AGOA exclusion adds to economic pressure on Ethiopia

Significance This adds to the bad economic news for the country, which recently had to postpone its second telecoms licensing round, is still waiting to restructure its foreign debt and faces huge reconstruction costs in conflict-affected areas. Impacts Foreign companies that have evacuated personnel, let alone tourists, may be slow to return until the security situation improves markedly. A debt restructuring deal should be reached this year, easing fiscal pressure after the end of the G20 Debt Service Suspension Initiative. Ethiopia’s AGOA exclusion is not up for review again until 2023, and could even be extended absent real improvement in the situation.

Impact of External Debt on Economic Growth Rate: An Empirical Evidence from Pakistan

The major objective of this study is to check the effect of external debt on the GDP growth of Pakistan. For this purpose annual time series data were used for the period 1980 to 2020. Augmented Dickey-Fuller test was applied to check the stationary status of the data and the least square method was applied for the estimation of the results. For the analysis GDP growth rate was taken as a dependent variable and other variables, such as economic growth (Annual %), inflation rate (CPI %), Foreign Direct Investment net inflow (% of GDP), multi-lateral debt services (% of public and publically generated debt service), Total debt service (% of GNI), Short term debt (% of total reserves) were taken as explanatory variables. Findings revealed that the total debt and multilateral debt negatively affect the GDP growth rate, whereas, FDI and short term debt are positively associated with growth rate. It is suggested that to improve the economic growth Pakistan should focus on investment projects and there is a need to implementation better policies for foreign debt utilization

Does External Debt Service Devalue Local Currency in the Long Run? Empirical Evidence from Egypt

The aim of this study is to identify the extent to which there is an effect of external debt service on the exchange rate in Egypt in the long run, where the change in the exchange rate has great importance in changing currency value and thus affecting its function as a store of value and a standard for forward payments and then in the redistribution of income and wealth, It also has an effect on some macroeconomic variables, such as inflation, exports, imports, and thus the current account. The study examines the estimation of the long-run relationship between the external debt service and the exchange rate in Egypt in the period 1980-2019 and relies on the exchange rate of the dollar against the Egyptian pound as a dependent variable, while the explanatory variables were the external debt service, gross capital formation, broad money growth, deposit interest rate, household final consumption expenditure, gross savings, and terms of trade adjustment. The methodology is based on Vector Error Correction (VEC) and the study concluded that there is a significant long-term relationship between the value of the Egyptian pound and all the variables explained in the study, as the error correction coefficient is negative and significant. Also, there is an inverse statistically significant relationship between the value of the Egyptian pound and each of the external debt service, the deposit interest rate, and gross savings; any change of 1% in the external debt service, the deposit interest rate, and gross savings leads to a devaluation of the Egyptian pound against the dollar by 4.8%, 0.04%, and 0.05%, respectively. The study also concluded that there is a positive, statistically significant relationship in the long term between the value of the Egyptian pound and each of gross capital formation, broad money growth, households' and NPISHs' final consumption expenditure, and terms of trade adjustment, as any change of 1% in these variables leads to an increase in the value of the Egyptian pound by 0.16%, 0.05%, 0.27%, and 6%, respectively. This study recommends that decision makers consider all the reasons that would reduce the external debt service in order to preserve the value of the Egyptian currency in the long run.

The Dynamic Impact of Public External Debt on Capital Formation in Sub-Saharan Africa: The Pooled Mean Group Approach

The increasing reliance on public external debt stocks in Africa and other developing countries has raised the question of debt sustainability, especially in the face of Covid-19, which has forced many counties (both developed and developing) into an unforeseen and unplanned recession. This study contributes to the literature on debt sustainability by examining the effect of public debt on capital formation in Sub-Saharan Africa (SSA) from 2000 to 2008 using the pooled mean group estimation approach. The debt variables considered are external debt stock, debt service on external debt, and interest payment on external debt. Consistent with the overhang theory, our results show that increasing external debt stock and interest payment on external debts only have a marginal impact on capital formation in the short run and exerts a serious negative effect in the long run. Our results also show that debt service burden has a positive effect on gross fixed capital formation in the long run. Therefore, we argue that despite being faced with a huge debt service burden resulting from large external debt stock, SSA countries are not neglecting investments in critical infrastructures needed to drive economic growth. However, we recommend that increasing government revenue base, minimizing economic waste associated with public expenditure, and intensifying negotiations for debt relief may be a plausible way out.

Commercial real estate finance and the lending cap rate

PurposeThe aim of this study is to report on a simple derivation that results in what the authors refer to as the lending cap rate. The lending cap rate is a unique cap rate resulting in a property valuation that perfectly aligns the maximum loan amount for the financing of commercial real estate.Design/methodology/approachThe derivation is the result of simple algebra relating the two most common underwriting ratios: debt service coverage and loan-to-value with the formula for the present value of an annuity. Numerical examples are presented to demonstrate the calculation of the lending cap rate, property valuation and maximum loan amount. The authors also present comparative statics results.FindingsThe main finding of this research is that once a lender knows the debt service coverage ratio, loan-to-value ratio and lending terms for a specific property financing request, a simple calculation reveals the lending cap rate and the property valuation that aligns the maximum loan amount implied by the two underwriting ratios.Practical implicationsOne practical implication of the research is that a simple calculation reveals the lending cap rate which facilitates timely property evaluations for lending purposes. The methods demonstrated also offer real estate finance educators a practical means of connecting the loan underwriting process with property appraisal thereby facilitating conceptual understanding.Originality/valueThe key finding is original, and the importance of the finding is that the determination of the lending cap rate is simple and has the ability to make commercial real estate lending faster and cheaper, especially in lending situations where an evaluation rather than an appraisal is appropriate.

Debt for nature swaps – which nature, how much and who pays?

Financially viable means to conserve biodiversity are urgently needed. We analyze how debt-for-nature swaps could conserve currently unprotected biodiversity priority-areas for six biomes in 67 countries under the debt service suspension initiative related to COVID19. Using novel methods and data, we find that the 67 countries hold over 22% of global priority-areas, yet 82.96% is unprotected. For 35 of the 67 countries, swapping 0.1% of public debt could conserve 100% of unprotected priority-areas. By swapping 5.09% of these countries’ total public debt (USD26.5 billion) in a pooled swap, 100% of priority-areas could be protected across the countries. Management costs could partly be covered through re-routed interest payments within the countries, with further annual funding of USD0.5-3.5 billion required. One-Sentence Summary: We develop a framework for efficient application of debt-for-nature swaps to maximize biodiversity conservation.

Analisis Financial Distress Menggunakan Regresi Data Panel

Sebuah perusahaan tentunya ingin menghindari kondisi-kondisi yang dapat mengakibatkan kebangkrutan, salah satu kondisi yang dapat menempatkan perusahaan dalam bahaya kebangkrutan adalah financial distress. Penelitian ini bertujuan untuk mendeskripsikan financial distress dan mengetahui faktor-faktor yang mempengaruhinya pada perusahaan ritel. Penelitian ini dilakukan pada perusahaan-perusahaan subsektor ritel pada periode 2015 hingga 2019 menggunakan metode regresi data panel. Variabel prediktor yaitu current ratio (CR), net profit margin (NPM), total assets turnover (TATO) dan price to book value (PBV). Rasio keuangan yang digunakan untuk mengukur financial distress adalah debt service coverage ratio (DSCR). Hasil analisis menunjukkan perusahaan pada sektor barang konsumen non-primer dibandingkan primer lebih banyak yang mengalami financial distress. NPM berpengaruh signifikan terhadap DSCR, sedangkan CR, TATO dan PBV tidak berpengaruh signifikan terhadap DSCR. Koefisien determinasi dari model terpilih sebesar 83,90%. Kata kunci: Financial Distress, Regresi Data Panel, Ritel

Ethiopia’s conflict clouds the economic outlook

Significance Both are desperately needed, as G20 debt service relief will soon expire, and as the conflict in northern Ethiopia increasingly strains the economy and the government’s finances. Impacts A new IMF programme should provide some relief to chronically low foreign exchange reserves. Inflation will continue to rise in the short term but should stabilise somewhat in 2022. The birr will continue to depreciate gradually in line with IMF recommendations.