1. Challenges for keeping debt at sustainable levels.
Juan Carlos Vilanova Pardo
Development Finance International 
World Bank Forum
Vienna, May 23, 2017.

2. Outline Measuring debt sustainability - main issues.
Tool
Technical Capacity
Usage
Main challenges for maintaining debt at sustainable levels. Africa
DFI study on productive spending

3. Measuring debt sustainability
Issues:
Overall improvement overall
Taxing on staff to prepare
improve capacity – DMF – Macroeconomic modelling that goes with it. Accuracy of projections
Ownership of product
Used to guide fiscal decisions? Country experiences: In West Africa already part of budget process – establishing debt ceilings, but …..
….Some countries still behind or missing the point -4 DSAs – Objective of DSA
Part of overall fiscal risk policy – to include CL etc
Domestic debt - becoming increasingly important
New total debt thresholds – liquidity indicators

4. African perspective Domestic savings remain constant
Increase need to access external savings

5. Measuring debt sustainability
LICs have stressed that most important burden for them is service on total public debt, because it a) crowds out other development spending and b) is best early warning of arrears/need for restructuring
Total public debt service/revenue has been rising rapidly in recent years – accelerated by recent commodity price fall
Welcome new focus in DMF II on LIC-DSF training,
National teams mandated to test impact of financing choices over the long term.
And on new changes in methodology

6. African perspective
Population growth will be a major driver of Africa’s demand for public expenditures and domestic investment over the next two decades. (4% and 6% per year).
Urban populations from about 36% of the total population in 2010 to 50% in 2030 and 60% in 2050
Social and Infrastructure spending increasing. Expected financing needs until 2030 around 141 billion a year.
Challenge: how to secure financing and remain sustainable.
Source: “The European Union, Africa and new donors.”

7. African perspective Lower ODA flows to SSA
And donors moving away from Programme assistance
Lower flexibility for Governments

8. What are the challenges?
Seeing a dramatic fall in grants
Countries developing domestic debt market
with high interest costs
Rise in non-traditional donors has made available sources of financing
Less conditionality
Generally more expensive than highly concessional financing

9. SOLUTIONS – BEYOND THE DSF
Measures to reduce the cost of funding:
Risk guarantees by MDBs for external bonds (for high-return investments, green bonds?
More creative solutions in bond issuance – eg sukuks/diaspora bonds generally have considerably lower costs than others
Much tougher negotiations with external commercial sources of financing

10. MEASURES BEYOND DSF (DEBT)
Regional approach - Increase efficiency : ‘Overall, full integration and unlimited trade in power would save US$1.24 trillion over the 2011–40 period—US$42 billion each year and fully 23% of the cost of the continent’s electricity’ (African Union PIDA 2011, 23).
Developing a resource mobilization strategy- More proactive, securing the right financing.
More Proactive DMO’s
Assessing external creditors terms and conditions
Tapping different sources of financing
Need improvement in speed/scale of international concessional finance and domestic tax revenues

11. MEASURES BEYOND DSF (DEBT)
Measures to reduce the cost of funding for long term sustainability:
Full risk guarantees for external bonds to mobilise funds at near-MDB interest rates, + gradual payment schedules
Much tougher negotiations with external commercial funders eg PPPs to reduce revenue costs/CLs ?
Graduation not measured by GDP indicator but on achieving SDG

12. SOLUTIONS - PRODUCTIVE SPENDING
DFI covered this in detail last year in Lusaka (see DMF website or study available at
Major study for DFID looking at how to ensure debts stay sustainable by spending the money on the most “productive” projects (across all sectors)
SDGs will require public spending to double even if much infrastructure is done by private sector, and
Countries are now implementing large “growth-promoting” projects – so that one bad project or financing decision can have a major impact on debt sustainability
For guarantees. Delays in implementation can cause revenues be delayed making companies unable to meet repayment schedule and
Major conclusions:
Need far more analysis of micro/ macreoconomic costs and benefits of projects, incorporating potential project delays and cost overruns.

13. PRODUCTIVE EXPENDITURE: FINDINGS
1. Conduct analysis of growth/poverty/inequality impact of key projects/sector programmes using IMF/WB models
Countries were not simulating scenarios of impact of funding the SDGs with different financing sources, to define long-term policy
More transparency/accountability to parliaments. Up front detailed discussion of big projects as part of development agenda before decisions are made
Need to “match” levels of returns on projects to cost of funds to make “net” returns as high as possible, and NOT borrow if cannot find funds whose cost are justified by the returns.
Establish a risk management framework. Need to plan ahead for regular “shocks” (economic or natural disasters) or will be forced to borrow
Need NOT to borrow expensive debt with spending plans still in the making – which usually means it goes to fill budget deficits or try to win elections.
Reinforce capacity-building in these areas – much scope also for South-South learning

14. Summary
DSF tool becoming increasingly used but more progress is needed in improving accuracy and ownership. DMF II training welcomed
African countries in need for massive funding at times when concessional financing and programme aid is dropping
Development of domestic debt markets and need to be more pro-active in designing resource mobilization strategy ( need to secure financing and to keep cost at manageable levels)
Regional projects
DFI Study:
SDGs will require public spending to double. Countries are now implementing large “growth-promoting” projects – so that one bad project or financing decision can have a major impact on debt sustainability
More transparency/accountability to parliaments
Establish a risk management framework