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The World Bank  Methodology on external debt

The World Bank is the sole repository for statistics on the external debt of developing countries on a loan-by-loan basis. The Debtor Reporting System (DRS), set up in 1951 to monitor these statistics, is maintained by the staff of the Financial Data Team (FIN), part of the Development Data Group of Development Economics.

Methodology for aggregating data

Using the DRS data, in combination with information obtained from creditors through the debt data collection systems of other agencies such as the Bank for International Settlements (BIS) and the Organization for Economic Cooperation and Development (OECD), the staff of the Financial Data Team estimate the total external indebtedness of developing countries. The data are also supplemented by estimates made by country economists of the World Bank and desk officers of the International Monetary Fund (IMF).

Converting to a common currency

Since debt data are normally reported to the World Bank in the currency of repayment, they have to be converted into a common currency (usually U.S. dollars) to produce summary tables. Stock figures (such as the amount of debt outstanding) are converted using end-period exchange rates, as published in the IMF’s International Financial Statistics (line ae). Flow figures are converted at annual average exchange rates (line rf). Projected debt service is converted using end-period exchange rates. Debt repayable in multiple currencies, goods, or services and debt with a provision for maintenance of value of the currency of repayment are shown at book value. Because flow data are converted at annual average exchange rates and stock data at year-end exchange rates, year-to-year changes in debt outstanding and disbursed are sometimes not equal to net flows (disbursements less principal repayments); similarly, changes in debt outstanding including undisbursed debt differ from commitments less repayments. Discrepancies are particularly significant when exchange rates have moved sharply during the year; cancellations and reschedulings of other liabilities into long-term public debt also contribute to the differences.

Public and publicly guaranteed debt

All data related to public and publicly guaranteed debt are from debtors except for lending by some multilateral agencies, in which case data are taken from the creditors’ records. These creditors include the African Development Bank, the Asian Development Bank, the Central Bank for Economic Integration, the IMF, the Inter-American Development Bank, and the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). (The IBRD and IDA are components of the World Bank.)

Starting with the 1988–89 edition of World Debt Tables (as this book was previously titled), all data pertaining to World Bank loans from 1985 onward are recorded at their current market value. Starting with the 1991–92 edition, all data pertaining to Asian Development Bank loans from 1989 onward are recorded at their current market value as well.

Private nonguaranteed debt

The DRS was expanded in 1970 to incorporate private nonguaranteed long-term debt. Reports, submitted annually, contain aggregate data for disbursed and outstanding debt, disbursements, principal repayments, interest payments, principal and interest rescheduled for the reporting year, and projected payments of principal and interest. Data are usually presented in dollars and currency conversion is not necessary. A few reporting countries choose to provide data on their private nonguaranteed debt in the loan-by-loan format used for reporting public and publicly guaranteed debt. In those cases the currency conversion and projection methodology just described is used.

Although the reporting countries fully recognize the importance of collecting data on private nonguaranteed debt when it constitutes a significant portion of total external debt, detailed data are available only in countries that have registration requirements covering private debt, most commonly in connection with exchange controls. Where formal registration of foreign borrowing is not mandatory, compilers must rely on balance of payments data and financial surveys.

Thirty-four countries report their private nonguaranteed debt to the DRS. Estimates are made for twenty-eight others that do not report but for which this type of debt is known to be significant.

For private nonguaranteed debt that is not reported, the standard estimation approach starts from a calculation of the stock of debt outstanding, using data available from creditors. Figures on guaranteed export credits, obtained from the OECD’s Creditor Reporting System (CRS), are supplemented by loan-by-loan information on official lending to private borrowers and by information on noninsured commercial bank lending to the private sector.

Disbursements and debt service payments for private nonguaranteed debt are more difficult to estimate. Amortization is estimated by making an assumption regarding the proportion of debt repaid each year and then applying these ratios to generate a first approximation of annual principal repayments. Disbursements are then estimated as a residual between net flows (equal to the change in the stock of debt) and estimated amortization. Interest payments are estimated by applying an assumed average interest rate to the stock of debt outstanding.

Data on the balance of payments flows provide useful guidelines in the process of building a time series because private nonguaranteed debt can be treated as a residual between total net long-term borrowing and net long-term borrowing recorded in the DRS for public and publicly guaranteed debt.

Short-term debt

The World Bank regards the individual reporting country as the authoritative source of information on its own external liabilities. But for short-term debt, defined as debt with an original maturity of one year or less, accurate information is not widely available from debtors. By its nature, short-term debt is difficult to monitor; loan-by-loan registration is normally impractical, and most reporting arrangements involve periodic returns to a country’s central bank from its banking sector. Since 1982 the quality of such reporting has improved, but only a few developing countries have figures available for short-term debt.

Where information from debtors is not available, data from creditors can indicate the magnitude of a country’s short-term debt. The most important source is the BIS’s semiannual series showing the maturity distribution of commercial banks’ claims on developing countries. Those data are reported residually. However, an estimate of short-term liabilities by original maturity can be calculated by deducting from claims due in one year those that had a maturity of between one and two years twelve months earlier.

There are several problems with this method. Valuation adjustments caused by exchange rate movements will affect the calculations, as will prepayment and refinancing of long-term maturities falling due. Moreover, not all countries’ commercial banks report in a way that allows the full maturity distribution to be determined, and the BIS data include liabilities only to banks within the reporting area. Nevertheless, combining these estimates with data on officially guaranteed short-term suppliers’ credits compiled by the OECD gives what may be thought of as a lower-bound estimate of a country’s short-term debt. Even on this basis, however, the results need to be interpreted with caution. Where short-term debt has been rescheduled, the effect of lags in reporting and differences in the treatment of the rescheduled debt by debtors and creditors may result in double counting if short-term debt derived from creditor sources is added to long-term debt reported by the country to obtain total external liabilities.

Some of the short-term debt estimates published are drawn from debtor and creditor sources, but most are from creditor sources. Only for a few countries can the data be regarded as authoritative, but they offer a guide to the size of a country’s short-term (and, hence, its total) external debt. The quality of these data is likely to improve.

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Use of IMF credit

Data related to the operations of the IMF come from the IMF Treasurer’s Department and are converted from special drawing rights (SDRs) into dollars using end-of-period exchange rates for stocks and average over the period exchange rates for converting flows, as described earlier. IMF trust fund loans and operations under the structural adjustment and enhanced structural adjustment facilities are presented together with all of the Fund’s special facilities (the buffer stock, compensatory financing, extended fund, and oil facilities).

Treatment of arrears

The DRS collects information on arrears in both principal and interest. Principal in arrears is included and identified in the amount of long-term debt outstanding. Interest in arrears of long-term debt and the use of IMF credit is included and identified in the amount of short-term debt outstanding. If and when interest in arrears is capitalized under a debt reorganization agreement, the amount of interest capitalized will be added to the amount of long-term debt outstanding and the corresponding deduction made from the amount of short-term debt outstanding.

Treatment of debt restructurings

The DRS attempts to capture accurately the effects of the different kinds of restructurings on both debt stocks and debt flows, consistent with the circumstances under which the restructuring takes place. Whether a flow has taken place is sometimes difficult to determine.

In compiling and presenting the debt data, a distinction is made between cash flows and imputed flows. Based on this criterion, rescheduled service payments and the shift in liabilities from one financial instrument to another as a result of rescheduling are considered to be imputed flows.

The imputed flows are recorded separately in the Revised External Debt (RXD) system, but these debt restructuring transactions are not evident in the main body of the debt data—only the resulting effect of these transactions is reflected.

Changes in creditor and debtor status that can result from debt restructuring are also reflected. For example, when insured commercial credits are rescheduled, the creditor classification shifts from private sources to official sources (bilateral). This reflects the assumption of the assets by the official credit insurance agencies of the creditor countries. The debts to the original creditors are reduced by the amounts rescheduled, and a new obligation to the official creditor agencies is created. This shift also applies to private nonguaranteed debt that is reduced by the amounts rescheduled, which in turn are included in the public and publicly guaranteed debt owed to official creditors. On the debtor side, when a government accepts responsibility for the payment of rescheduled debt previously owed by private enterprises, the DRS registers a change in debtor categories in the DRS. Similarly, when short-term debt is included in a restructuring agreement, the rescheduled amount is shifted from short-term to long-term debt.

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Methodology for projecting data

An important feature of the RXD system of the DRS is its ability to project future disbursements of unutilized commitments and future debt service payments.

Undisbursed debt

Projections of disbursements help underpin future capital requirements in the implementation of externally financed projects. In addition, they help determine the interest portion of projected debt service. Future interest payments are based on projected debt outstanding that is itself determined by projected disbursements and repayments. The underlying assumptions of these projections are that loan commitments will be fully utilized and that the debtor country will repay all sums due. Future disbursements and debt service refer only to existing debt and do not reflect any assumptions on future borrowing.

Disbursement projections use two methods:

  • Specific schedules. Debtor countries are requested to submit a calendar of future disbursements, if available, at the time individual loans are first reported. Country authorities are in a better position to provide estimated disbursement schedules when there is a solid public sector investment program in place.

  • Standard schedules. In the absence of specific schedules, the RXD system projects disbursements by applying a set of profiles to the last actual undisbursed balance of individual loans. The profiles are derived under the assumption that specific sources of funds have some common characteristics that cause them to disburse, in the aggregate, in some observable pattern. Accordingly, some thirty profiles have been derived that roughly correspond to creditor type. Profiles exist for concessional and nonconcessional loans from official creditors. For bilateral lending, profiles have been developed for the Development Assistance Committee, the Organization of Petroleum-Exporting Countries (OPEC), and other creditor groupings. For multilateral lending, specific profiles are available for major international organizations. An estimating equation for each profile is derived by applying regression analysis techniques to a body of data that contains actual disbursement information for more than 100,000 loans. Although these standard profiles are reestimated from time to time, under the best scenario they can only approximate the disbursement pattern of any single loan.

Future debt service payments

Most projections of future debt service payments generated by the RXD system are based on the repayment terms of the loans. Principal repayments (amortization) are based on the amount of loan commitments, and the amortization profile of most loans follows a set pattern. Using the first and final payment dates and the frequency of the payments, the system calculates the stream of principal payments due. If future payments are irregular, the RXD system requires a schedule.

Projected future interest payments are calculated similarly. Interest is based on the amount of debt disbursed and outstanding at the beginning of the period. Again, using the first and final interest payment dates and the frequency of payments, the system calculates the stream of interest payments due. If interest payments are irregular, the RXD system requires a schedule.

The published figures for projected debt service obligations are converted into U.S. dollars using the end-December 1996 exchange rates. Likewise the projection routine for variable interest rate debt, such as commercial bank debt based on the London interbank offer rate (LIBOR), assumes that the rate prevailing at the end of December 1996 will be effective throughout.


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