Striking the Right Balance Between Sustainable Development and Sustainable Debt

IMF Blog, December 19, 2019

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Canonical URL: Striking the Right Balance Between Sustainable Development and Sustainable Debt

Author: Kristalina Georgieva
Date: December 19, 2019
Main message: Sub-Saharan Africa has made considerable progress but remains only half-way to meeting the Sustainable Development Goals (SDGs). A balanced approach is required between financing development and safeguarding debt sustainability.

Progress over two decades:
- Extreme poverty levels have declined by one third.
- Life expectancy has increased by a fifth.
- Real per capita income has grown by about 50 percent on average.
Remaining challenge: sub-Saharan Africa is still only half-way to meeting the SDGs.
Public debt and financing mix:
- Public debt levels increased rapidly between 2011 and 2016; they have since stabilized at around 55 percent of GDP on average.
- Commercial borrowing on domestic and international financial markets accounted for more than 70 percent of the increase in debt stock this decade.
- Shift to non-concessional financing implies more spending on debt service and less on social and infrastructure investment.
Efficiency and capacity gaps:
- Revenue collection estimated to be 3–5 percentage points of GDP below revenue potential.
- Only about 60 percent of the region’s infrastructure spending translates into public capital stock (i.e., for every dollar spent, about 60 cents of assets are obtained).
- Even strong domestic efforts are likely to cover just a quarter of the estimated SDG needs.

1. Generate higher public revenue

Close the revenue gap of 3–5 percentage points of GDP.
Example: Uganda, with IMF technical support, raised the revenue-to-GDP ratio from 11 percent in 2012 to almost 15 percent last year.

2. Make investment spending more efficient

Improve the conversion rate of infrastructure spending into public capital stock (current estimate: about 60 percent).

3. Strengthen public debt management

Boost debt transparency by providing accurate, comprehensive, and timely data to build investor trust, support domestic capital markets, and reduce debt service costs.

4. Advanced economies to increase official development assistance

Goal: raise official development assistance to 0.7 percent of donors’ national income.
Donors could focus more on infrastructure by providing grants and concessional financing for projects with credibly high rates of return.

5. Mobilize more private-sector participation

Bring in more private-sector players, including foreign direct investment.
Use blended finance that combines grants, concessional financing, and commercial funding to share risk and scale up development finance.

Conference convening: IMF together with the Government of Senegal on December 2, in partnership with the United Nations and the Cercle des économistes; held in Dakar.
Analogy: The balanced play of Senegal’s national soccer team, the Lions of Teranga, illustrates the need for balance between competing priorities (attack vs. defense; individual vs. team).
Emphasis on joint action: Public sector responsibility must be matched by international donors and private capital to ensure broadly shared benefits.

"one third" — decline in extreme poverty levels.
"a fifth" — increase in life expectancy.
"about 50 percent" — growth in real per capita income on average.
"half-way" — progress toward the SDGs.
"between 2011 and 2016" — period of rapid public debt increases.
"around 55 percent of GDP on average" — stabilized public debt level.
"more than 70 percent" — share of the increase in debt stock accounted for by commercial borrowing this decade.
"3–5 percentage points of GDP below revenue potential" — estimated revenue shortfall.
"11 percent in 2012 to almost 15 percent last year" — Uganda revenue-to-GDP ratio improvement.
"only about 60 percent" — share of infrastructure spending that translates into public capital stock.
"about 60 cents" — asset value per dollar spent on infrastructure.
"just a quarter" — share of estimated SDG needs that strong domestic efforts are likely to cover.
"0.7 percent of donors’ national income" — target for official development assistance.

Source: Striking the Right Balance Between Sustainable Development and Sustainable Debt — Kristalina Georgieva, December 19, 2019.