Spotlight on External Debt and Public Debt Data
When the global economy is buoyant, international commodity prices robust and market conditions benign, scant attention is paid to public and external borrowing by low- and middle-income countries and the data that tracks borrowing trends and volumes. But, when debt crises occur inadequate or incomplete data are typically cited as an important part of the problem, often giving rise to new data collection systems. The Quarterly External Debt System (QEDS)was implemented in the wake of the Asian Crisis to respond to demands for high-frequency data. The launch of the Quarterly Public Sector Data (QPSD) in 2010 was part of a global effort to fill key financial data gaps that impeded policy response to the 2008 financial crisis. Current concerns over external and public debt sustainability in low-income countries, including many that benefited from large-scale HIPC and MDRI debt relief, have put the spotlight on measuring contingent liabilities, collateralized debt and transparency. Before taxing national debt offices with additional demands, a stock-taking of the timeliness and quality of the external debt and public debt data currently available is in order.
Public and Publicly Guaranteed Debt
The ‘grande dame’ of external debt statistics is the World Bank Debtor Reporting System (DRS), instituted in the 1950s. A condition of borrowing from IBRD and IDA is submission by the borrower of a detailed account of its external public and publicly guaranteed obligations to the DRS: specifically, loan-by-loan commitment data on a quarterly basis and stock and flow transactions for each loan, annually. The DRS methodology mirrors that of the balance-of-payments: external debt is any debt-related transaction between a resident and a non-resident, regardless of the currency in which it takes place. The DRS defines ‘external public and publicly guaranteed debt’ as obligations of the sovereign, state and local governments, public and private enterprises with an explicit guarantee by the sovereign and the debt of state-owned enterprises where the sovereign owns 50 percent or more. Due to its longevity the DRS has a comprehensive, long-dated time series of cross-country comparable external debt data for over 125 low- and middle-income countries. The loan-by-loan structure allows for flexibility of data extracts and aggregations for cross-referencing with creditor information and analytical applications.
The past decade has seen a significant improvement in debt management in low- and middle-income countries with several factors at play. These include the conditions imposed by IMF programs, the demands of credit rating agencies, the rigors of debt workout scenarios and debtor-creditor data reconciliation, and advances in debt management software and its wider application. For low-income countries, a key element is capacity building through the Debt Management Facility (DMF), set up by the Bank and international partners in 2008 to address the international community’s concerns regarding the adverse impact of passive or inadequate debt management practices. Since inception debt management practices in over eighty countries have been assessed, with one third having a second, follow-up assessment. Debt recording and operational risk management is a dimension of debt management identified as one where important strides have been made. This finding is mirrored in the improvement in DRS reports, now assessed as fully satisfactory in terms of comprehensiveness, data quality and adherence to the specified timetable for reporting for 75 percent of countries. Similarly reporting to QEDS, encouraged but voluntary, has expanded to over 80 percent of low- and middle-income countries.
External Private Sector Non-Guaranteed Debt
In addition to external public and publicly guaranteed debt, external borrowing by private sector entities, without the guarantee of the government, is also captured in the DRS: it requires an annual aggregate report on this category of debt from all countries where such borrowing is significant. The majority of DRS reporters comply but a significant gap remains in respect of low-income countries who do not collate this information or do not make it public but where data from market sources, and reports in international and national press, indicate it is an important share of external debt. Private non-guaranteed borrowing of the private sector is not a contingent liability of the government and theoretically, companies not financially viable are allow to fail. But, history shows that large-scale companies and those central to the economy are frequently seen as ‘too big to fail’ and bailed-out or taken over by the government. Thus, governments need to be cognizant of the extent of the external obligations of its private sector. The Bank’s Development Data Group, which oversees and manages the DRS, is taking steps to ameliorate the coverage of external private non-guaranteed debt through direct communication with central banks, usually the institution charged with monitoring private sector borrowing, to familiarize them with the DRS and solicit participation. In parallel it is seeking support, and information sharing, from creditors that lend extensively to private sector borrowers without a sovereign guarantee.
Public Sector Debt
The depth and breadth of domestic debt markets in low- and middle-income countries has grown exponentially since the start of the Millennium but this development has not been accompanied by a corresponding expansion in the compilation and dissemination of data on public sector debt. In contrast to external public debt, there is no mandatory reporting to an international body for the domestic counterpart. Reporting to the QPSD is voluntary and to date only a limited number of low- and middle-income countries, mostly the more advanced market borrowers, participate.
Quarterly Public Debt is reported in aggregate form, not loan-by-loan. Counter to intuition, reporting aggregates is more difficult than reporting the raw data for contractual debt obligation. Countries must categorize instruments into the relevant classification schemes, and value the debt in a manner consistent with Public Sector Debt Guide and Government Finance Statistics standards. Only a small number of low income countries regularly report into the system and those that do so typically provide information on the narrowest definition of public debt – loans and securities of the central government. Most countries have only limited capacity to measure and classify public sector debt in a manner consistent with the standards set out in the Public-Sector Debt Guide and Manual on Government Finance Statistics.
Data on domestic public debt used for in the analysis of the risk of debt distress and presented in the joint Bank/Fund DSAs is a mix of information provided by national authorities and staff estimates. The definition and scope of what constitutes domestic public debt varies from one country to the next and thus does not allow for robust cross-country comparison. Consequently, there is currently no database that provides timely, consistent and cross-country comparable data on the domestic component of public debt. This is a serious omission given the increased emphasis on public, as well as external, debt in debt sustainability analysis and particularly so for countries with elevated, and potentially unsustainable, levels of public debt. Detailed information on the form and composition of domestic debt is essential to the formulation of restructuring options and assessment of the implications for the domestic financial sector and the broader economy.
External Debt Trends in 2017
I. Trends in Low- and Middle-Income Countries
In 2017, low- and middle-income countries reporting to QEDS recorded an 11 percent increase in external debt stocks from the end 2016 level. Driving the trend were the top ten borrowers, who together accounted for 73 percent of the reported external debt stock. On average these borrowers recorded a rise in external debt of 12.5 percent in 2017, almost twice the rate of external debt accumulation of other low- and middle-income countries reporting to QEDS. Borrowing patterns across the major borrowers were divergent. Brazil was the only country where external debt contracted marginally in 2017 (by 1 percent) while Russia and Mexico posted moderate increases, 5 percent and 6 percent respectively. In contrast, new external borrowing by China surged, pushing external debt stock at end 2017 up 21 percent over the comparable figure for 2016. South Africa also saw external debt stock rise 21 percent in 2017, with much of this rand denominated debt held by non-residents. Argentina posted the largest increase among the top-ten borrowers, 28 percent, with external borrowing by both public and private, non-guaranteed, sector borrowers up sharply.