Development and Debt: Finding the Right Balance
IMF News, December 2, 2019
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- Authors: Kristalina Georgieva
- Published: December 2, 2019
Economic scoreboard: where are we now?
- Over the past 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.
- Estimated additional annual spending required in key areas (health, education, priority infrastructure) for the region: reaching about 20 percent of their combined GDP in 2030.
- Current progress toward the SDGs in sub-Saharan Africa: only half-way.
- Public debt dynamics:
- public debt levels increased rapidly between 2011 and 2016 and have since stabilized at around 55 percent of GDP on average;
- commercial borrowing—both domestic and foreign—currently makes up two-thirds of the region’s public debt stock.
- Implication: greater reliance on non-concessional financing implies more spending on debt service and less on social public investment; countries will not be able to “borrow their way” to the SDGs.
Finding the right balance of policies
- Core framing: achieve development goals by balancing policies—financing development while safeguarding debt sustainability; investing in people and infrastructure; aligning long-term objectives with immediate needs.
- Three powerful tactics countries can pursue:
- Generate higher public revenue:
- IMF estimate: revenue collection is 3-5 percentage points of GDP below revenue potential.
- Example: Uganda—IMF-supported reforms raised the revenue-to-GDP ratio from 11 percent in 2012 to almost 15 percent last year.
- Complementary measures: capture returns on public investment via fair user-fees; step up reform of international corporate taxation to close tax loopholes.
- Make investment spending more efficient:
- Only about 60 percent of the region’s infrastructure spending translates into public capital stock.
- Priority: build capacity to assess, select, and implement projects; IMF provides diagnostic tools and technical assistance (examples: Mali, Niger, Burkina Faso).
- Strengthen public debt management:
- Boost debt transparency by providing accurate, comprehensive, and timely data to build trust with investors, support domestic capital markets, and reduce debt service costs.
- Rationale: increased complexity of debt profiles, more complicated debt instruments, and a more prominent role for non-traditional lenders require stronger institutions that record, monitor, and report debt.
- IMF and World Bank collaboration: support to strengthen debt recording/monitoring/reporting institutions and free online courses for officials (including debt sustainability analysis).
- Limits of domestic efforts:
- Even strong domestic resource mobilization is likely to cover just a quarter of the estimated SDG needs.
- A more balanced global team:
- Advanced economies can do more on aid: goal to raise official development assistance to 0.7 percent of donors’ national income.
- Donors should focus more on infrastructure via grants and concessional financing for projects with credibly high rates of return.
- Support for joint platforms where development partners collaborate on international taxation and infrastructure investment.
- Greater sharing of knowledge (cost-benefit analysis, cross-country databases on pricing, e.g., road construction cost per kilometer).
- Mobilize more private-sector involvement and foreign direct investment by strengthening macroeconomic management and improving the business environment (modernize legal frameworks, reduce red tape, fight corruption).
- Promote “blended finance” to combine grants, concessional financing, and commercial funding—encouraging risk-sharing to scale up development finance.
- Address security challenges in some cases to unlock investment; mobilize private investment in energy infrastructure to expand reliable electricity and enable digital economies.
- IMF support modalities highlighted:
- capacity development (diagnostic tools, online courses),
- policy advice,
- financial support to countries, including at zero interest,
- technical assistance for public investment management and expenditure assessment.
Conclusion
- Central message: countries must find the right balance between development and debt, between the wellbeing of this generation and the prospects of future generations.
- Call to action: strengthen collective effort—public sector, donors, and private sector—to scale up efficient investment, improve revenue mobilization, and enhance debt transparency and management.
- Closing proverb and spirit: “Whatever one person can do, two people can do it even better.” — spirit of Teranga and the Lions of Teranga.
- Closing rally: A notre tour de jouer!
Speech by Kristalina Georgieva, IMF Managing Director — High-level Conference, Dakar, December 2, 2019 (As Prepared for Delivery).