Chapter

Appendix III. Debt Decompositions in the Post-Restructuring Phase

Author(s):
Harald Finger, and Mauro Mecagni
Published Date:
April 2007
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This appendix provides an analysis of the comparison between the actual debt dynamics of the countries in their post-restructuring periods with the projections in the IMF staff reports that followed the restructurings. Since such an analysis requires that at least one year has passed since restructuring, it is confined to countries that completed their restructurings prior to 2004 (Ecuador, Pakistan, Russia, Ukraine, and Uruguay).51

The comparison of the evolution of the debt-to-GDP ratio in the post-restructuring period (from the central year of restructuring up to and including 2004) relative to IMF staff projections shows that in a majority of cases (Pakistan, Russia, Ukraine, and Uruguay), debt dynamics fared better than anticipated (see Figure A3.1). Only in the case of Ecuador did debt decline by less than had been anticipated in the aftermath of the restructuring.

Figure A3.1.Change in Debt-to-GDP Ratios, Post-restructuring Period

(In percentage points)

Source: IMF staff reports.

The reasons for deviations from the projected paths can be analyzed by decomposing the debt dynamics into contributions by the primary balance, the interest-growth differential, the exchange rate, and other identified debt-creating flows, capturing any changes in public sector liabilities that are not reflected in the fiscal balance.52 Comparisons of the decomposition of debt dynamics are difficult because many of the staff analyses and reports issued at the time of the restructurings did not show the full set of assumptions necessary to compute the decomposition. In these cases, reasonable assumptions were added to the set of published variables to complement the dataset.

Table A3.1 shows such decompositions for the five countries during the post-restructuring periods (showing cumulative contributions from the year after the restructuring until 2004), comparing projections made in the staff reports following the restructurings (“Post-” columns) with actual outcomes or latest estimates (“Latest”) columns.

Table A3.1.Evolution of Debt-to-GDP Ratios Since the Crises(In percent of GDP; unless otherwise stated)
Ukraine t + 1 to 20041Pakistan t + 1 to 2003/02Uruguay 20043Ecuador t + 1 to 20044Russia t + 1 to 20044
Post-restructuring projectionsLatest IMF projectionsPost-restructuring projectionsLatest IMF projectionsPost-restructuring projectionsLatest IMF projectionsPost-restructuring projectionsLatest IMF projectionsPost-restructuring projectionsLatest IMF projections
Aggregate change in debt/GDP ratio5–15.0–39.6–5.2–15.9–8.0–12.1–63.9–44.2–28.1–35.9
Contribution by
Primary balance–4.6–1.9–10.2–9.0–3.2–3.8–24.0–18.6–10.1–17.1
Interest-growth differential–27.7–29.2–9.2–9.7–14.1–11.6–39.9–26.5–19.7–23.4
Exchange rate17.31.114.26.39.31.50.00.01.71.8
Identified debt-creating flows0.0–4.20.0–0.50.00.00.00.00.00.0
Other (including residual)0.0–5.30.0–3.00.01.90.00.90.02.8
Assumptions
Average primary balance0.90.42.62.33.23.86.04.72.54.3
Average real GDP growth (in percent)4.38.45.24.14.512.32.94.14.16.1
GDP deflator (average annual percent change)14.010.94.65.616.57.014.611.69.816.0
Average nominal interest rate on public debt (in percent)5.94.77.36.45.46.86.66.35.25.9
Average nominal depreciation (in percent)11.90.46.72.910.51.80.00.01.1–0.4
Memorandum items:
Average real interest rate–8.1–6.22.70.8–11.1–0.2–8.0–5.3–4.6–10.1
Average real interest-growth differential–12.4–14.6–2.5–3.3–15.6–12.5–10.9–9.4–8.7–16.2
Central year of restructuring (t)19991999/2000200320002000
Sources: IMF staff reports; and staff calculations.

Change in debt ratio from end-1999 to end-2004, and contributions during 2000–04.

Change in debt ratio from end-1999/2000 to end-2003/04, and contributions during 2000/01–2003/04.

Change in debt ratio from end-2003 to end-2004, and contributions during 2004.

Change in debt ratio from end-2000 to end-2004, and contributions during 2001–04.

As reported or implied in the IMF staff report; numbers in bold italics indicate that additional assumptions had to be made.

Sources: IMF staff reports; and staff calculations.

Change in debt ratio from end-1999 to end-2004, and contributions during 2000–04.

Change in debt ratio from end-1999/2000 to end-2003/04, and contributions during 2000/01–2003/04.

Change in debt ratio from end-2003 to end-2004, and contributions during 2004.

Change in debt ratio from end-2000 to end-2004, and contributions during 2001–04.

As reported or implied in the IMF staff report; numbers in bold italics indicate that additional assumptions had to be made.

From the decomposition, it appears that only Russia and Uruguay outperformed the primary fiscal path projected by staff following the restructurings, whereas the primary balance was worse than projected in Ecuador and, to a smaller extent, also in Pakistan and Ukraine (see Figure A3.2).53 Individual country circumstances differed.54

Figure A3.2.Contribution of Primary Balance to Change in Debt-to-GDP Ratio, Post-restructuring Period

(In percentage points)

Sources: IMF staff reports; and staff calculations.

  • In Russia—where the outcome exceeded projections by the widest margin—rapid improvements in the primary balance were due to higher-than-projected revenue, owing largely to favorable developments in oil prices.

  • Uruguay’s 2004 primary surplus (3.8 percent of GDP) after the restructuring was higher than anticipated largely because of expenditure restraint. Lower-than-anticipated spending on social security benefits and wages, coupled with lower capital expenditure, largely explains the better outcome.

  • In Pakistan, fiscal performance fell slightly short of the ambitious projections, in spite of a surge in grants given Pakistan’s increased geopolitical importance after the events of September 11, 2001.55

  • Ecuador underperformed relative to projections by the widest margin. Despite substantial primary surpluses in the post-crisis period, it could not attain projected levels because higher oil prices were offset by large increases in the wage bill and social security benefits, discretionary tax cuts, and a rapid decline in oil output owing to inefficiencies at the state oil company.

In the post-restructuring period, the contribution of the exchange rate to debt dynamics was generally better than anticipated in post-restructuring IMF projections (see Figure A3.3). Programs generally anticipated that the exchange rate would have a debt-increasing effect, and actual performance in most cases shows a smaller-than-expected increase. This was the case in Pakistan, Ukraine, and Uruguay, while the contribution was slightly greater than expected in Russia. Because of full dollarization, there was no exchange rate effect in Ecuador.

Figure A3.3.Contribution of Exchange Rate to Change in Debt-to-GDP Ratio, Post-restructuring Period

(In percentage points)

Sources: IMF staff reports; and staff calculations.

In a slight majority of countries (Pakistan, Russia, and Ukraine), the real interest-growth differential was more favorable after the restructurings than anticipated because of higher-than-expected growth (Russia and Ukraine) and lower-than-expected real interest rates (Pakistan and Russia) (see Figure A3.4).

Figure A3.4.Contribution of Interest-Growth Differential to Change in Debt-toGDP Ratio, Post-restructuring Period

(In percentage points)

Sources: IMF staff reports; and staff calculations.

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