Global Development Finance 1997: Extracts

The World Bank

South Asia

Debt and debt indicators
Aggregate resources flows

Substantially stronger inflows of foreign investment to South Asia helped net aggregate inflows rebound to an estimated $17 billion in 1996, after having fallen to less than $9 billion in 1995 in the aftermath of the Mexican peso crisis. Stronger borrowing in 1996 raised the debt stock, which fell in 1995, but the region's ratio of debt to exports fell to 209 percent. South Asian economies continue to boast an impressive debt servicing record. The region is dominated by India, where reforms have attracted substantial volumes of private capital in recent years. South Asia is estimated to have received about 6 percent of total net aggregate flows to low- and middle-income countries in 1996, up from about 4 percent in 1995. Net transfers to the region increased to $11.4 billion, or about 2 percent of regional GNP in 1996.

Debt and debt indicators

External debt stock rises. An increase in disbursements to India and Pakistan in 1996 helped raise total debt outstanding in the region to an estimated $161 billion, up 2.5 percent over 1995. The region's debt accounted for about 7 percent of the outstanding external debt of low- and middle-income countries. India holds about 59 percent of the region's outstanding debt, Pakistan about 21 percent, and Bangladesh about 10 percent.

Two-fifths of long-term debt is owed to multilaterals. About 40 percent of the region's long-term outstanding debt is owed to multilateral institutions, a much higher share than in Sub-Saharan Africa (32 percent) or Latin America (15 percent). The largest multilateral creditor is IDA, which holds about half the multilateral debt stock and 19 percent of total debt.

Private nonguaranteed debt is growing. Private debt not guaranteed by the debtor governments increased to 6.1 percent of the region's debt stock in 1996, up from 5.3 percent in 1995 and just 1.9 percent in 1993. About 75 percent of private nonguaranteed debt is owed by India, where the stock is estimated to have increased to $7.4 billion in 1996, up from about $1.8 billion in 1993.

The region's debt servicing record remains impressive. South Asia continues to be the one region that has managed to keep arrears low and avoid debt restructuring during the past decade.

Debt burden indicators are high but improving. The rise in the debt stock in 1996 was more than compensated for by stronger regional exports, and the debt to export ratio is estimated to have fallen to about 209 percent in 1996 from about 219 percent in 1995, the fourth straight year of improvement. The ratio of debt to GNP fell to about 28 percent, down from 31 percent in 1995 and 36 percent in 1994, and the ratio of debt service to exports fell from about 25 percent in 1995 to about 23 percent in 1996.

Steady improvement in the region is driven by events in India, where large principal repayments and a stronger dollar helped the dollar valuation of the debt stock fall about 8 percent in 1995. Despite an increase in disbursements in 1996, India's debt to export ratio fell to 186 percent, well below the average level of just over 300 percent for the previous seven years. India's ratio of debt service to exports fell from about 28 percent to about 25 percent.

Country experiences in the region vary. In Pakistan a deterioration in the current account deficit in 1996 was financed in part by stronger net flows of external borrowing. As a result Pakistan's debt to export ratio rose to 270 percent from 258 percent in 1995, and the debt service ratio rose to 29 percent, the highest in the region. Debt to export ratios in Bangladesh, Nepal, and Sri Lanka all improved slightly in 1996. Within the region debt to export ratios ranged from 72 percent (Bhutan) to 292 percent (Bangladesh), and debt-GNP ratios ranged from 26 percent (India) to 62 percent (Sri Lanka).

Aggregate resources flows

A rebound in portfolio equity inflows, direct investment, and long-term borrowing helped boost aggregate resource inflows to South Asia to nearly $17 billion in 1996, after having fallen to less than $9 billion in 1995. India accounted for about 75 percent of the increase. Portfolio equity flows to India are estimated to have increased substantially in 1996, and the net disbursements of long-term debt to the region as a whole increased by $4.4 billion to about $6.2 billion. Higher borrowing meant that the share of non-debt-creating flows fell to an estimated 62 percent in 1996.

Official development assistance rebounds. Preliminary estimates suggest that net official development assistance to South Asia increased to about $6 billion in 1996, after having fallen to just $3.3 billion in 1995, partly as a result of a large prepayment by India on a concessional loan to a bilateral creditor. Grants (excluding technical assistance) remained constant at an estimated $2.5 billion in 1996, equivalent to about 14 percent of net resource inflows to the region. South Asia received about 8 percent of total grants to developing countries.

Net private flows more than doubled, accounting for two-thirds of aggregate flows. Much stronger portfolio equity flows to India and stronger foreign direct investment and higher borrowing for the region all contributed to a rise in net private flows from about $5.2 billion in 1995 to about $10.7 billion in 1996, or 63 percent of aggregate flows. The continued upward trend in foreign direct investment to India was offset in 1996 by a decrease in foreign direct investment to Pakistan and very small inflows in Sri Lanka and Bangladesh.

Large repayments lead to negative flows on bonds in 1996. Net flows on international bonds were negative in 1996, with nearly $2 billion in repayments falling due. New bonds worth about $0.6 billion were issued in India and Pakistan.