martes, 4 de diciembre de 2018

Artificial Intelligence and Europe

What is Europe’s place in a world enabled by Artificial Intelligence (AI)? Are there opportunities to be seized and where do they lie? What is the role of 5G, the internet of things (IoT) and the new world of digital communications? At ETNO, the association representing Europe’s leading telecom operators, we have launched a fresh work stream to understand the consumer, industrial and policy implications of embedding AI into digital communications. Here, we summarize some early findings. To learn more, join us for an exclusive AI workshop on 12 December 2018, in Brussels.
The global AI game: A place for Europe
AI is a global race for excellence and industrial leadership. At present, if we survey top opinion editorials and academic work, we see that the United States (U.S.) is considered among the global leaders in AI. The levels of U.S. investment in this field is increasing, with tech giants performing very strongly on some of the fundamentals of this new technology: computing, big data, algorithms and attracting venture capital, among others.
Similarly, observers point to China as a superpower in the making. In perspective, China can count on two main strengths. First, heavy public funding: by 2030 the Chinese government plans to cultivate an AI industry worth $150 billion. Second, a huge amount of centrally located and managed data, coupled with a relatively high freedom to process it. For a data-hungry technology like AI, this is a really important asset, although controversial in terms of user rights.
Europe is currently seen by many as a leader in ethical AI, with the ambition to create a set of global standards worldwide. This approach is grounded in cultural factors and it goes beyond policy and regulatory aspects. A number of top European players such as Deutsche TelekomSAP and Telefonica announced their AI principles, in which the ethical use of AI emerges also as a clear business differentiator. Europe must improve in areas such as innovation-ready laws and venture capital, as well as AI patents and research. In addition, there are “virgin” territories that offer promising avenues for European leadership and that should be explored.
AI, IoT and 5G: Opportunities for European leadership
If Europe is to scale and compete globally in AI, new sources of large streams of data need to be exploited and processed using European security and privacy standards. If we are to embrace recent projections, the next wave of data for AI will come from billions of cheap,  battery-powered sensors that will be connected over new generation networks — or 5G — offering great connectivity and high security. These sensor-enabled devices will report temperature, humidity, acceleration, position and other variables, on top of which AI will enable smart services.
European telcos are investing heavily in 5G and are working closely with “industry verticals” to activate digital transformation. We are interacting with transports and automotive, energy, agriculture, fisheries and many other fundamental industry ecosystems. The data generated in such interactions will create fresh resources for growing a unique AI space for Europe. It is at the intersection between the IoT and AI, empowered by 5G, that we can create a new promise for globally competitive European industries. In other words, 5G will drive IoT, and IoT will in turn fuel European AI. Together they can form a truly perfect “technology storm”, a huge opportunity for the Continent.
Policy: Enabler or obstacle?
When it comes to policy and regulation, the debate is currently diverse. Many in the tech policy community believe it may be far too early to regulate AI. This is the case of Pekka Ala-Pietilä, who leads the European Commission’s High-Level Expert Group on Artificial Intelligence. In a recent POLITICO interview, he stressed we should “make sure that we do regulate when it’s the right time but we don’t do it prematurely”. Others, especially in the academic world, have called for speeding up the debate on regulation.
via iStock
There are potentially many policy and regulatory areas to which the AI debate is relevant. However, two main areas appear to stand out:
Data and privacy: where we will be called upon to take tough decisions. On the one hand, Europe wants and needs to keep protections high for its citizens. On the other hand, we need to make sure we are able to develop and propose products and services based on European values. The alternative is to be outpaced by China and the U.S., and to become the importers of AI solutions developed elsewhere.
Security: where we see AI as a problem-solving technology. Already today, our companies are using AI to ensure high network security. This nicely fits in both corporate and government-led initiatives to improve cybersecurity. The main issue will remain to ensure that all parts of the ecosystem adopt high cybersecurity standards.
While there are many other regulatory or policy areas that are AI-sensitive, at ETNO we believe that the political debate should be primarily informed by values and by a shared understanding of the technological aspects.
Beyond just regulation, we think EU policies should encourage investment in AI technology, and leave more space for innovation, research and support for businesses that are speeding up the delivery of services based on European values.

Government Expenditure in Europe

Europe is the region of the world where government expenditure represents the largest share of GDP – roughly 46%. This is largely because Europe is home to the most comprehensive and developed social safety nets in the world. In fact, over 70% of government expenditure in the EU is linked to citizens’ wellbeing, whether in the form of social protection, health, housing or education. Thanks to these high levels of social protection, Europeans have generally been better sheltered from recent increases in inequality that have affected other developed and emerging economies, threatening their internal cohesion. Importantly, the EU and its Member States have managed to maintain these high levels of government spending, while at the same time significantly improving their fiscal sustainability. In 2017, the EU’s public deficit amounted to just one fifth of that of the US, and one quarter of that of Japan. Public debt in the EU is also considerably lower than in the US, standing at 83% of its GDP in 2017, compared to 108% in the US, and as much as 240% in Japan. Nonetheless, interest payments on public debt stock still represent a meaningful – albeit limited – share of EU governments’ expenditure. While accounting for a moderate 2.2% of GDP on average, they vary significantly, from 0.2% of GDP in Estonia to 4.3% in Portugal. And, even though no EU Member State currently faces short-term fiscal sustainability risks, the medium- to longer-term fiscal implications resulting from the end of accommodative monetary policies, and, more importantly, from an ageing population and a shrinking workforce, will present challenges for as many as half of the EU’s Member States.1 There is increasing consensus that, in a rapidly changing world, government expenditure – including social expenditure – needs to be oriented ever more towards investing in the future, to enable citizens and economies to better face the challenges ahead. In the EU, only a handful of Member States are really thinking long-term when setting their public investment priorities. Countries like Denmark and Sweden, for instance, currently allocate 6.9% and 6.6% of their GDP respectively on education, as well as 2.2% and 1.8% on R&D – far more than many of their counterparts. Naturally, government finances are not just a question of deficits and surpluses, or of where one spends ones money – but also one of quality. How governments spend their resources matters. Experience in the EU Member States shows that very different levels of social protection spending can in fact achieve similar outcomes. Vice versa, similar levels of spending can also result in very different outcomes. The following overview of government expenditure by function across Member States nevertheless suggests that there is a significant margin for improvement in the way that the EU and its Member States use their fiscal resources. Without compromising on the wellbeing and protection of citizens, more (and better) resources should be targeted towards future-oriented areas like innovation, research, education, training and defence.


European Political Strategy Centre
https://ec.europa.eu/epsc/sites/epsc/files/epsc_-_where_eu_governments_spend.pdf



lunes, 19 de noviembre de 2018

New Perspectives for Europe


Habermas analysis of Europe Perspectives 
I am invited to talk about New Perspectives on Europe, but new ones fail me, and the Trumpian decay afflicting even the core of Europe makes me seriously question my old perspectives. Certainly, the risks associated with a significantly changed state of the world have penetrated public awareness and have altered perspectives on Europe. They have also directed the broader public’s attention to the global context in which the countries of Europe have more or less unquestioningly felt at home so far. The perception has grown within public opinion throughout the nations of Europe that new challenges affect each and every country in the same way and therefore could best be overcome together. That strengthens, indeed, a diffuse wish for a politically effective Europe.
So, today, the liberal political elites proclaim, louder than before, progress should be made in European co-operation in three key areas: Under the heading European foreign and defence policy, they demand a boost to the military self-assertiveness that would allow Europe “to step out of the shadows of the USA”; under the motto of a common European asylum policy, they further demand robust protection of Europe’s external borders and the establishment of dubious reception centres in North Africa; and, under the slogan “free trade”, they wish to pursue a common European trade policy in the Brexit negotiations as well as in the negotiations with Trump. It remains to be seen whether the European Commission, which is conducting these negotiations, has any success – and whether, should it fail, the common ground of EU governments simply crumbles away. That’s one, encouraging side of the equation. The other is that nation-state selfishness remains unbroken if not bolstered by misguided considerations of the new International of surging right-wing populism.

Nationalist Short-Termism

The hesitant progress of the talks on a common defence policy and on an asylum policy that, again and again, falls apart over the distribution question shows that governments give priority to their short-term national interests – and this all the more so, the more strongly they are exposed at home to the undertow of right-wing populism. In some countries there’s not even any tension left between empty pro-European declarations on the one hand and short-sighted, un-cooperative behaviour on the other. In Hungary, Poland and the Czech Republic, and now in Italy and pretty soon probably in Austria, this tension has evaporated in favour of an openly europhobic nationalism. That throws up two questions: How is it that, in the course of the last decade, the contradiction between residual pro-European lip-service and the actual blockade of the required cooperation has come to such a head? And why is the eurozone nevertheless still holding together when, in all countries, right-wing populist opposition to ”Brussels” is growing – and at the heart of Europe, i.e. in one of the six founding nations of the EEC, has even led to an alliance of right- and left-populists based on a shared anti-European programme?
In Germany the twin issues of immigration and asylum policy have since September 2015 dominated the media and pre-occupied public opinion to the detriment of anything else. This fact suggests a swift answer to the question about the decisive cause of the increasing wave of euroscepticism, and that suggestion may be supported by some evidence in a country which still suffers from the psycho-political divisions of an unequally reunited nation. But, if you look at Europe as a whole and especially the eurozone in its entirety, growing immigration cannot be the primary explanation for the surge in right-wing populism. In other countries, the swing in public opinion developed far earlier and indeed in the wake of the controversial policy for overcoming a sovereign debt crisis brought on by the crisis in the banking sector. As we know, in Germany the AfD was initiated by a group of economists and business people around economics professor Bernd Lucke, that is by people who feared the snaring of a prosperous major exporter in the chains of a “debt union” and who set in train the broad-based and effective polemical campaign against the threat of mutualising debt. Last week the tenth anniversary of the insolvency of Lehmann Brothers recalled the arguments about the causes of the crisis – was it market failure or government failings? – and the policy of enforced internal devaluation. This debate was conducted in other eurozone member states with substantial impact on public opinion whereas here in Germany it was always played down by both the government and the press.

Germany Alone

The predominantly critical voices in the international debate among economists, which were the voices of the Anglo-Saxon mainstream against the Schäuble- and Merkel-driven austerity policies, have been barely noted and appreciated by the business pages of the leading media in Germany, just as on their political pages the social and human costs that these policies have dished out – and by no means only in countries like Greece and Portugal – were more or less ignored. In some European regions the unemployment rate is still just below 20 percent while the youth jobless rate is almost twice as high. If we today are worried about democratic stability at home, we ought also to remember the fate of the so-called “bail-out countries”: It is a scandal that in the unfinished house of the European Union such a draconian policy which impinged so deeply upon the social safety net of other nations was lacking even in basic legitimacy – at least according to our usual democratic standards. And this still sticks in the craw of Europe’s peoples. Given that within the EU public opinions on politics are formed exclusively within national borders and that these different public spheres are not yet readily available one for one another, contradictory crisis narratives have taken root in different eurozone countries during the past decade. These narratives have deeply poisoned the political climate since each one draws exclusive attention to one’s own national fate and prevents that kind of mutual perspective-taking without which no understanding of and for another can be formed – let alone any feeling for the shared threats that afflict all of us equally and, above all, for the prospects of pro-active politics that can deal with common issues and only do so in a cooperative mode and mentality. In Germany this type of self-absorption is mirrored in the selective awareness of the reasons for the lack of co-operative spirit in Europe. I am astonished about the chutzpah of the German government that believes it can win over partners when it comes to the policies that matter to us – refugees, defence, foreign and external trade – yet simultaneously stonewalls on the central question of completing EMU politically.
Within the EU, the inner circle of the member states of the EMU are so tightly dependent on each other that a core has crystallised, even if only for economic reasons. Therefore, the eurozone countries would, if I may say so, naturally offer themselves for acting as pace-makers in the process of further integration. On the other hand, however, this same group of countries suffers from a problem that threatens to damage the entire European Project: We, especially those of us in an economically booming Germany, are suppressing the simple fact that the euro was introduced with the expectation and political promise that living standards in all member states would converge – whereas, in fact, the complete opposite has come to pass. We suppress the real reason for the lack of a co-operative spirit that is more urgent today than ever before – namely, the fact that no monetary union can in the long run survive in view of an ever-wider divergence in the performances of different national economies and thereby in the living standards of the population in different member states. Apart from the fact that, today, in the wake of an accelerated capitalistic modernisation, we have also to cope with unrest about profound social changes, I consider the anti-European feelings spread by both left- and right-wing populist movements not as a phenomenon which only mirrors the present kind of xenophobic nationalism. These eurosceptic affects and attitudes have different roots that lie in the failure of the European process of integration itself; they emerged independent of the more recent populist inflammation of xenophobic reactions in the wake of immigration. In Italy, for example, euroscepticism provides the sole axis between a left and a right populism, i.e. between ideological camps that are deeply split when it comes to issues of “national identity”. Quite independently of the migration issue, euroscepticism can appeal to the realistic perception that the currency union no longer represents a ‘win-win’ for all members. The south against the north of Europe and vice versa: Whilst the “losers” feel badly and unjustly treated, the “winners” ward off the feared demands of the opposing side.

Macron Plan

As it transpires, the rigid rules-based system imposed upon the eurozone member states, without creating compensatory competences and room for flexible joint conduct of affairs, is an arrangement to the advantage of the economically stronger members. Therefore, the real question to my mind does not arise from an undetermined either “for” or “against” Europe”. Underneath this crude polarisation of a “pro” or “con” which goes without any further differentiation, there remains among Europe’s supposed friends a tacit question which so far remains untouched even though it is the key fault-line – namely, whether a currency union operating under sub-optimal conditions should just be made “weatherproof” against the risk of further speculation, or whether we should hold fast to the broken promise about developing economic convergence in the euro area and therefore develop the monetary union into a pro-active and effective European political union. This promise was once politically linked to the introduction of the EMU. In the proposed reforms from Emmanuel Macron both goals have equal value: On the one hand, progress towards safeguarding the euro with the aid of the well-known proposals for a banking union, a corresponding insolvency regime, a common deposit guarantee for savings and a European Monetary Fund democratically controlled at the EU level. Despite diffuse announcements it is well known that the German government has been blocking any further steps from being taken in this direction – and is resisting all this up to now. But Macron is on the other hand also proposing the establishment of a eurozone budget and – under the heading “European minister of finance” – the creation of democratically-controlled competences for political action at the same level. For the European Union could gain political prowess and renewed popular support only by creating competences and a budget for implementing democratically legitimised programmes against further economic and social drifting apart among the member states.
Interestingly, this decisive alternative between the goal of stabilising the currency on the one hand and the further-reaching objective of policies aimed at containing and shrinking economic imbalances on the other hand has not yet been put on the table for a wide-ranging political discussion. There is no pro-European Left that comes out for the construction of a Euro Union which is able to play a role at the global level and, thereby, has in sight the far-reaching goals such as an effective clamping down on tax evasion and a far stricter regulation of financial markets. That way, European social democrats would first of all emancipate themselves from the convoluted liberal and neoliberal goals of a vague “centre”. The reason for the decline of social democratic parties is their lack of profile. Nobody knows any longer what they’re needed for. For social democrats no longer dare to take in hand the systematic taming of capitalism at the very level at which deregulated markets get out of hand. In making this connection I’m not in particular concerned with the fate of a distinct family of parties – although we should always remember when talking about this that the fate of democracy in Germany is historically more tied up with that of the SPD than with any other political party. My general concern is with the unexplained phenomenon that the established political parties in Europe are unwilling to or fail to forge platforms upon which positions and options vital for the future of Europe are sufficiently differentiatedThe upcoming European elections serve as an experimental design in this regard.
On one side, Emmanuel Macron, whose movement so far is not represented in the European Parliament, is trying to break up the current party groups so as to build a clearly recognisable pro-European faction. By contrast, all those groups currently represented in the Parliament, with the obvious exception of the anti-EU far right factions, are internally divided even below the actually required degree of differentiation. Not all the groups allow themselves such a widely-spread balancing act as the EPP which so far is clinging on to Orbán’s membership. The mindset and conduct of the CSU-member Manfred Weber who is seeking to become president is typical of the wishi-washiness that goes with a totally ambiguous stance. But there are similar splits running through the liberal, socialist and (not least) leftist groups. With regard to at least a lukewarm commitment to Europe, the Greens might share a more or less clear position. Thus, even inside the Parliament, which is supposed to create majorities for societal interests generalized across national borders, the European Project has obviously lost any sharper contours.

Caught In A Trap

If you in the end ask me, not as a citizen but as an academic observer, what my overall assessment is today, I’ll have to admit to failing to see any encouraging trends right now. Certainly, economic interests are so unambiguous and, despite Brexit, as powerful as ever that the collapse of the eurozone is unlikely. That implies the answer to my second question: why the eurozone still clings together: Even for the protagonists of a northern euro the risks of separation from the south remain incalculable. And for the corresponding case of a southern state’s exit we have seen the test case of the current Italian government that, despite loud and clear declarations during the election campaign, has immediately relented; for one of the obvious consequences of leaving would be unsustainable debts. On the other hand, this assessment is not very comforting either. Let’s face it: if the suspected link between the economic drifting apart of the eurozone member economies on the one hand and the strengthening of right-wing populism on the other hand in fact holds, then we’re sitting in a trap in which the necessary social and cultural preconditions for a vital and safe democracy face further damage. This negative scenario naturally cannot count for more than just that. But already common-sense experience tells us that the European integration process is on a dangerous downward curve. You only recognise the point of no return when it’s too late. We can only hope that the rejection of Macron’s proposed reforms by the German government has not been the last lost opportunity.
This text is an abridged version of a speech given at a conference on “New Perspectives for Europe” at Humanities College, Goethe University (Frankfurt), in Bad Homburg (21 September 2018). Translated by David Gow.

domingo, 14 de octubre de 2018

Technology and Developing Countries

Will New Technologies Help or Harm Developing Countries?

Oct 8, 2018 DANI RODRIK

Trade and technology present an opportunity when they are able to leverage existing capabilities, and thereby provide a more direct and reliable path to development. When they demand complementary and costly investments, they are no longer a shortcut around traditional manufacturing-led development.
CAMBRIDGE – New technologies reduce the prices of goods and services to which they are applied. They also lead to the creation of new products. Consumers benefit from these improvements, regardless of whether they live in rich or poor countries.

Mobile phones are a clear example of the deep impact of some new technologies. In a clear case of technological leapfrogging, they have given poor people in developing countries access to long-distance communications without the need for costly investments in landlines and other infrastructure. Likewise, mobile banking provided through cell phones has enabled access to financial services in remote areas without bank branches.
These are instances of technology improving the lives of poor people. But for technology to make a real and sustained contribution to development, it must not only provide better and cheaper products; it must also lead to more higher-paying jobs. In other words, it must help poor people in their role as producers as well as consumers. A model of growth that the economist Tyler Cowen has called “cell phones instead of automobile factories” raises the obvious question: How do people in the developing world afford to purchase cell phones in the first place?
Consider again the examples of mobile telephony and banking. Because communications and finance are inputs into production, they are to some extent producer services as well as consumer services.
For example, a well-known study has documented how the spread of mobile phones in the Indian state of Kerala enabled fishermen to arbitrage price differences across local markets, increasing their profits by 8% on average as a result. Kenya’s ubiquitous mobile banking service M-Pesa appears to have enabled poor women to move out of subsistence agriculture into non-farm businesses, providing a significant bump up the income ladder at the very bottom.
New digital technologies have been playing an important role in transforming large-scale farming in Latin America and elsewhere. Big data, GPS, drones, and high-speed communication have enabled improved extension services; optimized irrigation and pesticide and fertilizer use; provided early-warning systems; and enabled better quality control and more efficient logistics and supply-chain management. These improvements raise farm productivity and facilitate diversification into non-traditional crops with higher returns.

The introduction of these new technologies in production in developing countries often takes place through global value chains (GVCs). In principle, GVCs benefit these economies by easing entry into global markets.
Yet big questions surround the possibilities created by these new technologies. Are the productivity gains large enough? Can they diffuse sufficiently quickly throughout the rest of the economy?
Any optimism about the scale of GVCs’ contribution must be tempered by three sobering facts. First, the expansion of GVCs seems to have ground to a halt in recent years. Second, developing-country participation in GVCs – and indeed in world trade in general – has remained quite limited, with the notable exception of certain Asian countries. Third, and perhaps most worrisome, the domestic employment consequences of recent trade and technological trends have been disappointing.
Upon closer inspection, GVCs and new technologies exhibit features that limit the upside to – and may even undermine – developing countries’ economic performance. One such feature is an overall bias in favor of skills and other capabilities. This bias reduces developing countries’ comparative advantage in traditionally labor-intensive manufacturing (and other) activities, and decreases their gains from trade.
Second, GVCs make it harder for low-income countries to use their labor-cost advantage to offset their technological disadvantage, by reducing their ability to substitute unskilled labor for other production inputs. These two features reinforce and compound each other. The evidence to date, on the employment and trade fronts, is that the disadvantages may have more than offset the advantages.
The usual response to these concerns is to stress the importance of building up complementary skills and capabilities. Developing countries must upgrade their educational systems and technical training, improve their business environment, and enhance their logistics and transport networks in order to make fuller use of new technologies, goes the oft-heard refrain.
But pointing out that developing countries need to advance on all those dimensions is neither news nor helpful development advice. It is akin to saying that development requires development. Trade and technology present an opportunity when they are able to leverage existing capabilities, and thereby provide a more direct and reliable path to development. When they demand complementary and costly investments, they are no longer a shortcut around manufacturing-led development.
Compare the new technologies with the traditional model of industrialization, which has been a powerful engine of economic growth in developing countries. First, manufacturing is tradable, which means domestic output is not constrained by demand (and incomes) at home. Second, manufacturing know-how was relatively easy to transfer across countries and, in particular, from rich to poor economies. Third, manufacturing did not make large demands on skills.
These three characteristics collectively made manufacturing a fantastic escalator to higher incomes for developing countries. New technologies present a very different picture in terms of the ease of transferring know-how and the skill requirements they imply. As a result, their net impact on low-income countries looks considerably more uncertain

miércoles, 11 de abril de 2018

Managing Debt Vulnerabilities in Developing Countries



https://blogs.imf.org/wp-content/uploads/2018/03/BLOG-1024x600-Dhaka-Bangladesh-Motoya-Taguchi-Jiji-Press-Newscom-jpphotos003360.jpg

 

Government debt in some of the world’s poorest countries is rising to risky levels, a new IMF report shows. The report looks at economic developments and prospects among the world’s low-income countries, which account for a fifth of the world’s population but only four percent of global output.

The report focuses not only on the rise in government debt, but also on the shift in the composition of creditors. And, because of this shift, it also focuses on the importance of official creditors working together to find ways to ensure efficient coordination in the event of future debt restructurings.

The drivers of the debt build-up vary across countries. They include shocks—the sharp drop in commodity prices of 2014, which hit budget revenues in commodity exporters, natural disasters, including the Ebola epidemic, civil conflict—as well as high levels of public spending that were not linked to financing productive public investment. Ample global liquidity played an important role in allowing for the rise of debt in low-income countries, by making it easier to borrow. Our study calls for action on the part of borrowers, lenders, and the international community.

Government debt is rising

Budget deficits have been rising in most low-income countries during this decade: 70 percent of low-income countries had higher government deficits in 2017 than during 2010-14. For commodity exporters, falling revenues contributed to higher deficits, whereas higher spending was the more important factor in other countries. For the median country, public debt levels increased to 47 percent of GDP last year, up from 33 percent of GDP in 2013.

The current build-up of public debt comes in the wake of the low debt levels and robust growth that followed the international community’s actions to write off most of the debt of highly indebted poor countries—the Heavily Indebted Poor Countries (HIPC) initiative and Multilateral Debt Relief Initiative , which left countries with more resources to spend on investment and education.

Higher public deficits and debt levels are not necessarily undesirable. When countries borrow to pay for infrastructure investment, that can boost long-term growth, which in turn generates revenues to service the higher debt.

Indeed, in about a third of low-income countries, such as Bangladesh, Kenya, Madagascar, Moldova, and Nicaragua, where deficits rose, investment rose by at least the same amount. But in most cases, investment rose by less than the increased deficits—and in half the cases it actually fell. Thus, it appears that in a sizeable share of countries the debt build-up helped finance investment only to a limited extent.

https://blogs.imf.org/wp-content/uploads/2018/03/eng-march-22-lidcs-debt-2-003.jpg

 

Threat of debt crises is climbing

Although their debt has risen, more than half of low-income countries are still at low or moderate risk of defaulting on their debt service obligations. However, the share of countries at elevated risk of debt distress, for example, Ghana, Lao P.D.R., and Mauritania, or already unable to service their debt fully has almost doubled to 40 percent since 2013.

The IMF anticipates some stabilization of the debt build-up in the coming years. However, this forecast is predicated in part on countries undertaking fiscal adjustment and carrying out ambitious economic reform programs to deliver stronger economic performance. It will be very important that countries implement these reforms—otherwise the debt build-up is likely to continue.

A different set of lenders and data gaps

There are two issues that amplify risks from elevated public debt levels in low-income countries.

First, there has been a marked change in the composition of debt since the completion of the Heavily Indebted Poor Countries and Multilateral Debt Relief initiatives, pushing up servicing costs and making debt resolution harder.

Borrowers have moved away from traditional official creditors such as multilateral institutions and members of the Paris Club, a grouping of major creditor countries organized to provide debt rescheduling or reduction to debtor countries in payment distress. They have moved towards non-Paris Club official bilateral creditors, sovereign bond issues, other foreign commercial lenders, and domestic sources—mainly banks.

The new forms of private credit often come at shorter maturities and higher interest rates, yielding larger debt service burdens for the borrower countries and higher rollover risks when these debts mature. What’s more, these creditors, unlike the Paris Club members, do not have ready mechanisms for coordination with other creditors, which is likely to make any needed debt resolution more difficult.

Second, reliable assessments of debt vulnerabilities require complete data sets, which are often not available for low-income countries.

One third of low-income countries do not report information on government guarantees on debts of state-owned enterprises, fewer than one in ten report debt of public enterprises, and risks from public-private partnerships are rarely reported. All these types of contingent liabilities can rapidly turn into government debt in case of distress.

 

Risk of a new debt crisis?

Several countries, for example, Chad, Mozambique, and the Republic of Congo, have already fallen into debt distress, with some seeking to restructure their debt. Can this drift into debt distress by low-income countries be contained?

To help contain debt vulnerabilities in low-income countries, borrower countries, lenders, and the international institutions should all work together .

Low-income countries need to proceed prudently on taking up new debt, focusing more on attracting foreign direct investment and boosting tax revenues at home. Their investment plans should focus on projects with credibly high rates of return. And their debt reporting needs to improve to allow them accurately to track the evolution of their debt situations.

Lenders should assess the impact of new loans on borrowers’ debt positions before providing the resources to countries. When debt restructuring is required, timely resolution is of the essence, contributing to lower costs for both the debtor and creditors. Timely resolution generally requires efficient creditor coordination. Thus, prior agreement among official creditors on the general “rules of the game,” including principles for sharing information and approaches to burden-sharing, would be beneficial. Donors should also increase their support to low-income countries.

For its part, the IMF will:

  • Advise low-income countries on how best to balance borrowing to finance development spending and managing debt-related risks
  • Roll out the recently revised low-income country debt sustainability framework to better inform such analysis
  • Strengthen technical assistance in critical areas such as public debt reporting and management.

By working together, we can help low-income countries pursue borrowing strategies that promote development while safeguarding debt sustainability. By doing so, we can also ensure that the 20 percent of the world’s population living in low-income countries can share in the continuing global recovery.