UNCTAD UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT frica has major key policy issues that underlie Africa’s Economic Development in Africa Report ECONOMIC development aspirations domestic and external debt, and provides DEVELOPMENT IN in the broader context of policy guidance on the delicate a global and continental balance required between financing economic development development alternatives and overall agenda. This calls debt sustainability. This report analyses Afor substantial financial resources at Africa’s international debt exposure a time when the global development and how domestic debt is increasingly AFRICA finance landscape is changing, from a playing a role in some African countries REPORT 2016 DEBT DYNAMICS AND model centred on official development as a development finance option. It DEVELOPMENT FINANCE assistance and the coverage of remaining also examines complementary financing options and how they relate to debt. The IN AFRICA financing needs through external debt, to report makes relevant and actionable a framework with greater emphasis on policy recommendations which address the mobilization of domestic resources. the roles that African Governments, The Economic Development in external partners and the international Africa Report 2016, subtitled Debt community can play in ensuring that 2016 Africa’s public debt remains sustainable. Dynamics and Development Finance in Africa, examines some of the www.unctad.org/Africa/series UNITED NATIONS UNCTAD/ALDC/AFRICA/2015 UNCTAD/ALDC/AFRICA/2015 UNCTAD/ALDC/AFRICA/2016 UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT ECONOMIC DEVELOPMENT IN AFRICA REPORT 2016 DEBT DYNAMICS AND DEVELOPMENT FINANCE IN AFRICA New York and Geneva, 2016 ii Economic Development in Africa Report 2016 NOTE Symbols of United Nations documents are composed of capital letters combined with figures. Mention of such a symbol indicates a reference to a United Nations document. The designations employed and the presentation of the material do not imply the expression of any opinion on the part of the United Nations concerning the legal status of any country, territory, city or area, or of authorities or concerning the delimitation of its frontiers or boundaries. Material in this publication may be freely quoted or reprinted, but acknowledgement is requested, together with a copy of the publication containing the quotation or reprint to be sent to the UNCTAD secretariat. UNCTAD/ALDC/AFRICA/2016 UNITED NATIONS PUBLICATION Sales No. E.16.II.D.3 ISBN 978-92-1-112900-7 eISBN 978-92-1-058056-4 ISSN 1990–5114 Copyright © United Nations, 2016 All rights reserved. iii ACKNOWLEDGEMENTS The Economic Development in Africa Report 2016: Debt Dynamics and Development Finance in Africa, was prepared by a team of UNCTAD contributors, headed by Junior Roy Davis, and composed of the following people: Bineswaree Bolaky, Ange Bella Ndayisenga, Laura Páez and Claudia Roethlisberger. The work was completed under the overall supervision of Taffere Tesfachew, Director of the Division for Africa, Least Developed Countries and Special Programmes of UNCTAD. An ad hoc expert group meeting on debt dynamics and development finance in Africa was held in Geneva on 19 and 20 January 2016 to conduct a peer review of the report. The meeting brought together specialists in African debt and development finance. Those participating in the meeting were Raphael Otieno, Director, Macroeconomic and Financial Management Institute of Eastern and Southern Africa; Annalisa Prizzon, Research Fellow, Overseas Development Institute; and Bernhard Gunter, Professor, American University, Washington, D.C. Also present were members of the Economic Development in Africa Report team. The following UNCTAD staff members took part and/or made comments on the draft: Stephanie Blankenburg, Lisa Borgatti, Mussie Delelegn, Kristine Fitzpatrick, Samuel Gayi, Ricardo Gottschalk, Christian Kingombe, Joerg Mayer, Jean-Claude Mporamazina, Janvier Nkurunziza, Hafiz Mirza, Patrick Nwokedi Osakwe, Amelia Santos-Paulino, Rolf Traeger and Anida Yupari. Statistical assistance was provided by Agnès Collardeau-Angleys. Stefanie West provided secretarial support. Nadège Hadjemian designed the cover. Deniz Barki and Lucy Délèze-Black edited the report. Madasamyraja Rajalingam did the layout, graphics and desktop publishing. CONTENTS v CONTENTS Explanatory notes ................................................................................................ vii Abbreviations................................................................................................. ..... viii INTRODUCTION .................................................................................................................1 A. Main focus and findings of this report ........................................................... 6 B. Organization of the report ............................................................................. 7 CHAPTER 1: ADDRESSING AFRICA’S DEVELOPMENT FINANCE NEEDS ...9 A. Introduction ................................................................................................ 10 B. Scope of financing requirements ................................................................ 10 C. Role of resource mobilization in the context of development finance .......... 13 CHAPTER 2: EXTERNAL DEBT DYNAMICS AND DEBT SUSTAINABILITY IN AFRICA ............................................................17 A. Defining and characterizing external debt ................................................... 18 B. Stylized facts on external debt.................................................................... 20 C. Achieving and maintaining debt sustainability ............................................. 40 D. Addressing the challenges of rising external debt to achieve debt sustainability ...................................................................................... 47 CHAPTER 3: DOMESTIC DEBT DYNAMICS IN AFRICA ..................................51 A. Introduction ................................................................................................ 52 B. The rise in domestic debt ........................................................................... 53 C. Country case studies on dynamics of domestic debt ................................. 67 CHAPTER 4: COMPLEMENTARY MODALITIES FOR FINANCING DEVELOPMENT IN AFRICA ...............................................................91 A. Introduction ................................................................................................ 92 B. Public–private partnerships ....................................................................... 92 C. Remittances and diaspora bonds ............................................................. 113 D. Curtailing illicit financial flows .................................................................... 119 CHAPTER 5: MAIN FINDINGS AND POLICY RECOMMENDATIONS .......129 A. Main findings ............................................................................................ 130 B. Main policy recommendations .................................................................. 134 vi Economic Development in Africa Report 2016 NOTES .............................................................................................................................142 REFERENCES .................................................................................................................147 BOXES 1. Agenda 2063: The Africa We Want ................................................................ 13 2. Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative ......................................................................................................... 21 3. International sovereign bond issuance in Ghana ............................................ 31 4. Addressing capacity constraints in debt management and financial analysis .. 49 5. What are public–private partnerships? ........................................................... 93 6. National policies on public–private partnerships ........................................... 110 7. Addressing odious debt............................................................................... 128 FIGURES 1. External debt and its components ................................................................. 18 2. Share of concessional debt as a percentage of total external debt ................ 27 3. Rise of international sovereign bond issuance, 2009–2014 ............................ 28 4. International sovereign bond issuance since 2009, by issuance amount ........ 29 5. Ghana’s external debt and interest payments to revenue ............................... 32 6. Public and publicly guaranteed debt in HIPCs and non-HIPCs, by creditor category, 2005–2013 .................................................................. 34 7. New external debt commitment averages ...................................................... 35 8. Comparison of debt burden thresholds and actual debt averages of African HIPCs ................................................................................................ 44 9. Real GDP growth rates and depth of financial markets as measured by money and quasi money to GDP, 2000–2014 ................................................ 54 10. External and domestic debt developments for selected African countries ...... 58 11. Domestic debt in selected countries .............................................................. 59 12. Evolution of domestic debt