International Monetary Fund July 31, 2019 Rising External Borrowing in Africa: Challenges of Debt Sustainability and Implications for Monetary Policy Tobias Adrian Financial Counsellor and Director Monetary and Capital Markets Department

9/5/2019 SSA seeing increased international bonds with rising share of weak issuers Issuance of below investment grade sovereign bonds is increasing globally… …particularly in Sub-Saharan Africa 2

Increasing number of SSA countries with high debt vulnerabilities 9/5/2019 Increasing number of SSA countries with high debt vulnerabilities 16 countries breached high risk on debt distress Sub-Saharan Africa: Debt Risk Status for PRGT Eligible Low-income Developing countries, 2008-2018 Debt service payments consume a growing share of tax revenue Sub-Saharan Africa: Interest Payments 3

9/5/2019 Rising commercial and non-Paris Club lending may be heightening debt risks Commercial lending has become much more significant in SSA Increasingly complex debt structures in at-risk countries External Creditor Composition of Post-HIPC Countries in Debt Difficulty (Percent of Public and publicly guaranteed external debt) 4

FX debt will face significant rollovers in coming years 9/5/2019 FX debt will face significant rollovers in coming years Share of foreign currency debt has increased in SSA Rollover risks on international bonds will increase substantially Sub-Saharan African Frontier and Emerging Market Economies: Maturity of International Sovereign Bonds 5

Monetary policy challenges with external debt 9/5/2019 Monetary policy challenges with external debt Rising international bonds accompanied by greater volatility in bond flows Sub-Saharan African Frontier and Emerging Market Economies: Volatility of Equity and Bond Flows, 2005-2011 and 2012-2018 More than half of SSA countries are short of adequate reserve buffers Sub-Saharan Africa: Reserve Buffers 6

Changing global market structure may be heightening risks 9/5/2019 Changing global market structure may be heightening risks Nonbank investors now dominate the global EM sovereign market… …with passive investment strategies potentially amplifying volatility Cumulative Purchases of EM Sovereign Debt by Non-Residents (US$ billions) Estimated Outflows from Benchmark-Driven Investors in Response to a 1 Standard Deviation Shock (US$ billions) 7

Monetary policy challenges with domestic debt 9/5/2019 Monetary policy challenges with domestic debt Monetary policy tightening has resulted in higher domestic funding costs for some sovereigns Financing conditions: 10-year government bond yields EMDEs are seeing a rising share of bank exposure to government debt Share of EMDEs with above-median government debt and bank claims on the government 8 Source: World Bank, 2019: Source: World Bank, 2019: