economic assumptions on the budgetary and debt position.

    Natural disasters, such as droughts, may be partly captured in debt sustainability analyses (DSAs) to the extent that they are recurrent and affect historical economic performance. DSAs may also reflect in their baseline, to various extents, the decline of aid to GDP observed in certain countries (for example, Tanzania). Aid is also volatile, as amply shown in the literature, which in itself also raises fiscal management challenges and risks.

    Convergence criteria will also need to be observed beyond 2021. The 50-percent ceiling is below the total public debt benchmark for medium policy and institutional performance (56 percent) in the debt sustainability framework of the IMF and World Bank.

    More precisely, changes in the fiscal deficit are exactly those implied by lower revenues as a result of lower growth, and higher expenditures as a result of higher interest rates, assuming policymakers do not change tax or expenditure policies in response.

    The size of these shocks for each of the variables considered is approximately equivalent to one standard deviation (economic growth, domestic interest rates, foreign interest rates) or half a standard deviation (nominal exchange rate) of the distribution of such variables for the pooled sample of EAC partner states at the annual frequency over the period 2004–13. In this simple framework, an exchange-rate depreciation is a negative shock, as it makes foreign-currency denominated debt more expensive to service. It ignores the important role of the exchange rate in adjusting to shocks and restoring competitiveness.

    Fan charts using individual countries’ standard deviations and covariance matrices are shown in Appendix II.

    This paper follows the definition of public enterprises by the United Nations system as “any commercial undertaking owned by public authority, either wholly or through majority shareholding, which is engaged in the sale of goods and services and whose affairs are capable of being recorded in balance sheets and profit and loss accounts.” This definition excludes departmental agencies, commissions, and nonprofit public agencies. It is similar to that used in the Kenyan Report of the Presidential Taskforce on Parastatal Reforms, except that the Kenya report also distinguishes between commercially operated enterprises and those that have a strategic function and are not required to make profits.

    In the case of Kenya, it uses the October 2013 Kenyan Report of the Presidential Taskforce on Parastatal Reforms.

    The third EAC Heads of State Retreat on Infrastructure Development and Financing, held in November 2014, evaluated the required financing to about US$100 billion, a number broadly consistent with staff’s estimate. In the same retreat, heads of state endorsed a 10-year investment strategy for priority regional projects and directed the council to mobilize resources to finance it.

    Financing for some of these projects is being raised with the EAC infrastructure levy, a 1.5-percent levy introduced from FY2014/15 (Tanzania is expected to introduce it in FY2015/16) on the customs value of goods imported into the EAC.

    PPPs refer to long-term contracts whereby the private sector provides a public asset or service that traditionally has been provided by the government, bearing significant risk and management responsibility (IMF 2004; World Bank 2014a).

    In addition, they may require in-year reductions and changes to expenditure plans that are inefficient and likely to undermine fiscal credibility.

    In South Africa, in response to this problem, the government introduced a binding medium-term expenditure ceiling in 2012. Since then, outcomes have been at or below initial estimates. This illustrates that well-designed reforms can be successful in addressing institutional risks.

    The PEFA program is a multidonor partnership that assesses the condition of a country’s public expenditure, procurement, and financial accountability systems, and develops a practical sequence for reform and capacity-building actions. PEFA assessments were most recently undertaken in 2012 in Burundi, Kenya, and Uganda, and in 2010 in Rwanda and Tanzania. The assessments cover a range of public financial management (PFM) indicators, and in each country each indicator is assessed against a four-point scale from A to D.

    In Uganda, the 2015 Public Financial Management Act requires the minister to submit to parliament, no later than three months after the first sitting of parliament after a general election, a charter for fiscal responsibility that relates to the formulation and implementation of fiscal policy. The ministry is to draft a charter for FY2016/17–FY2020/21.

    In Uganda, the 2015 Public Financial Management Act stipulates that petroleum revenue shall be used for financing infrastructure and government development projects, and not for recurrent expenditures.

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