Sovereign Debt Vulnerabilities in Asia and the Pacific

SOVEREIGNDEBTVULNERABILITIES INASIAANDTHEPACIFIC BennoFerrarini,SuzetteDagli,andPaulMariano NO.680 April2023 ADBECONOMICSWORKINGPAPERSERIES ASIANDEVELOPMENTBANK ADBEconomicsWorkingPaperSeries SovereignDebtVulnerabilitiesinAsiaandthePacific BennoFerrarini,SuzetteDagli,andPaulMarianoNo.680|April2023 BennoFerrarini(bferrarini@adb.org)isaprincipaleconomist;SuzetteDagli(sdagli@adb.org)isan economicsofficer;andPaulMariano(pmariano.consultant@adb.org)isaconsultantattheEconomicResearchandRegionalCooperationDepartment,AsianDevelopmentBank. TheADBEconomicsWorkingPaperSeriespresentsresearchinprogresstoelicitcommentsandencouragedebateondevelopmentissuesinAsiaandthePacific.TheviewsexpressedarethoseoftheauthorsanddonotnecessarilyreflecttheviewsandpoliciesofADBoritsBoardofGovernorsorthegovernmentstheyrepresent. ASIANDEVELOPMENTBANK CreativeCommonsAttribution3.0IGOlicense(CCBY3.0IGO) ©2023AsianDevelopmentBank 6ADBAvenue,MandaluyongCity,1550MetroManila,PhilippinesTel+63286324444;Fax+63286362444 www.adb.org Somerightsreserved.Publishedin2023. ISSN2313-6537(print),2313-6545(electronic)PublicationStockNo.WPS230124-2 DOI:http://dx.doi.org/10.22617/WPS230124-2 TheviewsexpressedinthispublicationarethoseoftheauthorsanddonotnecessarilyreflecttheviewsandpoliciesoftheAsianDevelopmentBank(ADB)oritsBoardofGovernorsorthegovernmentstheyrepresent. ADBdoesnotguaranteetheaccuracyofthedataincludedinthispublicationandacceptsnoresponsibilityforanyconsequenceoftheiruse.ThementionofspecificcompaniesorproductsofmanufacturersdoesnotimplythattheyareendorsedorrecommendedbyADBinpreferencetoothersofasimilarnaturethatarenotmentioned. Bymakinganydesignationoforreferencetoaparticularterritoryorgeographicarea,orbyusingtheterm“country”inthisdocument,ADBdoesnotintendtomakeanyjudgmentsastothelegalorotherstatusofanyterritoryorarea. ThisworkisavailableundertheCreativeCommonsAttribution3.0IGOlicense(CCBY3.0IGO)https://creativecommons.org/licenses/by/3.0/igo/.Byusingthecontentofthispublication,youagreetobeboundbythetermsofthislicense.Forattribution,translations,adaptations,andpermissions,pleasereadtheprovisionsandtermsofuseathttps://www.adb.org/terms-use#openaccess. ThisCClicensedoesnotapplytonon-ADBcopyrightmaterialsinthispublication.Ifthematerialisattributedtoanothersource,pleasecontactthecopyrightownerorpublisherofthatsourceforpermissiontoreproduceit.ADBcannotbeheldliableforanyclaimsthatariseasaresultofyouruseofthematerial. Pleasecontactpubsmarketing@adb.orgifyouhavequestionsorcommentswithrespecttocontent,orifyouwishtoobtaincopyrightpermissionforyourintendedusethatdoesnotfallwithintheseterms,orforpermissiontousetheADBlogo. CorrigendatoADBpublicationsmaybefoundathttp://www.adb.org/publications/corrigenda.Notes: Inthispublication,“$”referstoUnitedStatesdollars. ADBrecognizes“China”asthePeople’sRepublicofChina,“Laos”astheLaoPeople’sDemocraticRepublic,and“Russia”astheRussianFederation. TheADBEconomicsWorkingPaperSeriespresentsdata,information,and/orfindingsfromongoingresearchandstudiestoencourageexchangeofideasandtoelicitcommentandfeedbackaboutdevelopmentissuesinAsiaandthePacific.Sincepapersinthisseriesareintendedforquickandeasydissemination,thecontentmayormaynotbefullyeditedandmaylaterbemodifiedforfinalpublication. CONTENTS TABLES,FIGURES,ANDBOXESiv ABSTRACTv I.RISINGDEBTAMIDTHREEGLOBALCRISES1 II.PUBLICDEBTBASELINEPROJECTIONSFORASIAANDTHEPACIFIC4 III.RISKSANDSCENARIOANALYSIS—SLOWERGROWTH7 ANDRISINGINTERESTRATES IV.SOVEREIGNDEBTHEATMAPSFORASIAANDTHEPACIFIC15 V.LOOKINGAHEAD:EXTERNALFINANCINGNEEDS29 ANDNEAR-TERMSTRESSFORECASTS A.FundingNeedsandSources:SriLanka,Pakistan,LaoPDR,Mongolia29 B.Near-TermDebtDistressRatings—MultivariateLogitEstimates34 VI.CONCLUSIONS37 APPENDIX1:HEATMAPS39 APPENDIX2:INDICATORSANDTHRESHOLDS46 APPENDIX3:DEFINITIONSANDSOURCESOFTHEINDICATORS47 REFERENCES53 TABLES,FIGURES,ANDBOXES TABLES 1 HeatMap–HeadlineIndicators,2022–2023orLatestAvailable 18 2 PublicDebtVulnerabilities2022–2023—RankingOverall 20 3 ExternalDebtVulnerabilities2022–2023—RankingOverall 23 4 HeatMap–PublicDebt,2022–2023 25 5 HeatMap–ExternalDebt,2022–2023orLatestAvailable 27 6 Near-TermSovereignStressRatings 36 A1.1 HeatMap–HeadlineIndicators,2020–2021 40 A1.2 HeatMap–HeadlineIndicators,2018–2019 41 A1.3 HeatMap–PublicDebt,2020–2021 42 A1.4 HeatMap–PublicDebt,2018–2019 43 A1.5 HeatMap–ExternalDebt,2020–2021 44 A1.6 HeatMap–ExternalDebt,2018–2019 45 FIGURES 1GovernmentDebt2 2ChangesinAsianDevelopmentOutlookForecasts3 3PublicDebtRatiosinDevelopingAsia5 4ChangesinPublicDebtsince20196 5GovernmentDebt—BaselineandShockScenarios8 6GovernmentInterestExpense/RevenueRatios9 7BaselineandCombinedShockScenarios,202510 8PublicDebt,byCurrencyComposition,202211 9ExchangeRateLCU/$January2021=10011 10ExternalDebt,202112 11ExternalDebtandExternalGrossFinancingNeeds12 12ExternalDebtandInternationalReserves13 13ExternalDebt—BaselineandShockScenarios14 14PrivateDebt,Quarter2202214 15EvolutionofPrivateDebt—2000Quarter1to2022Quarter215 16PublicDebtVulnerabilities2022–2023—VennDiagram19