Abstract

Progress toward external viability is a central objective in ESAF-supported programs. To this end, the programs emphasize macroeconomic policies and structural reforms that are designed to strengthen external sector performance and alleviate the severe external debt-service burdens that many ESAF users face. However, despite increasingly concessional terms on both new and old (rescheduled) loans, and continuing positive net transfers from official sources, the debt burdens of many of these countries remain high and in some cases have grown over the past decade. This chapter will review the evidence on the external performance of ESAF users since the mid–1980s, with a view to:

Progress toward external viability is a central objective in ESAF-supported programs. To this end, the programs emphasize macroeconomic policies and structural reforms that are designed to strengthen external sector performance and alleviate the severe external debt-service burdens that many ESAF users face. However, despite increasingly concessional terms on both new and old (rescheduled) loans, and continuing positive net transfers from official sources, the debt burdens of many of these countries remain high and in some cases have grown over the past decade. This chapter will review the evidence on the external performance of ESAF users since the mid–1980s, with a view to:

  • assessing the extent of progress toward external viability;

  • examining why some countries have achieved more than others;

  • investigating the extent to which external positions evolved differently under ESAF-supported programs than was envisaged, and the reasons for such divergences; and

  • identifying policy lessons.

The study updates, for a longer period and larger sample, similar analysis reported in the last ESAF review (Schadler and others, 1993). The present study, which will look at the sample as a whole, is complementary to a study commissioned for the external evaluation of the ESAF (IMF, 1998), which looks at persistent debt and balance of payments problems in more detail for a few selected countries.

The first section discusses conceptual and methodological issues that arise in measuring progress toward external viability, distinguishing between two broad aspects: reducing the burden of external debt and debt service on the economy, and lessening the extent of reliance on exceptional financing to meet balance of payments needs. Vulnerability factors that render countries susceptible to shocks, especially from the terms of trade, are also considered. Identified key indicators are then used, in the next section, to examine progress made by ESAF users over the past ten years, in terms of both trends during the decade to 1995 and progress in each country since the period immediately preceding its first SAF/ESAF-supported program. The third section attempts to answer the question of why some countries progressed further than others. This is done by examining the relative contributions of various components of the balance of payments to the evolution of external debt in each country, by investigating the role of adverse terms of trade movements in determining outcomes, and by looking at policy and growth across countries. A fourth section focuses mainly on countries that did not make clear progress toward external viability, compares outcomes with targets for selected external sector variables under SAF/ESAF programs, and reviews the process of external debt accumulation since each country’s first SAF/ESAF arrangement. Conclusions are presented in the final section, followed by two appendices.

Conceptual and Methodological Issues

External Viability, Sustainable External Position, and Debt Sustainability

A purely market-based definition of external viability would require that current account deficits be financed by spontaneous capital inflows.1 For most of the countries that seek financial assistance under the ESAF, viability in this sense can be regarded only as a distant goal because of their limited access to private capital flows.

The ESAF operational guidelines stipulate that, ideally, programs should aim to establish by the end of a three-year program period an external current account deficit that can be financed by “normal” and “sustainable capital inflows.” Abnormal or exceptional financing for these purposes includes accumulation of arrears, debt rescheduling, debt cancellation, and official (or officially sponsored) borrowing to meet a balance of payments need.2 For programs where exceptional financing is judged to be unavoidable, it is expected that every effort will be made to reduce the amount of such financing steadily and, if possible, to eliminate it by the end of the three-year period.

The guidelines also make provision for cases where existing debt obligations may be so onerous that rescheduling and new financing on conventional terms would not significantly improve the medium-term balance of payments outlook. In such a case, the IMF staff are enjoined to assist the authorities in seeking concessional arrangements from creditors to reduce the debt and debt-service burden.

Since 1995, programs for heavily indebted poor countries (HIPCs) are required to contain a “debt-sustainability analysis.” A country is said to have a sustainable debt burden if it is judged able to meet its current and future external obligations without recourse to debt rescheduling, debt cancellation, or the accumulation of external arrears, and without compromising economic growth (Boote and Thugge, 1997). Unlike the traditional notion of a sustainable external position, this definition of sustainability does not require elimination of balance of payments support in the medium term, but projections would be expected to show a reduced reliance on such support and an eventual exit from ESAF arrangements. Although it is less stringent than the ideal in the ESAF guidelines, movement toward debt sustainability is consistent with progress toward a sustainable external position. Both the ESAF guidelines and the notion of debt sustainability that underlies the HIPC Initiative envisage that countries should approach the same first “milestone”—orderly relations with creditors and graduation from debt relief.

Gauging Progress Toward External Viability

For countries with limited access to private capital markets, progress toward external viability has two main components: lowering the burden of debt and debt service and reducing resort to exceptional financing of current account deficits.3 Two sets of indicators are commonly used to gauge progress on the respective components: ratios of debt and debt service to some resource base (typically, exports, government revenue, or GDP); and accumulation of external arrears, debt relief, and borrowing to meet a balance of payments need. In this chapter, the exceptional financing indicator is defined in terms of ratios to exports. Judgment about what constitutes a sustainable external position also depends on factors such as the economy’s susceptibility to—and ability to withstand—shocks, as well as the capacity of the authorities to formulate and implement adjustment measures in a timely manner when confronted with growing imbalances.

Ratios based on the stock of nominal debt do not capture differences in the degree of concessionality and so may be misleading, especially in cross-country comparisons and in a situation where a country is paying off old debt and contracting new debt on more concessional terms. In recognition of this problem, the World Bank now publishes data on the net present value (NPV) of external debt for reporting countries in the annual Global Development Finance;4 however, the time series begin only in 1991. In this study, therefore, the primary emphasis is on the evolution of debt-service obligations.5 While these obligations reflect both the volume and the average terms of debt outstanding, the drawback, relative to using the present value of the debt stock, is that they measure only the contemporaneous burden and do not take account of higher or lower future repayment obligations.

For the denominator of the ratio, it is useful to distinguish between two aspects of the debt-service burden: effecting the foreign exchange payment, and raising the required domestic resources (that is, the internal transfer problem). The first is represented typically by ratios to exports; exports provide a direct yardstick, especially where foreign exchange constraints are paramount. The second, which is most important for countries where the bulk of external debt is public debt, can be represented by ratios to government revenue or to GDP.

Attractive as the ratio of debt service to government revenue is as a measure of the fiscal burden of debt service, there are difficulties with interpreting it as an indicator of external debt sustainability.6 Where the fiscal system is in disarray, and revenues are abnormally low, the debt service/government-revenue ratio may misidentify as a debt-sustainability problem what is really a fiscal problem. Conversely, the ratio would tend to understate the debt burden when the revenue/ GDP ratio is unsustainably high. To the extent that GDP measures the potential revenue base, debt service/GDP ratios may be less problematic; they can be construed as encompassing debt service/revenue and revenue/ GDP ratios. However, there are also measurement and interpretation problems with using GDP, especially during periods of sharp movements in the real exchange rate.7 For example, the 1994 devaluation of the CFA franc produced a drop in the foreign currency value of GDP in these countries and hence a sharp increase in GDP-based external debt ratios, even for several countries where the debt-to-export ratio fell.8

Clearly, there is no perfect yardstick for measuring progress toward external viability. The assessment in this review will be based on a range of indicators that are consistent with key elements of both the 1993 ESAF review (Schadler and others, 1993) and the framework for debt-sustainability analysis being used for the HIPC Initiative. Specifically, progress will be assessed with reference to changes in the ratios of debt service to exports and to GDP, and reliance on exceptional financing. The assessments will be supplemented by reviews of indicators of the fiscal burden of external debt service as well as indicators of external vulnerability. The evolution of debt/export ratios will also be examined, although in the absence of consistent time series for the NPV of debt, the focus will be on changes in nominal debt over time, rather than on levels relative to some threshold of sustainability.9

What Progress Has Been Made?

This section first reviews broad trends in resource flows, and the external debt and debt-service burdens of ESAF users since the mid–1980s. It then examines how positions of individual countries have evolved since the adoption of SAF/ESAF-supported programs. The analysis does not attempt to delineate developments that are directly and solely attributable to SAF/ESAF-supported programs. Instead, it seeks to gauge how far countries have traveled since they embarked on adjustment efforts supported by SAF/ESAF resources. The last subsection complements the historical review of debt burdens with the results of forward-looking debt-sustainability analyses that have been prepared by the IMF staff for individual countries.

Broad Trends

Resource Flows

Aggregate net resource flows to nontransition ESAF countries increased from $8.2 billion a year during 1981–85 to $14.6 billion a year in 1991–95, with official grants and long-term debt accounting for about 90 percent of these flows (Table 7.1).10 The inflow of portfolio equity was negligible for most countries, and foreign direct investment remained modest. In nominal terms, the average flow of grants more than doubled, whereas net debt flows were stagnant. In proportionate terms, official grants increased from 36 percent to 52 percent of aggregate net resource flows, while the contribution of net debt flows fell from 61 percent to 36 percent. The nontransition Asian countries bucked the overall trend: in these countries the share of official grants and net debt flows each fell slightly, and foreign investment rose to almost a fourth of aggregate net flows during 1991–95.

Table 7.1

Amounts and Composition of Aggregate Net Resource Flows1

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Source: Debtor Reporting System (World Bank).

Aggregate net resource flows comprise net flows on long-term debt (disbursements less amortization), official grants, net foreign direct investment, and portfolio equity flows.

The sum of net foreign direct investment and portfolio equity flows.

For low-income countries as a whole,11 official grants grew at a slightly slower pace than for non-transition ESAF users (140 percent and 160 percent, respectively, between 1981–85 and 1991–95), whereas net debt flows grew 3t a slightly faster pace. After a nearly tenfold increase between the early 1980s and 1990s, foreign direct investment emerged as the most important component of aggregate net resource flows to low-income countries—accounting for nearly 40 percent in 1991–95. However, the bulk of the increase in foreign direct investment over the period has been to China. Excluding China, growth in foreign direct investment to other low-income countries was only slightly higher than for nontransition ESAF users.

Level and Structure of External Debt Among ESAF Users

The stock of external debt (including private debt not guaranteed by the public sector) nearly doubled between 1985 and 1995 for nontransition ESAF users. This rate of increase was less than for low-income countries in general (170 percent) and about the same as for all developing countries (100 percent).12 The concessional element in external debt, as measured by the average grant element in new borrowing and by the share of concessional borrowing in total debt, increased for ESAF users and has been significantly larger for these countries than for low-income countries as a group (Table 7.2).

Table 7.2

Concessional Element in External Debt

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Source: Debtor Reporting System (World Bank); and IMF staff calculations.

Excluding transition economies.

The grant element of a loan is the grant equivalent–that is, commitment value minus the discounted present value of its contractual debt service–expressed in percent of amount committed. This information is reported for new borrowing. It is not available on total debt stock prior to 1991.

The Debtor Reporting System defines concessional debt as loans with original grant element of at least 25 percent.

Public and publicly guaranteed debt dominates the external debt of nontransition ESAF users, accounting for over 80 percent in 1995. Nearly half of such debt is to bilateral creditors. The share of multilateral debt has increased substantially since 1985, whereas the share held by private creditors has shrunk from 21 percent in 1985 to about 7 percent in 1995. By contrast, for low-income countries as a whole, the share of debt to private creditors remained above 25 percent, and it continues to be large (over 40 percent) for all developing countries (Table 7.3). The reduced share of debt to private creditors among ESAF users probably reflects greater wariness on the part of private lenders following the debt crisis of the early 1980s and the limits on nonconcessional borrowing under ESAF arrangements. There are, however, a number of ESAF users for whom private creditors (mostly commercial banks) still hold significant shares of public and publicly guaranteed debt. In Côte d’Ivoire, Nicaragua, and Zimbabwe, private creditors’ share in public and publicly guaranteed debt fell from over half in the late 1970s and early 1980s but was still about 20 percent in 1994. Private creditors also hold more than 20 percent of public and publicly guaranteed debt in Albania and Mongolia. Key features of private lending to ESAF users are highlighted in Box 7.1.

Table 7.3

Distribution of Public and Publicly Guaranteed External Debt by Creditor

(In percent)

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Source: Calculated from Debtor Reporting System (World Bank).

Excluding transition economies.

Debt-Service Burdens

Nominal debt—because it does not reflect the degree of concessionality—overstates the debt burden of most ESAF users. During 1985–95, the ratio of scheduled debt service to exports improved (fell) in over 70 percent of ESAF users, although even in 1995 the ratio exceeded 25 percent—the upper end of the benchmark range in the framework for the HIPC debt initiative—in over half of the countries. Moreover, scheduled debt service relative to GDP improved for significantly fewer countries than did the ratio to exports (Figure 7.1).13 Thus, for many countries, including some where the ratio of debt service to exports improved, overall debt-service burdens remained severe. The median ratio of scheduled debt service to exports trended downwards from 43 percent in 1985 to 28 percent in 1995.14 The ratio of scheduled debt service to GDP presents a more static picture: modest improvements in the late 1980s, especially among HIPCs, were halted in the early 1990s (Figure 7.2; a list of HIPCs and non-HIPCs covered in this review is presented in Box 7.2.).15 These differing trends reflect a doubling in the share of GDP exported by nontransition ESAF users (from 14 percent to 27 percent between 1985 and 1995).

Figure 7.1
Figure 7.1

Scheduled Debt Service

Source: IMF staff estimates.1Values for Mozambique (1985 = 277.0 and 1995 = 108.2) are not shown because of scale considerations.2Excludes Guyana.
Figure 7.2
Figure 7.2

Scheduled Debt Service of ESAF Users1

Source: IMF staff estimates.1Excluding transition economies, Guyana, and Tanzania.2Heavily indebted poor countries.

Exceptional Financing

There are significant differences in the extent to which various groups of ESAF users relied on exceptional financing (Table 7.4). For the HIPCs, total exceptional financing tended to rise in relation to exports, with debt relief (rescheduling and cancellation) being the dominant form of such financing. Although net accumulation of arrears declined for the HIPCs, this form of financing was still as important as balance of payments support for this group of countries during 1991–95. For the non-HIPCs, arrears accumulated during 1981-85 were reduced in 1986–90, and balance of payments support was the main form of exceptional financing after the mid–1980s. The Asian countries stand out as having made little use of debt relief and accumulation of arrears.

Table 7.4

Annual Average Exceptional Financing by ESAF Users1

(Annual average; in percent of exports of goods and nonfactor services; group means)

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Source: IMF staff estimates.

Excluding transition economies.

Rescheduling and cancellation.

Program and adjustment lending by the World Bank, the African Development Bank, the Asian Development Bank, and the Inter-American Development Bank.

Private Lending to ESAF Users

Significant Source of Financing for a Few Countries

Historically, private creditors (mostly commercial banks) have been an important source of medium-and long-term financing for a few ESAF users. In the mid–1970s, these creditors held more than half of the public external debt of Côte d’Ivoire, Nicaragua, Togo, and Zimbabwe, and between one-third and one-half of the public external debt of Bolivia, Guyana, Senegal, and Sierra Leone.

Sharp Rise in the Late 1970s and Early 1980s

During a short-lived boom in commodity prices in the late 1970s, several countries—for example, Bolivia, Côte d’Ivoire, Kenya, Madagascar, Nicaragua, Niger, Senegal, and Togo—borrowed heavily from commercial banks to sustain expenditure levels that had been boosted during the upturn. Annual disbursements of medium- and long-term loans by private creditors to nontransition ESAF users covered in this review increased from $0.8 billion in 1975 to S3.1 billion in 1980. Disbursements to Côte d’Ivoire, which rose from less than $0.3 billion to nearly $1.2 billion over this period, accounted for a large part of the increase.

Slowdown in New Lending After the Debt Crisis

In the aftermath of the debt crisis in the early 1980s, there was a considerable slowdown in private lending to ESAF users. Annual disbursements fell to under $1 billion in 1985 and have since fluctuated between $0.7 billion and $1.2 billion, with disbursements to Côte d’Ivoire falling to under $0.3 billion in 1983 and to $22 million in 1994. Net transfers (that is, disbursements minus debt-service payments) have been negative since 1983, except for a small positive transfer ($33 million) in 1993.

Restructuring of Commercial Bank Debt

Many of the countries that borrowed heavily from private sources have had difficulty in meeting their debt-service obligations and have sought relief in the form of commercial bank debt- and debt-service-reduction operations. ESAF users that have completed such operations include Albania, Bolivia, Guyana, Mauritania, Mozambique, Nicaragua, Niger, Senegal, Sierra Leone, and Uganda.1 Debt buybacks (usually financed by the World Bank or bilateral donors) have been a popular form of the operation for these countries and have been combined with schemes to reduce debt-service burdens in a couple of cases (Albania and Bolivia). Vietnam and Côte d’Ivoire are at advanced stages in the process of completing similar operations.

1For details, see Dunaway and others (1995) and World Bank (1997).

Debt relief for ESAF users was often obtained in Paris Club debt-restructuring agreements.16 Typically, debt relief is provided in a succession of agreements and linked to performance under IMF-supported programs. To date, 25 ESAF users have restructured official bilateral debt under the umbrella of the Paris Club, mostly on concessional terms.17

Progress During the Adjustment Phase

In this section, the analysis shifts from broad trends, and focuses on the extent to which the countries under review have made progress toward external viability since they embarked on their first SAF/ESAF-supported programs. The approach is to compare developments in the three years prior to the first such program with developments over the most recent three-year period for which data are generally available, 1993–95.

Principal Indicators

Three main indicators are employed to gauge progress toward external viability: the ratios of scheduled debt service to exports,18 scheduled debt service to GDP, and exceptional financing (defined narrowly as arrears and debt relief)19 to exports. Countries that either improved (reduced) all three ratios or maintained them at low levels, are classified as having made “clear progress” toward external viability; countries that regressed on at least two indicators are classified as having made “no progress”; and all others are considered to have made “limited progress” (Table 7.5).20

Table 7.5

Principal Indicators of Progress Toward External Viability of ESAF Users1

(In percent unless otherwise indicated)

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Source: IMF staff estimates.

Excluding transition economies. Côte d’Ivoire and Nicaragua are excluded because their ESAF programs had been in place for less than three years at end–1995. Tanzania is also excluded because of severe deficiencies in official export data. See Table 7.22 in Appendix 7.1 for results of statistical tests.

Scheduled debt service as a ratio of exports of goods and nonfactor services. For Lesotho, the denominator includes workers remittances because of the dominance of this item in the country’s foreign exchange earnings.

Exceptional financing is defined as the sum of net change in arrears, rescheduling, and debt cancellation (current maturities). The ratio is to exports of goods and nonfactor services.

Annual average for three years preceding first SAF/ESAF program.

Number of years from the first SAF/ESAF program to 1995.

Number of annual arrangements completed since the first SAF/ESAF program.

Countries that made “clear progress” are those that showed improvement in all three indicators or maintained them at low levels. Countries that made “no progress” are those where at least two indicators worsened. All other countries are in the “limited progress” group.

The ratio of debt service to GDP is not computed for Guyana, owing to breaks in the data for nominal GDP.

The requirement that countries in the “clear progress” group show declines in both the scheduled (as opposed to actual) debt-service ratio and in exceptional financing was intended, in part, to minimize the likelihood of including in this group countries whose debt burdens had declined solely, or mainly, on account of debt relief. By definition, debt relief has no effect on scheduled debt service, while heavy reliance on such relief would tend to push up total exceptional financing.21 The stipulation that ratios of debt service to exports and GDP should improve for countries in the “clear progress” group also reduces the risk of including instances where an apparent easing of the debt-service burden is achieved only by diverting a higher share of stagnant or declining GDP to exports (more direct evidence on this point is given in the next section of this chapter).

ESAF Users: HIPCs and Non-HIPCs

For some of the background analysis for this study, the countries under review were classified according to whether they belonged to the group of 41 countries that were identified by the staffs of the World Bank and the IMF in 1995 as heavily indebted poor countries (HIPCs).1 The groupings were as follows:

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1HIPCs not covered in this review are Angola, Cameroon, Central African Republic, Chad, Republic of Congo, Democratic Republic of Congo (former Zaïre), Ethiopia, Guinea-Bissau, Liberia, Myanmar, Nigeria, Rwanda, São Tomé and Príncipe, Somalia, Sudan, Yemen, and Zambia.

Country experiences differ for various reasons, including how long and how persistent the adjustment effort has been. A few countries started their ESAF-supported programs relatively recently, and thus the process of external adjustment may be at an early stage. Also, as detailed in Chapter 9, there were frequent gaps and interruptions in ESAF-supported programs in most countries, some of which could be characterized as periods of “nonadjustment.” For reference, these features of country experience are represented (albeit crudely) in the last two columns of Table 7.5.

Excluding two late ESAF users—Côte d’Ivoire and Nicaragua—where programs had been in place for less than three years at end–1995, as well as the transition countries and Tanzania (on data grounds), 12 countries made clear progress since their first SAF/ESAF arrangement, 10 made limited progress, and 5 made no progress.22 In general, the direction of change in the external burden indicator was the same as dial: for the internal burden indicator. However, there were four countries (Ghana, Madagascar, Mozambique, and Sierra Leone) where the ratio of debt service to exports either fell or was broadly stable, but the ratio of debt service to GDP rose; in each, this divergence reflected a sharp increase in the share of exports in GDP.

All except four countries that made clear progress (Bangladesh, Lesotho, Nepal, and Sri Lanka) still had ratios of scheduled debt service to exports above 20 percent by 1993–95; two others (Malawi and Mauritania) continued to have rather high ratios of debt service to GDP (greater than 10 percent:). At the other end of the spectrum, the ratio of debt service to GDP increased for all the countries that made no progress, and all three ratios worsened for two countries in this group (Kenya and Sierra Leone).23 The countries that made limited progress typically increased reliance on exceptional financing but maintained or improved their ratio of debt service to exports and to GDP (Figure 7.3).24 In this group, the very high levels of Mozambique’s debt service and exceptional financing (well over 100 percent of exports) stand out.25

Figure 7.3
Figure 7.3

Principal Indicators of Progress Toward External Viability1

(In percent unless otherwise indicated)

Source: IMF staff estimates.1Excluding transition economies, Côte d’Ivoire, Nicaragua, and Tanzania. Countries that made “clear progress” are those that showed improvement in all three indicators or maintained them at low levels; countries that made “no progress” are those where at least two indicators worsened; all other countries are in the “limited progress” group.2Scheduled debt service as a ratio of exports of goods and nonfactor services.3Scheduled debt service as a ratio of GDP.4Exceptional financing is defined as the sum of net change in arrears, rescheduling, and debt cancellation. The ratio is to exports of goods and nonfactor services.5Excluding Mozambique.

The distribution of relatively early and late SAF/ESAF users was fairly even across groups. The average time span since the first SAF/ESAF arrangement ranged from 8.5 years for the countries that made limited progress to 6.8 years for the “no progress” group. One area in which differences between the groups was significant was the relative amount of time spent under completed annual arrangements—60 percent for the “clear progress” group, compared with 49 percent and 35 percent for the “limited progress” and “no progress” groups, respectively.

The 1993 ESAF review concluded that 11 of 19 countries covered either made significant progress toward external viability or maintained relatively favorable positions. The remaining eight countries were judged to have made little progress in relieving external pressures on their economies. Although the present review employs a slightly different methodology and classification scheme, some comparison can be made between its results and those of the 1993 ESAF review (Table 7.6):

  • Eighty-one percent of the countries reported on in this review made some progress toward external viability, compared with 58 percent in the 1993 review (Schadler and others, 1993).

  • More than half of the poorer performers in the 1993 review (specifically, Burundi, Guinea, Mauritania, Niger, and Uganda) are now classified as having made some progress.

  • Two countries covered by the last review—Kenya and Madagascar—remain classified as having made little or no progress toward external viability.26

  • All of the 11 countries that made progress in the 1993 review are once again judged, in this review, to have made some progress.

Table 7.6

Comparison with Results of 1993 ESAF Review

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Schadler and others (1993). The 1993 review measured progress toward external viability by the evolution of ratios of debt and debt-service to exports, and by the extent of reliance on exceptional financing. Countries that made progress were those in which the indicators declined or remained stable at relatively favorable starting positions over the course of their SAF/ESAF-supported programs.

Fiscal Burden of Debt Service

The ratio of scheduled debt service to government revenue declined for most of the countries that made some measure of progress toward external viability and rose for nearly all the countries in the “no progress” group (Table 7.7). The ratio in the most recent three-year period remained very high (over 50 percent) for more than 40 percent of the sample covered in Table 7.7, including for two of the countries that made clear progress (Malawi and Mauritania).27 However, in several of these cases with high ratios of debt service to government revenue—Guinea, Madagascar, Niger, Sierra Leone, and Togo—government revenue relative to GDP of 7–13 percent suggests a weak government revenue effort.

Table 7.7

External Debt Service: Fiscal Burden Ratios1

(In percent)

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Source: IMF staff estimates.

Excluding transition economies, Côte d’Ivoire, Nicaragua, and Tanzania. See Table 7.22 in Appendix 7.1 for results of statistical tests.

Government revenue excluding grants.

Annual average for three years preceding first SAF/ESAF program.

See footnote 7 in Table 7.5 for description of categories.

Progress on Vulnerability Indicators

The vulnerability of the external positions of ESAF users is judged by indicators of export concentration, holdings of international reserves, and variability in export earnings (Table 7.8).28 As would be expected, on average, the group with more concentrated exports held more reserves and also increased the level of reserves as export concentration rose. Also as expected, countries in the group with more diversified export bases generally had more stable export earnings.

Table 7.8

ESAF Users: Vulnerability Indicators1

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Source: IMF staff estimates.

Main export accounts for over 50 percent of total; ** main export accounts for over 75 percent of total.

Excluding transition economies.

The reserves reported for individual CFA African countries (Benin, Burkina Faso, Côte d’Ivoire, Equatorial Guinea, Mali, Niger, Senegal, and Togo) are not as meaningful as for the other countries because of the pooling arrangements in the CFA franc zone.

The ratio of the standard deviation to the mean of exports of goods and nonfactor services over the period (in percent).

The standard error of a linear trend regression (with a constant term), in percent of average exports of goods and nonfactor services during 1985–95.

Countries where the 1995 share of the top three exports in the total was more than 10 percent higher than the 1985 ratio, or where the top three exports accounted for over 75 percent of total exports in 1995, are classified as “increasing or very high export concentration.” The others are grouped under “decreasing or moderate and stable export concentration.”

Export data for 1994-the latest for which a reliable commodity breakdown is available-were used to calculate the share of the three top exports in total shown under the 1995 column.

1986 export data and 1987 reserves data used for 1985.

Overall, there appears to have been some reduction in vulnerability. Nearly half of the countries considered reduced their levels of export concentration, and about two-thirds increased their holdings of international reserves (Table 7.9). There was no clear pattern, however, among countries grouped according to the degree of progress toward external viability.

Table 7.9

ESAF Users: Progress on Vulnerability Indicators1

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Source: IMF staff estimates.

Based on data in Table 7.8.

Refers to the proportion of countries within each group for which the specified indicator moved as marked.

Debt Sustainability

Discussion of the extent to which countries have made progress toward external viability thus far has relied on historical trends. The focus in the debt-sustainability analysis used for the HIPC Initiative is, instead, on the future time path of key indebtedness indicators, derived from country-specific macroeconomic scenarios. These scenarios, geared toward assessing the sustainability of countries’ debt, depend on assumptions about commodity prices, net resource flows (including debt relief), and macroeconomic policies. Two key thresholds of sustainability have been established to serve as benchmarks for the analyses: a range of 200–250 percent for the NPV debt-to-export ratio; and 20–25 percent for the debt-service-to-export ratio.29 The levels judged to be sustainable for a particular country take account of the fiscal burden of debt service and other vulnerability factors, including susceptibility to trade shocks, official reserve positions, and the extent of reliance on foreign transfers.

A summary of the main debt and debt-service indicators from debt-sustainability analyses that have been prepared by IMF staff for 25 ESAF users is presented in Table 7.10. Seventeen out of the 25 countries are projected to maintain or attain ratios below the threshold levels by 2000. However, five of these countries would continue to have rather high ratios of debt service to government revenue (above 25 percent) in 2000.

Table 7.10

HIPC ESAF Users: Indicators of Debt Sustainability1

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Source: IMF staff estimates.

Excluding transition economies. For Burundi, based on preliminary data.