The EFSD is building competence in debt sustainability assessment

Over the last ten years, developing nations’ debts have increased by more than 1.5 times and exceeded 50% of GDP. The EFSD recipient countries’ debt burden has also grown to similar levels. To ensure macroeconomic stability in the member states, the EFSD Project Unit managed by the Eurasian Development Bank (EDB) pays special attention to debt sustainability analysis.

Moscow, 17 September 2019

Over the last ten years, the world and developing economies have significantly increased their debt burden. In 2018, public debt in these countries amounted to 51% of GDP, a significant increase compared to 2008 (34%). Low-income developing countries demonstrated a similar trend, with their public debts surging from 30% to 45% of GDP over the same period. The new rise in borrowings was driven by several factors such as the high availability of loans in the 2010s and the desire to support public expenditure and to implement large infrastructure projects for boosting economic growth. However, rising public expenditure often cause significant risks for developing countries facing deteriorating global economic environment.

An additional challenge for low-income developing countries has to do with the financing sources. A number of countries increased their exposure to commercial debt rather than concessional loans from international financial institutions. As a result, non-concessional instruments have become an important source of financing for low-income countries’ investment projects. Overall, the share of non-concessional loans increased by more than 6% of GDP. This trends leads to the elevation of the long-term risks associated with the countries’ debt sustainability.

The EFSD countries experienced a slight decrease in the debt-to-GDP ratio in 2017-2018. However, over the last eight years, the EFSD recipient countries faced noticeable growth in debt – its share to GDP increased from 43% in 2011 to 53% in 2017. The main factors behind this increase are an unfavourable external environment and the countries’ high dependence on commodity prices and external demand. According to the EFSD Chief Economist Evgeny Vinokurov, “caution is particularly important in the current phase of the global economic cycle. The world’s economy is obviously slowing down. As a result, this may have a negative effect on export revenues and remittances. Thus, budget and debt sustainability risks deserve increased attention.”

In order to ensure sustainable economic growth in the borrowing countries, the EFSD Project Unit is implementing the framework for debt sustainability analysis and assessing the borrowers’ capacity to meet obligations. The models utilized by the Fund determine not only the country’s need for additional financing but also its solvency. The DSA models are adjustable to different scenarios, which, coupled with their transparency and predictive functions, makes them an indispensable instrument to analyse the debt burden. The EFSD Project Unit intends to develop extensive stress-testing considering a variety of external and internal macroeconomic scenarios.

Debt sustainability models are expected to become an important tool in building dialogue between the EFSD and its recipient countries with the aim of finding optimal country-specific solutions.

Additional Information:

The Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. The EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.

The Eurasian Fund for Stabilization and Development (EFSD) amounting to US$8.513 billion was formed on 9 June 2009 by the governments of the same six countries. The EFSD assists its member states in overcoming the consequences of the global financial crisis, ensuring their economic and financial stability, and fostering integration in the region. The EFSD member countries signed the Fund Management Agreement with Eurasian Development Bank giving it the role of the EFSD Resources Manager.

The EDB Media Centre:

Alexander Savelyev +7 (985) 765 23 59 (Moscow)        

Azima Sapargaliyeva +7 (777) 750 00 08 (Almaty)

Sergey Gorbachev +7 (916) 727 22 00 (Moscow)        

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