Debt Sustainability and direction of trade: What does Africa’s shifting engagement with BRIC and OECD tells us?

This study assesses the evolution of debt sustainability in the Sub Saharan African (SSA) region. It also examines the respective contributions of OECD and BRIC to debt sustainability in the region. We reveal how the external demand for SSA goods and services from OECD and BRIC helps to lower ‘debt-to-exports’ and ‘debt-service-to-exports’ ratios, two of the main gauges of debt sustainability. Furthermore, using simple growth accounting, we assess how the net exports by SSA to the OECD and BRIC contributes to the region’s GDP growth, and thus indirectly helps to lower the ‘debt-to-GDP’ ratio, which is another important measure of indebtedness. Our study also compares the ‘actual’ debt levels of SSA with ‘hypothetical’ debt levels that simulate the contributions of OECD and BRIC. On the basis of debt sustainability thresholds of the joint IMF-World Bank Debt Sustainability Framework (DSF), we test how the sustainability of SSA debt has evolved overtime and how much the OECD and BRIC contribute to three classes of ‘weak’, ‘medium’ and ‘strong’ debt sustainability targets.