Tuesday, 29 May 2018
India had the second highest debt, after Brazil, in the Emerging Market and Middle-Income Economies category. But the figure is projected to steadily go down here on, from 68.9 per cent this year to 61.4 per cent by 2023.
IMF says global debt hit a record $164 trillion in 2016; India praised for 'right policies'. The world is drowning in debt like never before. According to the IMF, global debt, public and private alike, hit a record $164 trillion in 2016 - almost 225 per cent of the world's economic output - up 8 per cent from 2015. Debt-to-GDP ratios in the advanced economies are at levels not seen since World War II, while the same for emerging market and middle-income countries have hit levels last seen during the 1980s debt crisis. To ram home the bad news, "the world is now 12 per cent of GDP deeper in debt than the previous peak in 2009", as the latest Fiscal Monitor report put it.
According to Vitor Gaspar, Director, IMF Fiscal Affairs Department, which prepared the report, most of the global debt is in advanced economies, at 105 per cent of GDP on average. But in the past decade, emerging market economies have been responsible for most of the increase. Debt-to-GDP ratios for the latter in 2017 reached almost 50 per cent and are expected to continue on an upward trend. "One-fifth of emerging market and middle-income economies had debt above 70 per cent of GDP in 2017, similar to levels in the early 2000s in the aftermath of the Asian financial crisis. Among low-income developing countries, 20 per cent now boast debt above 60 per cent of GDP, compared with almost none in 2012," said the report.
"Underpinning debt dynamics for all countries are large primary deficits, which reached record levels in the case of emerging market and developing economies," it added. Here's why high government debt and deficits are cause for concern:
It can make countries vulnerable to a sudden tightening of global financing conditions, which could disrupt market access and put economic activity in jeopardy. Past experience shows that countries can be subject to large unexpected shocks to public debt-to-GDP levels, which would exacerbate rollover risk. Furthermore, IMF has previously established that fiscal risks can be highly correlated with each other, with a distinct bunching of contingent liability realizations during crisis periods.
It can hinder a government's ability to implement a strong fiscal policy response to support the economy in the event of a downturn. Historical experience shows that a weak fiscal position increases the depth and duration of recession-such as in the aftermath of a financial crisis.
Arguably, high debt can also result in lower growth because it can crowd out private investment and create uncertainty about higher future distortionary taxation.
India praised for 'right policies'
Against this backdrop consider that as per IMF data, India's general government debt (as a percentage of GDP) has been pegged at 70.2 per cent for 2017, up 2 per cent since 2012. In fact, it boasted the second highest debt, after Brazil, in the Emerging Market and Middle-Income Economies category. But the figure is projected to steadily go down here on, from 68.9 per cent this year to 61.4 per cent by 2023. "The debt level is relatively high, but the authorities are planning to bring it down over the medium term with the right policies," said Abdel Senhadji, Deputy Director, IMF Fiscal Affairs Department, at a press conference, adding that India is planning to continue with the consolidation in the current fiscal year and over the medium term. According to the IMF, India's debt ratio projection for 2023, along with a fiscal deficit target of 3 per cent by 2019-20, "are appropriate".
China slammed
In contrast, China's government debt to GDP ratio stood much lower at 47.8 per cent in 2017. However, the IMF report holds the country responsible for a whopping 43 per cent of the global debt increase since 2007, calling it "a driving force". The main concern "has to do with the level and pace of accumulation of overall debt, private and public. So, the control over the debt level - in particular, the rhythm of debt accumulation - is a major challenge for the Chinese economy," said Gasper. According to IMF data, China's general government debt (as a percentage of GDP) is expected to balloon from 47.8 per cent in 2017 to 65.5 per cent by 2023.
Dismal outlook for the US
The projections for the US are similarly dismal. "In the US, the revised tax code and the two-year budget agreement provide additional fiscal stimulus to the economy. These measures will give rise to overall deficit above $1 trillion over the next three years, and that corresponds to more than 5 per cent of the US GDP," said Gasper, adding, "Debt is projected to increase from 108 per cent in 2017 to 117 per cent of GDP in 2023. If tax cuts with sunset provisions are not allowed to lapse, public debt would climb even higher."
Thankfully, the outlook for the world at large is a lot more positive - the IMF forecasts indicate that debt-to-GDP ratios would come down over the next three to five years in most countries. This, of course, hinges on them delivering fully on their policy commitments. So the report calls out for immediate decisive action on the part of nations to strengthen fiscal buffers and advance policies/reforms to reduce vulnerabilities, taking full advantage of the recent broad-based pickup in economic activity. "Countries are advised to avoid procyclical fiscal policies that exacerbate economic fluctuations and ratchet up public debt," said Gasper.
Incidentally, the report also gives a thumbs up to Aadhaar, the constitutional validity of which is currently being debated in the Supreme Court. "Digitalization can improve financial management and ultimately the efficiency of public spending... Biometric technology to identify and authenticate individuals can help reduce leakages and improve coverage of social programs. With more than 1.2 billion registered citizens in India's biometric identification system, Aadhaar, the country stands out as a leader in this area," it said. Significantly, the IMF also underscored that digitization is no panacea, and the report made clear that "governments must address multiple political, social, and institutional weakness and manage digital risks".
Source -BusinessToday
Published in World
Pakistan expects to obtain fresh Chinese loans worth $1-2 billion to help it avert a balance of payments crisis, Pakistani government sources said, in another sign of Islamabad's growing reliance on Beijing for financial support.
Lending to Pakistan by China and its banks is on track to hit $5 billion in the fiscal year ending in June, according to recent disclosures by officials and Pakistan finance ministry data reviewed by Reuters.
The ramp up in China's lending comes as the United States is cutting aid to Pakistan following a fracture in relations between the on-off allies. In February, Washington led efforts that saw Pakistan placed on a global terror financing watchlist, drawing anger in Islamabad amid fears it will hurt the economy.  
The new Chinese loans that are being negotiated will help bolster Pakistan's rapidly-depleting foreign currency reserves, which tumbled to $10.3 billion last week from $16.4 billion in May 2017.
The talks come only weeks after a group of Chinese commercial banks lent $1 billion to Pakistan's government in April.
The reserves decline and a sharp widening of Pakistan's current account deficit have prompted many financial analysts to predict that after the general election, likely in July, Islamabad will need its second International Monetary Fund (IMF) bailout since 2013. The last IMF assistance package was worth $6.7 billion.
Beijing's attempts to prop up Pakistan's economy follow a deepening in political and military ties in the wake of China's pledge to fund badly-needed power and road infrastructure as part of the $57 billion China-Pakistan Economic Corridor (CPEC), a key cog in Beijing's vast Belt and Road initiative.
"I think this month we will get that $1-2 billion," said a senior Pakistan government official, saying the funds will come from Chinese state-run institutions.
A second government official confirmed Pakistan was in "sensitive" talks with Beijing over extra funding for up to $2 billion. Pakistan finance ministry officials did not respond to a request for comment.  
China's finance ministry and central bank, who were faxed questions about the loans, did not immediately respond to requests for comment.
Although Pakistan's economic growth has soared to nearly 6 percent, the fastest pace in 13 years, the structural problems with the economy are coming to the fore. It is similar to 2013, when foreign currency reserves dwindled and Pakistan narrowly escaped a full-blown currency crisis.
"The current situation appears to be a replica of what we experienced in 2013, albeit on a slightly larger scale," said Yaseen Anwar, who was the governor of the central bank, the State Bank of Pakistan (SBP), back in 2013.
The darkening macroeconomic outlook prompted the IMF earlier this month to downgrade its economic growth forecast for Pakistan to 4.7 percent for the next fiscal year ending in June 2019, way below the government's own ambitious target of 6.2 percent. Over the past nine months Pakistan has enacted a series of measures to combat its ballooning current account deficit, including hiking tariffs on more than 200 luxury items and devaluing its currency by about 10 percent.
In the six months to end of March, Pakistan took bilateral loans worth $1.2 billion from China, according to the Pakistan Finance Ministry document reviewed by Reuters. During this period the government also borrowed about $1.7 billion in commercial loans, mostly from Chinese banks, finance ministry officials added.
In April, Pakistan's central bank borrowed another $1 billion from Chinese commercial banks to buffer its reserves, State Bank of Pakistan Governor Tariq Bajwa told the Financial Times (FT). A spokesman for the central bank told Reuters the FT report was accurate.
The $1-2 billion under discussion would be in addition to that loan.
So far, all the measures appear to have had a limited impact on Pakistan's economy and foreign exchange reserves continue to plummet. The collapse of the reserves is mainly due to the central bank's efforts to maintain an artificially strong rupee over the past few years, analysts say. The currency is now trading at about 115.50/116 to the U.S. dollar, down 9.8 percent in last six months after two separate devaluations since December.
In the past three weeks, reserves have declined by $1.2 billion and now stand at two months worth of import cover.
"This new (Chinese) money is a temporary bridge until August or September, when a new government will come into office and the country will likely opt for a new IMF programme," said Saad Hashmey, chief economist at brokerage house Topline Securities.
Hashmey and several other economists are predicting another currency devaluation by the end of 2018. Pakistan may also seek help from Saudi Arabia. The Middle Eastern ally loaned $1.5 billion to Pakistan in 2014 to shore up its foreign currency reserves. The scale of the task facing Pakistan is huge as the current account deficit widened to $14 billion in the first 10 months of the current fiscal year, according to SBP data. Dollar-denominated debt repayments in 2018 are also expected to top $5 billion, analysts say.
Part of the problem for Pakistan has been a multi-year consumer boom accompanied by huge imports of Chinese machinery for CPEC projects, which has piled pressure on the current account deficit. More recently, a jump in the oil price has compounded the problem as Pakistan is a fuel importer.
One of the senior Pakistani government officials said the money from China should give the economy breathing space. He said exports have shot up in the last two months, helped by the devaluation in the rupee, and that should help ease the current account deficit.
However, Pakistan's central bank appears more nervous as oil prices climb, raising its main policy rate by 50 basis point to 6.5 percent on Friday and warning the "the balance-of-payments picture...has further deteriorated".
Published in World

Rwanda keeps surprising. Recently the Rwandan Development Board signed a sleeve sponsoring deal with London Premier League club, Arsenal. Over a three-year period, the 200 sq centimetre ad “Visit Rwanda” will cost the country USD$39 million.

President Paul Kagame is known to be a committed Arsenal fan. Recently, he even tweeted that the club needed a new coach after Arsenal’s once invincible league and cup winning manager Arsene Wenger’s poor record over the past number of seasons. One may suppose that it is a coincidence that the deal was struck just after Wenger’s retirement at the end of the 2017/18 season.

Rwanda is the 19th poorest country in the world with a per capita income of around USD$700. Arsenal is one of the richest football clubs in the world. It’s not surprising therefore that the nearly USD$40 million has upset quite a few people.

Dutch lawmakers, including some from the governing coalition, immediately reacted angrily to the news that such a poor country receiving a great deal of aid from The Netherlands would sponsor one of the world’s richest soccer clubs. Similar reactions could be heard in the UK, Rwanda’s second largest bilateral donor. An MP described the deal as “an own goal for foreign aid”.

In addition, those concerned with democracy and human rights think the deal is sending the wrong message about a country that has a strong authoritarian streak running through it.

Read more: Why Rwanda's development model wouldn't work elsewhere in Africa

The question is: Is Kagame entering into a deal with his favourite club to promote tourism or has he done it to enhance his image and shield him from criticism? He appears to have made the decision off his own bat: the contract appears not to have been discussed in the cabinet and the money does not figure in the budget approved by parliament.

Rwanda’s rationale

For the Rwandan government, the deal is part of a broader strategy to develop tourism, which in 2017 accounted for about 12.7% of GDP and USD$1 billion of revenue. The country sees upmarket leisure and convention tourism as an important growth sector. It has a lot going for it: lush green landscapes, the mountain gorillas of the Virunga volcanos, the Akagera wildlife park, the tropical Nyungwe forest, idyllic Lake Kivu, and even genocide memorials – all compressed into a space of just 26,000 sq kms.

This strategy is integrated and makes sense on paper. The state has invested heavily in its national airline RwandAir and built the Kigali Convention Centre and high-end hotels. And the development of the new Bugesera International Airport, designed to become a major regional hub, is underway.

But there are doubts about the profitability of these ventures. For instance, RwandAir has yet to break even 14 years after it was launched. The government keeps it afloat with an annual grant of USD$50 million just for operations.

Investments in a constantly expanding fleet to cater for an ever growing network of continental and intercontinental destinations require considerable borrowing at a high cost. The fiscal risk involved in the government’s strategy is high, and economists wonder how sustainable these outlays will be in the medium term.

Calculations like these are for the Rwandan government to consider. But has Arsenal considered the signal it’s giving in light of Kagame’s human rights and democracy records?

Risks for Arsenal

Canadian investigative journalist Judi Rever recently recorded in a book, “In Praise of Blood: The Crimes of the Rwandan Patriotic Front”, that the Rwandan regime has massacred tens if not hundreds of thousands of innocent civilians, particularly in the 1990s.

And last year Human Rights Watch issued worrying reports about human rights abuses. These included the rounding up and arbitrary detention of poor people in “transit centres” across the country, widespread repression in land cases, extrajudicial killings and unlawful detention and torture in military facilities.

In October 2017 the United Nations subcommittee on Prevention of Torture suspended its visit to Rwanda because of “a series of obstructions imposed by the authorities”. It was only the third time in 10 years the subcommittee has done this.

On top of this there has been widespread analysis and commentary on the state of democracy in Rwanda. The country is a de facto one-party state with no meaningful political opposition, no press freedom and no independent civil society.

Kagame’s grip on power is absolute and in August last year he was reelected with over 98% of the vote. A referendum on a constitutional amendment in 2015 gave him the right to stay office until 2034.

Realising that battles are fought in the media as much, if not more than on the ground, Kagame’s party, the Rwandan Patriotic Front (RPF) has developed a formidable information and communication strategy stretching back to the civil war it launched in October 1990.

Kagame once said:

We used communication and information warfare better than anyone. We have found a new way of doing things.

This has involved paying those who can help promote the right image, including public relations firms.

Political ethics and sport

True, political ethics and sports don’t match well. Until recently FC Barcelona agreed to a Qatar sponsorship that saw the country featured on the team’s jerseys. Qatar has a very chequered political record. Due to host the 2022 World Cup, it’s known for its notorious human rights abuse, especially when it comes to the rights of migrant workers and women.

Another example is Atlético Madrid which was controversially sponsored by Azerbaijan, where the Euro 2020 football tournament will take place. This east European country has been flagged by Amnesty International for its “crackdown on the right to freedom of expression, particularly following revelations of large-scale political corruption”.

Not that it should make any difference, but these two countries are very rich, while Rwanda is very poor.

And I nearly forgot: Many Arsenal fans were opposed to the deal, not because of Rwanda’s human rights and democracy records, but because they didn’t like the design of the sleeve print.


Filip Reyntjens, Professor of Law and Politics, Institute of Development Policy and Management (IOB), University of Antwerp

This article was originally published on The Conversation. Read the original article.

Published in Opinion & Analysis

Arsenal signed a new sponsorship deal with central-east African nation Rwanda. Fans were taken aback by the news – but only because the badge on the sleeve looked ugly.

Back in 2012, during the first matutinal stirrings of what would later come to be known as the First Golden Age of Internet Banter, the hypersensitive tendrils of the viral football cottage industry got extremely excited when Paul Kagame, the president of Rwanda and an Arsenal fan, tweeted that the club could do with a change of coach.

Look, everyone! Even the president of Rwanda is Wenger Out! Lol! Rwanda, which is small and in Africa and therefore extremely funny!

Six years on, with Wenger finally out, and new manager Unai Emery taking possession of the keys to the big coat cupboard and the password to the StatDNA database, it’s hard not to wonder idly whether there was more to all this than initially met the eye. For the announcement of Wenger’s replacement seemed to coincide just a little too neatly with another official Arsenal release, this time unveiling the club’s new shirt-sleeve sponsor and official tourism partner as none other than Visit Rwanda.

With the exact details of the deal under wraps, the mischievous will be tempted to spot a connection between these two developments. Did Kagame, in fact, manage to get a lot more for his cash than simply a few logos on sleeves and post-match interview backdrops? Did he make it a condition of his financial largesse that Arsenal finally act on his tweet from six years ago and install meaningful regime change? Impossible to say, although you suspect the thousands of websites and social media accounts at the vanguard of the Nineteenth Golden Age of Internet Banter (things move pretty fast in these circles) might be tempted to have a good go nonetheless.

– The Independent (UK)

Published in World
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