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Public debt in developing economies rose at a fast clip during 2020–21, at least partly due to the onset of the global Covid-19 pandemic. Nobel laureate Paul Krugman opined in early 2021 that “fighting covid is like fighting a war.” This paper argues that the Covid-19 pandemic shares many traits with natural disasters, except for the global nature of the pandemic shock. This paper empirically examines trends in debt and economic growth around the onset of three types of calamities, namely natural disasters, armed conflicts, and external-debt distress in developing countries. The estimations provide quantitative estimates of differences in growth and debt trends in economies suffering episodes of calamities relative to the trends observed in economies not experiencing calamities. The paper finds that debt and growth evolve quite differently depending on the type of calamity. The evidence indicates that public debt and output growth tend to rise faster after natural disasters than in the counterfactual scenario without disasters, thus illustrating how debt-financed fiscal expansions can help economic reconstruction. The findings are different for episodes of debt distress defined as periods of debt restructuring, however. Economies experiencing debt distress are associated with growth trends that are on average below the growth rates of unaffected economies prior to and after the beginning of an episode of debt restructuring.

This paper develops a dynamic infinite-horizon model with two layers of governments to study theoretically and quantitatively how fiscal decentralization affects local and central government debt accumulation and spending. In the model, the central government makes transfers to local governments to offset vertical and horizontal fiscal imbalances. But the anticipation of transfers lowers local governments’ expected cost of borrowing and leads to overborrowing ex ante. Absent commitment, the central government over-transfers to reduce local governments’ future need to borrow, and in the equilibrium both local and central debts are inefficiently high. Consistent with empirical evidence, when fiscal decentralization widens vertical fiscal imbalances, local governments become more reliant on transfers, and both local and central debts rise. Applied to Spain, the model explains 39 percent of the rise in total government debt when the vertical fiscal imbalances widened during 1988–1996, and 18 percent of the fall in debt when the imbalances narrowed during 1996–2006.

Countries with high debt exposure are vulnerable to economic and financial shocks that could lead to sovereign defaults. This paper develops a methodology to identify countries that are at risk of debt default based on four elements of debt vulnerability. These elements capture the different ways in which risks associated with high debt are assessed, namely: (i) the fundamental, (ii) the subjective, (iii) the judgmental, and (iv) the theoretical. The fundamental element considers the liquidity, solvency, and institutional risk elements of debt vulnerability. The subjective element captures the investors’ perceptions of debt default, while the judgmental element is based on the debt thresholds as defined by Debt Sustainability Frameworks. Finally, the theoretical element is normative and captures what ought to be. The methodology constructs an index for each of these four elements and uses them as predictors in a model of public debt default. The methodology flags countries that are at risk of default by means of machine learning techniques and delivers outputs that point to underlying causes of vulnerability. The methodology complements existing monitoring tools for assessing debt sustainability.

This paper investigates the characteristics of resource-backed lending across Sub-Saharan Africa. To shed light on this type of lending, the paper presents new information on 30 resource-backed loans between 2004 and 2018, identified through publicly available information. These loans were concentrated in a few countries, where they represented a sizable fraction of all borrowing and were typically taken by central governments and state-owned enterprises. Although the loan terms are mostly opaque, where data are available, the study finds that such loans are not cheaper than regular loans. The paper highlights opportunities to transparency and offers some suggestions for improving the governance of collateralized borrowings across developing countries.

This is the first of three Debt Reports for 2022 to be published online over the course of the year to provide users with data and analysis on external and public debt of low- and middle-income countries. Debt Report 2022 First Edition present summary analyses of the composition of external debt stocks and flows from the regional perspective. It draws out the main messages of the regional and country specific data and incorporates updates to the 2020 data included in IDS 2022. The report also presents updated data on the outcomes of the Debt Service Suspension Initiative (DSSI). The updated dataset was released in December 2021 and is available to users at: https://data.worldbank.org/products/ids.

The Economic Monitor examines four possible factors behind Tunisia’s slow recovery. First, the drop in mobility related to the pandemic may have been more harmful in Tunisia. However, mobility in Tunisia has dropped to a similar extent as other countries and it has now returned to pre-pandemic levels following the acceleration in the vaccination campaign since July. If anything, the mobility drop in Tunisia has resulted in a lower reduction in economic activity than in comparator countries as Algeria and Egypt. Second, it could be that the level of public support to the ailing firms and households may have been particularly low. However, at 2.3 percent of GDP, the Covid-19 stimulus package in 2020 was in the same ballpark as other comparators in the region. Third, the structure of the Tunisian economy, particularly its reliance on tourism, may have exposed it to the negative demand shock more than other countries. Indeed hotels, cafe and restaurant and transport are the sectors which have contracted the most since the start of the pandemic. The losses of these sectors explain a significant portion of the negative effects of the crisis in Tunisia, although they do not fully account for such slow recovery.

Bolivia made substantial progress in reducing poverty and inequality during the commodity boom, and despite the adverse external context of the past five years, poverty reduction continued, albeit more slowly. Expansionary policies allowed the country to continue growing and reducing poverty until the pandemic but did so at the expense of large macroeconomic imbalances that increased public debt and eroded the buffers. With these challenges exacerbated by the pandemic and limited room to continue fueling domestic demand, igniting other sources of inclusive and sustainable growth calls for addressing both the immediate challenges of the COVID-19 crisis and structural constraints. The three challenges identified five years ago in the first Systematic Country Diagnostic remain, but their urgency has increased.

This note analyzes the short-term effects of the COVID-19 (coronavirus) shock during the first year of the crisis and presents alternative medium-term recovery scenarios. It asks a set of questions, and in answering those questions, provides policy suggestions for the Vietnamese authorities'consideration. These questions are: (i) How were tax revenues affected by the shock, and how, in turn, did they affect the fiscal space available to the authorities What tax measures did the authorities implement to mitigate the shock and how successful were they What are the implications for any future tax policy and tax administration reforms (ii) How did the COVID-19 shock affect expenditures What fiscal measures did the authorities implement to mitigate the shocks, and how successful were they (iii) How did the shock affect fiscal balances and public debt (iv) What are the growth and fiscal prospects in the medium term

This paper presents a comprehensive analysis of the impact of COVID-19 on debt, puts recent debt developments and prospects in historical context, and analyzes new policy challenges associated with debt resolution. The paper reports three main results. First, even before the pandemic, a rapid buildup of debt in emerging market and developing economies—dubbed the “fourth wave” of debt—had been underway. Because of the sharp increase in debt during the pandemic-induced global recession of 2020, the fourth wave of debt has turned into a tsunami and become even more dangerous. Second, five years after past global recessions, global government debt continued to increase. In light of this historical record, and given large financing gaps and significant investment needs in many countries, debt levels will likely continue to rise in the near future. Third, debt resolution has become more complicated because of a highly fragmented creditor base, a lack of transparency in debt reporting, and a legacy stock of government debt without collective action clauses. National policy makers and the global community need to act rapidly and forcefully ensure that the fourth wave does not end with a string of debt crises in emerging market and developing economies as earlier debt waves did.

In the last five years, since the last Systematic Country Diagnostic (SCD) was written in 2016, Mozambique experienced several severe shocks affecting economic growth, poverty reduction, and stability. These events have changed the context for policy making in Mozambique, calling for a greater focus on governance and accountability, productivity, social safety nets, and a stronger social contract. Despite these new challenges, most of the development trials that were already relevant when the last SCD was written in 2016, remain relevant today.

Systematic Country Diagnostics (SCDs) analyze the most critical constraints and opportunities to ending extreme poverty and promoting shared prosperity in a sustainable manner. The first SCD for Egypt was published in 2015. A lot has happened since then, so this SCD Update takes advantage of a longer stretch of reforms and newer data up to 2019 to identify and again assess the set of priorities through which Egypt can most effectively and sustainably achieve the goals of poverty reduction and shared prosperity.

The Debt Management Performance Assessment (DeMPA) is the World Bank’s diagnostic tool for assessing performance using a comprehensive set of indicators that span the full range of government debt management (DM) functions. Launched in 2007, revised in 2015, the indicators have become an internationally recognized standard in the government DM field and can be applied in all developing countries. The DeMPA offers a sound diagnostic framework that allows a country’s DM processes and institutions to be evaluated against sound international practice, identifying core strengths and weaknesses, and thereby helping strengthen capacity and institutions so that countries can manage their government debt effectively and sustainably. It will assist countries that want to undertake debt management reforms, helping to monitor progress with achieving government DM objectives consistent with international sound practice. The DeMPA is modeled on the Public Expenditure and Financial Accountability (PEFA) indicators, however, it uses a more comprehensive set of indicators, spanning the full range of government debt management (DM) functions, to provide a detailed assessment of government DM. The DeMPA methodology consists of two parts: i) a description of the methodology and ii) an evaluation tool that summarizes key questions that should be assessed in the context of a DeMPA evaluation.

The global economy is projected to grow 6 percent in 2021, stronger than had previously been expected, reflecting fiscal support in advanced economies, especially the US, and faster rollout of vaccines than anticipated. However, amid COVID-related uncertainty, recoveries are varying within as well as between countries. Growth is projected to vary substantially depending on the policy space available, and how much a country relies on tourism and commodity exports. While advanced economies as a group are now projected to grow by 5.1 percent in 2021, growth in Sub-Saharan Africa (SSA) will rebound by only 3.4 percent. The immediate and medium-term policy priorities should focus on strengthening the response to the COVID-19 pandemic by rolling out a strong vaccination program and implementing broad-based macroeconomic reforms to support a quick economic recovery. First, to prevent a severe second wave from disruption economic recovery over the medium-term, the authorities should develop and implement a robust vaccination program that targets inoculation of population ‘at risk’ (health workers, persons aged 70 years and those with comorbidities) and all adults. Sierra Leone’s access to vaccines could depend on its strategic relationship with key development partners and vaccine-producing nations. The country should strengthen alliances with development partners and support multilateral-led approaches by the African Union to increase its access to vaccines. Second, addressing existing macroeconomic weaknesses and implementing reforms to mitigate the existing risks to medium-term recovery will be critical for a sustained inclusive economic recovery that supports poverty reduction. Fiscal Policy can also be useful in ensuring that the economic recovery is pro-poor and inclusive. For the recovery to be pro-poor and pro-welfare, fiscal policy should balance the risks from growing debt with those from premature consolidation. Given the limited fiscal space, policy support should focus on expenditure reprioritization toward social sectors to ensure wider access to basic public services, especially vaccinations. This reprioritization effort should be grounded on credible medium-term fiscal frameworks. Both pre-distributive (policies that affect the distribution of market income) and redistributive (after-market) are needed to tackle poverty and inequality over the recovery period. Predistributive policies include measures to enhance access to basic services. Redistributive policies include tax and transfer policies designed to reallocate income from the top to the bottom of the income scale.

This paper contributes to the existing literature in several ways. First of all, to the best of our knowledge this is the first paper to exclusively model and analyze the impact of aging on long-term growth in Thailand. Although there several studies that have analyzed the relationship between aging and private saving in Thailand, this is the first to employ a cointegration analysis. This approach is more suitable given that we are interested in the long-term relationship between the two and the fact that demographic changes are slow. Moreover, this paper is the first most comprehensive study of the macroeconomic and fiscal impacts of aging in Thailand. Existing studies have focused on how aging impacts one variable (Pootrakool et al. 2005; IMF 2019). The rest of this paper is organized as follows. Section two presents an assessment of the impact of aging on macroeconomic variables. Section three analyzes how aging is likely to impact Thailand’s fiscal standing. Section four discusses various reforms that can help mitigate the negative impact of aging on long-term growth and fiscal sustainability and section five concludes.

This Fiscal and Debt Sustainability Note, the first module of a programmatic multisectoral Public Expenditure Review (PER), reviews the recent macro-fiscal challenges, analyzes their causes and consequences and provide policy options for enhancing the conduct of fiscal and PFM policies in the country. The first part of this module draws on the Boost database to provide a comprehensive overview of the budget covering both revenues and expenditures. It analyzes the composition of the budget (based on economic and functional classifications) and discusses the most critical PFM issues the country faces. It also assesses budget execution and the efficiency of public expenditure. The second part of the module focuses on fiscal risks and their implications for medium-term fiscal and debt sustainability. It examines the recent evolution of public debt, its main drivers and relationship to economic growth. It describes recent reforms to address fiscal and debt vulnerabilities and how these reforms have been affected by the global pandemic. It also analyzes the main fiscal risks with a focus on those stemming from State-Own Enterprises (SOEs), local councils, litigations, natural disasters, and health crises. This part uses simulations to analyze the most likely evolution of the public debt path over the next 20 years under alternative risk scenarios. Finally, the module proposes practical and actionable policy options to help improve the macro-fiscal environment over the short term and preserve debt sustainability over the medium term.

The deep recession in many of the emerging market transition economies of Europe and Central Asia caused by the COVID-19 crisis has raised fears of long-term damage to potential output through scarring and hysteresis. These economies were also hit hard by the great recession caused by the global financial crisis. This paper provides empirical estimates of the impact of the great recession on the subsequent medium-term level of real gross domestic product in a sample of 65 middle-income countries. It finds evidence of a significant hysteresis parameter in these countries. The paper also examines how the combination of a hysteresis parameter and a positive fiscal multiplier can mean that a countercyclical fiscal expansion that successfully mitigates the output loss in a recession need not worsen public debt levels in the medium to long term because of its positive impact on potential output and thus the tax base.

Low- and middle-income country governments are increasingly tapping the global debt capital markets. This is increasing the amount of finance available for development, but at a considerably higher cost than traditional external borrowing on concessional terms. Using a novel methodology based on estimating sovereign credit ratings using the Moody’s scorecard, and examining the associations between these ratings and the World Bank’s Country Policy and Institutional Assessment scores, this paper examines how making improvements in the quality of economic policies and institutions can help lower governments’ financing costs. This method aims to overcome the small-sample problem due to the number of rated developing country sovereigns still being relatively limited (although growing). Better economic governance Country Policy and Institutional Assessment scores are associated with better estimated ratings and materially lower financing costs; on average, improvements that are sufficient to increase the Country Policy and Institutional Assessment economic governance indicator score by one point are associated with interest costs that are lower by about 40 basis points, even setting aside the direct impact on ratings of better governance indicators. There are many reasons why improving governance is a good thing. Among them is the potential payoff to the public purse — savings of $40 million or more on a standard $1 billion, 10-year bond.

This paper shows expansionary fiscal austerity via reallocation of credit supply, but with a raise in poverty. For identification, the paper exploits the introduction of a Mexican law limiting the debt of subnational governments along with matched credit register, firm, bank, and state datasets. After the law, states with higher ex ante public debt grow substantially faster, despite larger fiscal consolidation (higher taxes and lower public expenditure). Banks operating in more indebted states reallocate credit supply away from local governments into private firms, with stronger effects for banks with higher exposure to local public debt, consistent with lowering crowding out. Effects only happen after the law, not before, and there are strong firm-level real effects associated. The reduction of crowding out is stronger for financially constrained firms and for firms operating in states with higher ex ante public spending on social services over infrastructure projects. In states more affected by the law, despite better economic effects, extreme poverty increases––especially in states with higher ex ante public spending on social services over infrastructure––consistent with a strong reduction for social services during the fiscal consolidation.

With public debt levels rising in Uganda, debt transparency is critical for providing accountability to the general public, enabling informed decisions by domestic businesses, and allowing foreign creditors to understand borrowing trends. Debt and debt management transparency improve accountability and, potentially, borrowing outcomes. Over the past decade, the emergence of new external creditors in Uganda has opened new sources of financing and has in parallel increased the complexity of public debt portfolios. This makes debt and debt management transparency even more important. While new sources of funding can provide opportunities to advance development goals, they can also lead to significant economic costs, if debt is not managed well. Uganda is doing well in terms of public debt and debt management transparency compared to other Sub-Saharan, IDA-eligible countries, when assessed through the lens of the World Bank’s (WB) Public Debt Heat Maps. These Heat Maps present an assessment based on the availability, completeness and timeliness of public debt statistics and debt management documents posted on national authorities’ websites. The continuous efforts in publishing debt data in Uganda have resulted in good data disclosures of explicit and implicit public debt data when compared to peers. That said, the transparency stock-taking is not designed to make statements about the accuracy of the data or the quality of the analyses (the in-house debt management strategy and debt sustainability analysis) nor does it make statements about institutional shortcomings and legal weaknesses that would need to be addressed to arrive at sound, transparent borrowing processes. Despite the good outcomes of the transparency assessment based on the WB Heat Map methodology, the report singles out a few dimensions that require further attention such as: i. reducing time lags by publishing domestic arrears data semiannually, ii. providing more granularity on state-owned enterprise debt by listing the largest ten with the corresponding debt breakdown, iii. including a section on collateralized debt in the Annual Debt Report and minimizing confidentiality clauses; and iv. where permissible publishing entire or parts of contracts to further enhance transparency.

This is the second of the series of Debt Reports for 2021 to be published online, at regular intervals, over the course of the year. Their aim is to provide users with analyses of evolving trends and development related to external debt and public debt in individual countries and regional groups, with primary emphasis on low- and middle-income countries, and to keep users abreast of debt-related issues and initiatives. Debt Report 2021 Second Edition is focused on the preliminary estimates of external debt stocks at end-2020 for 120 low, and middle-income countries, and information on low- and middle-income countries’ bond issuance in international capital markets in 2020. It also provides an update on the Debt Service Suspension Initiative (DSSI) as well as an overview of a new initiative aimed at creating a comprehensive dataset of domestic debt obligations of low, and middle, income countries.

COVID-19 has severely affected Ethiopia, weakening its economic performance. Ethiopia has experienced a collapse in external demand since April 2020 due to COVID-19. While merchandise exports, excluding gold, increased by 5.8 percent overall in FY20, they declined by 4.1 percent during July-December 2020 (year-on-year). Exports of garments, textiles, and fruits and vegetables have been particularly hit since the onset of the pandemic. Both exports and imports of services, dominated by air transport, recorded negative growth in FY20. Remittances dropped by 10 percent in FY20, although they have rebounded during the first half of FY21. Merchandise imports, which were already on decline prior to COVID-19, dropped by 8 percent in FY20, contributing to the narrowing of the current account balance, estimated at about 4 percent of GDP. Meanwhile, foreign direct investment has been severely hit, with inflows declining by 20 percent in FY20, contributing to weakening reserve levels. Despite the severe impacts, Ethiopia grew at 6.1 percent in FY20, as the impact of the COVID-19 pandemic took place largely in the final quarter of the fiscal year. Phone survey data suggests that both firm revenue and household income are significantly depressed, which points to weakening domestic demand. The adverse impact of the COVID-19 pandemic on economic activity is expected to continue in FY21, prior to experiencing a rebound in FY22 and beyond. Further action is needed to ensure a resilient economic recovery. The Government of Ethiopia is to be commended for having kept advancing its Homegrown Economic Reform Agenda despite COVID-19. Implementing some complementary reforms will be key to ensuring a resilient recovery in the new COVID-19 normal.

The COVID-19 pandemic had a significant adverse impact on the Tajik economy. Real GDP growth slowed to 4.2 percent year-on-year in the first nine months of 2020, compared to 7.2 percent a year earlier. Restrictions on labor mobility and economic activity at home and abroad resulted in lower migrant remittances, weaker consumer demand, and reduced investments. Although exports enjoyed a record global demand for gold, the domestic market collapsed, suggesting a more severe impact of COVID-19 on domestic jobs and incomes. A growing share of the population reported reducing their food consumption, and the inability of previously returned migrants to travel abroad led to a significant increase in the unemployment rate. The healthcare system faces unprecedented pressure to accommodate a sudden influx of patients. International financial institutions and partner countries rushed with financial and in-kind aid to help Tajikistan contain the pandemic’s impact. In an effort to ameliorate the economic fallout, the authorities deferred tax collections, boosted health and social spending, and eased monetary policy. They established an interagency task force to address health challenges emerging from the pandemic.

The framework for reform, recovery, and reconstruction (the 3RF) is part of a comprehensive response to the massive explosion on the Port of Beirut on August 4, 2020. It is a people-centered recovery and reconstruction framework focusing on a period of 18 months that will bridge the immediate humanitarian response and the medium-term recovery and reconstruction efforts to put Lebanon on a path of sustainable development. The overall objective of the 3RF is to help address the urgent needs of the affected population and ensure that results are delivered through an efficient, timely, and well-coordinated recovery and reconstruction effort, with the involvement of all stakeholders and support from the international community. The 3RF is structured around four strategic pillars: (1) improving governance and accountability; (2) jobs and opportunities; (3) social protection, inclusion, and culture; and (4) improving services and infrastructure. Each pillar identifies a set of strategic objectives and priority areas across both the recovery track and the reform and reconstruction track. The 3RF is also designed to contribute to: (a) consensus-building among the government of Lebanon and Lebanese non-state actors on the required enabling policy environment and on priorities for recovery and reconstruction; (b) an agreed reconstruction and recovery framework between Lebanese society and development partners; (c) a programmatic and integrated approach across all sectors; (d) harmonized financing that aligns with the framework; and (e) a gradual transition from humanitarian response to recovery and reconstruction. The report is organized as follows: section one gives context and key challenges; section two presents 3RF scope and strategic objectives; section three presents macroeconomic stabilization as a foundation for recovery and reconstruction; section four discusses the 3RF pillars; section five gives institutional and monitoring arrangements; and section six presents 3RF financing strategy.

Real GDP growth exceeded 6 percent during the two years before COVID-19 (coronavirus) struck, supported by rebounding confidence, investment, low interest rates, and growing tourism. Investment accounted for over 22 percent of GDP in 2019, three-fifths of which was private. The tourism market had weathered the collapse of Thomas Cook UK and expanded into new markets. Industry was the fastest-growing sector in 2019, partly due to the issuance of oil-prospecting licenses, but also due to strong investment in construction fueled by remittances from the diaspora. On the other hand, agriculture had contracted, affected by erratic rainfall and the late supply of inputs. Tourism arrivals had started the year in line with 2019 but collapsed by 50 percent in March and are expected to fall by 63 percent in 2020. However, official remittances grew at record pace in the second quarter, perhaps due to travel restrictions closing informal channels. Favorable rainfall, good access to inputs, and few pest outbreaks bode well for agriculture. It registered the lowest fiscal deficit since 2009 and a primary surplus after 2009. This came despite increased expenditure, as revenues rose due to increased excises and levies and improved revenue administration capacity. Both budget and project grants also increased. The Government continues to make large transfers to state-owned enterprises (SOEs), however, the fiscal burden of which is estimated to be around 6 percent of 2019 GDP. Pressures from COVID-19 saw the deficit rise in the first half of 2020 although the tax authorities still managed to exceed their revised collection targets. Tax exemptions, although declining, continue to be sizeable-without discretionary exemptions, the deficit in the first half of 2020 would have been reduced by 0.7 percent of GDP. Non-tax revenue has been boosted by one-off items such as the sale of assets, which partly compensated for the tax decline. The Government initially responded to pandemic-related spending pressures through budgetary reallocation. In July, the National Assembly passed a supplementary bill aimed at providing further relief and stimulating recovery.

The economic shock of the coronavirus outbreak has an unprecedented impact on public finances. Governments are implementing massive fiscal packages including both budgetary and nonbudgetary measures to fight the pandemic while receipts are sharply down. Communicating the financial consequences of Coronavirus (COVID-19) to all stakeholders in a timely manner is important to create enduring broad support. Audited financial statements play a key role in building citizen trust in government. This policy note provides reflections on how governments could make use of existing systems of financial reporting during the pandemic as well as opportunities for improved financial reporting systems for the post-crisis environment. It also seeks to share insights into the impact of the pandemic on government financial performance, position, and cash flows.

Sint Maarten is a high-income small island state located in the Caribbean that occupies the southern half of the island shared with the French overseas collectivity of Saint Martin. Sint Maarten is one of the six islands in the Caribbean that form part of the Kingdom of the Netherlands and since the dissolution of the former Netherlands Antilles on October 10, 2010 it has an autonomous constitutional status as a separate country within the Kingdom. As a small island state, Sint Maarten has an open and largely tourism-based economy. The island belongs to the Leeward Islands, a group of islands located where the northeastern Caribbean Sea meets the western Atlantic Ocean within the Caribbean hurricane belt. Sint Maarten has been exposed to numerous hurricanes, including Luis in 1995, Lenny in 1999, and Irma and Maria in 2017. The PER consists of four interconnected chapters: (i) macro-fiscal developments, (ii) health, (iii) social protection, and (iv) education. The main findings of these detailed chapters are brought together and summarized in this synthesis report. The focus of the PER on challenges in revenue generation and tax administration, public financial management, health and long-term care, social protection and pension systems, and education is motivated by the potential impact of policy and institutional reform in each of these areas on public finance.

The global economy continues to reel from the COVID-19 (coronavirus) shock. The initial economic impact of COVID-19 on global output is projected to be far more devastating than the disruptions observed during the peak downturn of the global financial crisis of 2007–09. Across theworld, lockdowns and mobility restrictions meant to control the spread of virus caused a significant slump in consumer spending and production during the first half of 2020. This in turn created substantial challenges for labor markets worldwide and has led to widespread layoffs. In addition to the economic cost, however, the pandemic has also inflicted an irreversible cost to economies in the form of human loss. So far, estimates indicate that over one million humans have lost their lives worldwide, while millions more still battle the pandemic. Beside its impact on human life, the COVID-19 pandemic has wide ranging socio-economic impacts, endangering lives, livelihoods, employment, and earnings as well as impeding service delivery. According to World Bank estimates, the pandemic could also lead to permanent loss in learning resulting in trillions of dollars in lost earnings. Despite the challenging conditions, recent global economic information indicates some recovery, albeit uneven and possibly temporary,across countries after gradual easing of lockdowns. This recovery, which is largely supported by unprecedented interventions by the central banks and governments, however, remains uneven and still far from the pre-pandemic levels. In particular, most of the major economies are again observing a surge in new infections and some of them have already re-instituted targeted lockdowns. This leaves the global economic outlook more uncertain over the coming period. The Jordanian economy is also hit hard by the pandemic amidst already high unemploymentand debt levels. Prior to the COVID-19 shock, for the past four years the economy was growing at a low trajectory of around 2.0 percent. This rate of growth was insufficient to absorb the country’s young and growing labor force. These challenges have now been exacerbated by COVID-19 related economic disruptions. Jordan’s unemployment rate spiked to 23.0 percent in Q2-2020, 3.7 percent higher than Q1-2020, with youth, particularly female youth, disproportionally affected by the crisis. Moreover, according to a World Bank study on the short-term impact of the COVID-19 pandemic on businesses, Jordan is among the countries with the largest expected drop in sales, at 60 percent, while 54 percent of businesses report they have fallen or expect to fall in arrears.

This report presents the current outlook for Morocco given the recent Coronavirus 2019 (COVID-19) developments. The COVID-19 shock is, however, abruptly pushing the economy into a severe recession, the first one since 1995. The labor market is facing a shock of historical proportion, with vulnerable workers, including those in the informal sector being particularly affected. The government’s response to date has been swift and decisive. The proactive response has enabled the country to avoid a massive outbreak, thus saving lives. The post-pandemic economic recovery is projected - with unusually large uncertainty - to be a protracted one, with growth only returning to the pre-pandemic trend by 2022. Faced with the risk of a protracted pandemic, moving from mitigation to an adaptation phase is key to ensuring a resilient, inclusive, and growing Moroccan economy. Despite potential volatility in the economic recovery phase, Morocco has an opportunity to build a more sustainable and resilient economy by developing a strategy to adapt, similar to its approach to the environment front.

This is the third in the series of Debt Reports for 2020 published online, at regular intervals, over the course of the year. Their aim is to provide users with analyses of evolving trends and developments related to external debt and public debt in individual countries and regional groups, with primary emphasis on low- and middle-income countries, and to keep users abreast of debt-related issues and initiatives.

Fiscal vulnerabilities depend on both the level and composition of government debt. This study examines the role of debt thresholds and debt composition in driving the non-linear behavior of long-term interest rates through a novel approach, a panel smooth transition regression with a general logistic model. The main findings are threefold. First, the impact of the expected public debt level on interest rates rises exponentially when the share of foreign private holdings exceeds approximately 20 percent of government debt denominated in local currency. Second, when the share of foreign private investors is 30 percent, an increase in the share of foreign private holdings of government debt could raise long-term interest rates once the public debt-to-GDP ratio exceeds 60 percent of GDP, offsetting the downward pressure on long-term interest rates from higher market liquidity. Third, out-of-sample forecasts of this novel non-linear model are more accurate than those of previous methods.

The COVID-19 (coronavirus) global pandemic will have a large negative impact on the Kenyan economy. Even before being affected by the novel coronavirus, Kenya's economy had decelerated. The World Bank estimates that GDP growth in 2019 was about 5.6 percent, down from 6.3 percent in 2018. The COVID-19 (coronavirus) shock is expected to further reduce growth in 2020 with large impacts on services (transport, retail trade, tourism, events, leisure, etc.), industry (manufacturing and construction), and agriculture. The health system is facing an unprecedented challenge to contain the spread of COVID-19 (coronavirus) and care for the infected. In addition, measures taken to slow down the rate of infection, including home confinement, travel restrictions, the closure of schools and entertainment spots, the suspension of public gatherings and conferences, and a nightly curfew, are expected to affect both production and consumption across the economy.

The objective of this note is to provide guidance for countries on how to organize a public debt management back office most effectively. It describes the core processes that should be performed by that unit that is ultimately responsible for recording, monitoring, and reporting on public debt. It also highlights their involvement in the execution and settlement process. These are the basic functions of a debt management office, and evidence shows that many countries could benefit from improvements in this area. Proper debt recording and monitoring are the essential first step to developing good quality data; these form the basis for quantitative analysis, provide support for debt operations and facilitate effective policy decisions. Focusing on the main debt instruments that are used by low income countries, the note describes each process individually and highlights their interdependence. The main conclusion is that debt managers should organize themselves around the processes not products, and they should gather information to create a dataset to support debt management activities. Sound reporting is important for risk assessment and monitoring of a sovereign, and for the development and execution of debt strategies.

Drawing on the results of recent state-level debt management performance assessments (SN DeMPAs) in seven Nigerian states and the Federal Capital Territory, the paper highlights key institutional and capacity challenges in state debt management in the context of the Nigerian fiscal federalism system. It also provides a comparison of subnational debt management practices of selected Nigerian and Indian states. The analysis highlights the important role of the central government in the successful implementation of subnational debt management functions within fiscally decentralized system, in particular by: (i) establishing a sound legal framework for subnational borrowing and defining key parameters for state indebtedness; (ii) establishing, standardizing, and monitoring state-level debt-management procedures, systems, and institutions; and (iii) building the capacity of subnational authorities along the entire cycle of debt management, including for debt management strategy formulation, borrowing plans, debt contracting, recording and reporting. While this paper focuses on state-level debt management in Nigeria, it is designed to contribute to the ongoing dialogue on international sound practices for subnational debt management and implementation of fiscal decentralization in developing countries.

Policy makers in Latin America and the Caribbean (LAC) often complain that poor fiscal performance in their countries is a result of a high degree of spending rigidity. Despite being a common complaint, the issue has remained largely ignored by the literature because of the lack of adequate measures of rigidity that allow cross-country and time series comparability. This report helps close this gap by introducing a new measure of spending rigidities that can be easily applied to multiple countries. It focuses on the categories of spending that are naturally inflexible—wages, pensions, transfers to subnational governments, and debt service—and separates them into two components: structural and nonstructural. The structural component is determined by economic, demographic, and institutional fundamentals. The nonstructural component is determined by short-run transitory factors associated with business and political cycles. The degree of rigidity of spending is then proxied by the ratio of structural spending to total spending, with a higher value indicating that spending is driven mostly by factors out of the policy makers' control. This concept of rigidity was applied to 120 countries for the years 2000–17. The report concludes by discussing several policies to contain the sources of rigidity in the long term, ranging from the importance of deepening the pension reform process to the need of establishing strong fiscal institutions promoting medium-term fiscal planning.

Episodes of debt accumulation have been a recurrent feature of the global economy over the past fifty years. Since 2010, emerging and developing economies have experienced another wave of historically large and rapid debt accumulation. Similar past debt buildups have often ended in widespread financial crises in these economies. This paper examines the factors that are likely to determine the outcome of the most recent debt wave, and considers policy options to help reduce the likelihood that it ends again in widespread crises. It reports two main results. First, the rapid increase in debt has made emerging and developing economies more vulnerable to shifts in market sentiment, notwithstanding historically low global interest rates. Second, policy options are available to lower the likelihood of financial crises, and to help manage the adverse impacts of crises when they do occur. These include sound debt management, strong monetary and fiscal frameworks, and robust bank supervision and regulation. The post-crisis debt buildup has coincided with a period of subdued growth as well as the emergence of non-traditional creditors. As a result, policy priorities also need to ensure that debt is spent on productive purposes to improve growth prospects and that all debt-related transactions are transparently reported.

Emerging market and developing economies have experienced recurrent episodes of rapid debt accumulation over the past fifty years. This paper examines the consequences of debt accumulation using a three-pronged approach: an event study of debt accumulation episodes in 100 emerging market and developing economies since 1970; a series of econometric models examining the linkages between debt and the probability of financial crises; and a set of case studies of rapid debt buildup that ended in crises. The paper reports four main results. First, episodes of debt accumulation are common, with more than 500 episodes occurring since 1970. Second, around half of these episodes were associated with financial crises which typically had worse economic outcomes than those without crises -- after 8 years output per capita was typically 6-10 percent lower and investment 15-22 percent weaker in crisis episodes. Third, a rapid buildup of debt, whether public or private, increased the likelihood of a financial crisis, as did a larger share of short-term external debt, higher debt service cover, and lower reserves cover. Fourth, countries that experienced financial crises frequently employed combinations of unsustainable fiscal, monetary and financial sector policies, and often suffered from structural and institutional weaknesses.

This paper quantitatively assesses the effects of inflation shocks on the public debt-to-GDP ratio in 19 advanced economies using simulation and estimation approaches. The simulations based on the debt dynamics equation and estimations of impulse responses by local projections both suggest that a 1 percentage point shock to the inflation rate reduces the debt-to-GDP ratio by about 0.5 to 1 percentage points. The results also suggest that the impact is larger and more persistent when the debt maturity is longer, but the difference from the benchmark case is not significant. These results imply that modestly higher inflation, even if accompanied by some financial repression, could reduce the public debt burden only marginally in many advanced economies.

This paper explores the sovereign-bank nexus in emerging markets and developing economies: the interconnectedness between the health of the sovereign and the banking system. Data from 140 emerging markets and developing economies suggest that this nexus is rising. First, banks have increased their exposure to their sovereigns in the past decade. Second, government debt has grown, and fiscal positions have deteriorated, raising the specter of sovereign stress. Third, banking system assets and bank credit to the private sector have steadily increased, which may restrict the sovereign's capacity to contain a banking crisis. Fourth, empirical evidence from 36 emerging markets and developing economies documents the existence of the nexus and suggests that it has increased recently. However, deeper country analysis is required for a better understanding of the sovereign-bank nexus, given country idiosyncrasies, including the structure of sovereign debt and the composition of the investor base, and data lags and opacities. To minimize the adverse effects of the sovereign-bank nexus, efforts should be focused on maintaining fiscal and bank buffers, strengthening surveillance and supervision of the banking system, improving transparency and data quality of bank-sovereign linkages, better addressing the regulatory treatment of the sovereign exposures and government support of the banking sector, and carefully evaluating the policy trade-offs in the sovereign-bank nexus.

The external environment has deteriorated during the first half of 2019, and downside riskspredominate in the near-term. Global GDP growth is projected to decline to 2.6 percent in 2019 from 3 percent in 2018, reflecting broad-based weakness in advanced economies and major Emerging Market and Developing Economies. Reflecting slower growth and heightened policy uncertainty associated with protected trade tensions, global trade growth is protracted to weaken further from 4.1 percent in 2018 to 2.6 percent in 2019. Downside risks include a further escalation of trade disputes between the world's two largest trading nations, while a more pronounced downturn in global activity and increased volatility in financial flows. Amidst rising global headwinds, Vietnam's economic growth momentum has been slowing since the beginning of the year. Vietnam's real GDP growth has decelerated to a still robust 6.8 percent in the first quarter of 2019 from a vibrant 7.5 percent pace in the same period of 2018. Slower growth reflects several factors. Agricultural output decelerated due to the outbreak of African swine fever and a decline in international prices. Weaker external demand moderated growth of the export-oriented manufacturing sector as well as overall export performance, even though Vietnam seems to have benefitted from some trade diversion due to the ongoing trade tensions between China and the US. Domestic investment appears to be slowed resulting from subdued credit growth and continued consolidation in public investment. Other macroeconomic indicators, such as more sluggish credit growth, subdued inflation and slower import growth are further signs of a cyclical moderation in economic activity. In contrast, service sector activity continues relatively strong, signaling sustained buoyancy in private consumption. Despite a recent uptick in headline inflation, price pressures have remained subdued as credit growth moderated. The headline CPI rose by 2.9 percent (y/y) in May 2019, up slightly from 2.6 percent in January 2019, driven by hikes in administered prices (for electricity and fuel) and moderate food price increases. The State Bank of Vietnam maintained a prudent monetary policy stance to support its twin goals of sustaining macroeconomic stability and supporting overall economic growth. Credit growth is estimated to have slowed to about 13 percent (y/y) in March 2019 reflecting tighter credit policies.

The Kenyan government remains committed to a planned fiscal consolidation pathway, which should help contain public debt stock at a sustainable level. Nonetheless, there are significant challenges stemming from a slowdown in revenue collection, a growing demand for transfers to county governments, and the need to fund the big four agenda. These issues raise the probability for fiscal slippages, requiring adequate mitigation to safeguard macroeconomic stability. This report provides an overview of the challenges in revenue mobilization, the size and composition of the national government expenditures, and the efficiency of this spending over the last five years. The analysis identifies options for supporting ongoing fiscal consolidation and creating fiscal space for the big four and broad public services delivery. There are three key messages: first, Kenya’s tax revenue as a share of gross domestic product (GDP) has decreased and decoupled from the growth in the economy, suggesting some important constraints to enhancing revenue collection. Second, government spending is allocated well (to infrastructure and human capital) but there is scope to improve outcomes from the use of these resources. Third, ensuring efficiency and effectiveness of public spending is critical given tight fiscal space and the expenditure needs under the big four.

This paper argues for a novel approach to financing infrastructure needs in Arab countries. It first describes the context of rising public debt in the region, contrasting it with the vast infrastructure needs. It then discusses the challenges in meeting these needs with traditional financing. The paper then makes the case for maximizing finance for development, by using public-private partnerships, and presents a few successful examples in Arab countries. Finally, the paper explores the way forward and concludes on the need for strong state capacity and integrity to promote the maximizing finance for development approach.

A World Bank (WB) mission undertook an assessment of the government's debt management(DeM) capacity and institutions in Maldives during March 20-29, 2019, at the request of theMinistry of Finance (MoF). The objective of the mission was to assess the DeM strengths andareas in need of reform through the application of the Debt Management Performance Assessment (DeMPA) methodology. This is the second evaluation for Maldives; the first DeMPA was conducted by the WB in 2009. The MoF has implemented a series of public finance management reforms in legal and institutional arrangements since the last DeMPA. Treasury operations have experienced a complete overhaul, including the rolling out an Integrated Financial Management Information System (SAP) to government entities on Male', establishment of a Treasury Single Account (TSA) and the development of cash flow forecasting procedures. The coverage of the debt management system, the CS-DRMS, has also been expanded and is now used as a central database for almost all debt obligations (excluding Islamic instruments). The DeMPA methodology, revised in 2015, provides a comprehensive set of indicators spanning the full range of DeM functions and is used for in-depth analysis of government debt management functions and institutions. The results of the assessment help the central government authority to take stock of the current DeM situation and design medium term priority reforms. The results of 2019's assessment for Maldives demonstrate many broad-based improvements implemented in Maldives and provide highlights of pending reforms.

The first Debt Management Performance Assessment (DeMPA) for Maldives was conducted in 2009, and a second DeMPA was completed in March 2019. The authorities have taken important steps to improve debt management since the first assessment, but many challenges remain. The government has implemented a series of reforms to public financial and debt management, including changes to the legal and institutional framework. Key measures include a complete overhaul of Treasury operations, the implementation of the Integrated Financial Management Information System (IFMIS) across all government entities in the capital, Malé, the establishment of a Treasury Single Account, and the development of cash-flow forecasting procedures. The coverage of the Commonwealth Secretariat Debt Recording and Management System (CSDRMS) has also been expanded, and the CS-DRMS is now used as a central database for almost all debt obligations, except Islamic finance instruments. The results of the 2019 DeMPA shed light on these improvements and indicate areas for further action.

Following an initial spike in early 2018, Armenia’s economic performance slowed during the rest of the year, but still estimated to have above 5 percent growth for the year. Inflationary pressures remained low, while the external balances deteriorated. The overperformance of the fiscal accounts reflected strong revenue collection, sound control over current spending, and underperformance of capital expenditure. The outlook, however, is more conservative.

Côte d’Ivoire has a moderate risk of external debt distress, with limited space to absorb shocks. All liquidity and solvency external debt indicators lie below their thresholds under the baseline scenario. However, the ratios of external debt service to revenue and exports are projected to rise, diminishing room to maneuver, and an export shock would cause breaches of their relevant thresholds under the worst-case stress scenarios. This underscores the substantial downside risks originating from external shocks and the need to boost domestic revenue mobilization. The overall risk of public debt distress is also moderate, with public debt to GDP ratio expected to decrease gradually. A sustained compliance with the WAEMU fiscal deficit convergence criterion and a prudent external borrowing strategy balancing the costs and economic return of new loans will be crucial to preserve debt sustainability.

This joint World Bank/IMF Debt Sustainability Analysis (DSA) has been prepared in the context of the 2018 Article IV consultation and first review of the three-year program supported by the IMF’s Extended Credit Facility (ECF). It is based on end-2017 debt data and the latest methodology underpinning the LIC DSF, which triggered an improvement in debt indicator thresholds. External risk of debt distress in Burkina Faso remains moderate. All external debt indicators remain below the relevant indicative thresholds under the baseline scenario. In line with the Staff Report, the baseline scenario is anchored on an overall fiscal deficit of 3 percent of GDP from 2019. In a customized scenario meant to illustrate fiscal and external risks, two thresholds are breached. The overall public debt does not breach the relevant benchmark in the baseline and Burkina Faso is assessed as having a moderate risk of public debt distress, as the external debt risk rating is moderate. Burkina Faso would need to: (i) maintain a sound macro-fiscal framework; (ii) implement structural reforms to diversify its export base; and (iii) limit non-concessional borrowing to prevent a deterioration of its debt sustainability outlook.

An asset and liability management framework for managing risks arising from sovereign foreign exchange obligations requires a joint analysis of (i) the external financial liabilities resulting from a country's sovereign debt and (ii) the foreign exchange assets of its central bank. Governments often issue sizable amounts of debt denominated in foreign currencies, subjecting their fiscal positions to foreign exchange volatilities. Prudent management of a sovereign’s foreign exchange position under an asset and liability management framework enables governments to mitigate risks at the lowest possible cost, hence increasing resilience to external shocks. Based on the challenges associated with the implementation of an asset and liability management framework, this study recommends a practical approach that includes analysis of the foreign exchange positions of central bank reserves and central government debt portfolios and optimization of the net position. The proposed model is tested, using the foreign exchange reserve and external debt data of seven countries (Albania, Ghana, FYR Macedonia, South Africa, the Republic of Korea, Tunisia, and Uruguay). The paper employs quantitative methods to explore the impact of an overarching asset and liability management strategy and integrated approach on the efficient management of foreign exchange risk. It provides policy recommendations on ways to minimize the risk of foreign exchange mismatches and increase the return on foreign exchange reserves.

Nepal’s risk of external debt distress remains low. Under the revised IMF/World Bank Debt Sustainability Analysis Framework for Low Income Countries (LIC-DSF), all debt and debt service ratios are projected to remain below relevant indicative threshold values. Following a prolonged decline, to 25 percent of GDP in mid-2015, the sum of external and domestic public debt rose to 30 percent of GDP in mid-2018. A further rise in total public debt is projected, to about 35 percent of GDP in the medium term and about 48 percent of GDP in the long term, owing to continuing fiscal and current account deficits, as the authorities implement fiscal federalism and aim to put the economy on a higher growth path. Stress tests suggest that debt burden indicators are vulnerable to growth/exports shocks and natural disasters. This underscores the importance of implementing sound macro-economic policies. Efforts to improve the business climate and competitiveness through high-quality public investment and structural reforms would support growth and expand foreign exchange income streams.

Most countries of the West African Economic and Monetary Union (WAEMU) experienced a growth acceleration in 2011-17. This paper identifies the determinants of this growth by combining country-specific information with the results of a cross-country regression model. Growth was characterized by capital accumulation and driven by structural factors, including financial deepening and infrastructure development. What sets WAEMU countries apart from other African countries is the very sharp increase in private sector credit supporting private investment. This was facilitated by a prudent and accommodative regional monetary policy and improved financial regulation. Pro-cyclical fiscal policies supported public infrastructure investment but led to a buildup of public debt. Going forward, growth may lose some steam, given the renewed policy emphasis on fiscal consolidation and monetary tightening.

This paper studies the evolution of three macroeconomic variables (namely current fiscal expenditures, public debt, and consumer-price inflation) around the time of the onset of armed conflicts during 1950-2016. The authors compare the performance of these variables in conflict-afflicted economies with economies that did not experience social conflict. The analyses cover episodes of conflict from around the world and study the evolution of these variables during the five years prior to and five years after the onset of conflicts. Further, four alternative definitions of social conflict are used to ascertain the robustness of the econometric results. The evidence suggests that current fiscal expenditures and public debt (both as a share of gross domestic product) in conflict-afflicted economies tend to be higher than in non-conflict economies prior to the onset of conflict, begin to rise further prior to the date of the onset of conflict, and stay relatively high after the onset of conflict. In contrast, there is little evidence that inflation is higher in conflict-afflicted economies, prior to or after the onset of conflict. These differential trends between conflict-afflicted and non-conflict economies shed new light on the existing literature on macroeconomic populism, and on key macroeconomic aspects of the economics of post-conflict reconstruction.