external commercial and multilateral (IMF) sources in the same proportion – 50 percent each. The financing terms are the same assumed in each country’s latest DSA.

For 3 of the 24 countries – Republic of Congo, Mauritania and Sudan – the exercise results in an improvement of their external debt burden indicators. This occurs because we apply the same new growth rates to the exports projected for 2015 and onwards to all countries, thus ignoring other developments considered in the DSA that affect the country’s exports during the projection period, such as a depletion of natural resources.<sup>16</sup> For this reason in the discussion below we refer only to the remaining 21 countries. The results are shown in Annex Table 6, which presents summary measures for the deviations vis-à-vis the corresponding thresholds of the relevant debt burden indicators, both in the baseline and new scenario. The table also shows summary statistics for the deterioration of the debt burden indicators vis-à-vis the baseline after the exports growth shock. All measures, unless indicated, are in percentage points.

In the majority of cases (13 out of 21),<sup>17</sup> the shock appears to be mild. The two debt burden indicators are negatively affected, however not to an extent large enough to cause a breach of the thresholds in the projection horizon. For these countries the slowdown in exports growth does not appear to be a major cause of concern in regard to their debt sustainability.

For 4 countries – Comoros, Guinea-Bissau, Sao Tome & Principe and Zimbabwe – the effect of the export shock, whether large or small, does not change their overall risk assessment because the debt burden indicators already showed breaches in the baseline scenario. In all these cases except Guinea-Bissau the effect of the shock appears to be large, leading to larger and more protracted breaches. In the case of Guinea-Bissau the shock mildly affects the debt-to-exports ratio and the effect on the debt service-to-exports ratio is negligible.

Finally, for 4 countries – Cameroon, Cote d’Ivoire, Ethiopia and Mozambique – the export shock could lead to a worsening of their risk of debt distress as the outcome are more or less protracted breaches of the thresholds, whereas there are no such breaches in the baseline. The effect is more notorious in the cases of Cameroon and Mozambique, while it is milder in the cases of Cote d’Ivoire and Ethiopia.

Overall, the effect of a slowdown in exports, caused by the slowdown in China’s growth and the sluggish recovery in Europe, seem to affect quite differently the SSA countries. For the majority of them there is no significant effect at all, while for a few there is a deterioration of an already risky situation. For a small group the effect could mean a downgrading of their risk of debt distress assessment.

# **4.5 Dependence on non-debt-creating external flows for financing current account imbalances, including net FDI and remittances**

Net FDI, as recognized in Section 3, is a key driver of debt dynamics both historically and in future baseline projections of debt ratios. These inflows for SSA countries grew nearly six-fold in the past decade and have financed important development-related investments in the region (Figure 4.2).<sup>18</sup> However, these inflows are heavily concentrated. Four countries accounted for more than half of the FDI inflows in 2013 (South Africa, Mozambique, Nigeria and Ghana). Inflows are also concentrated in extractive industries. Energy (including oil, gas and mining) remains the largest sector for Greenfield FDI, with countries such as DRC, Nigeria, and

> 16 Unless we analyze each DSA in greater detail, there is no easy way to separate country-specific supply shocks from the demand shock we are modeling in constructing the new scenario.

> 17 Cape Verde, Democratic Republic of Congo, Ghana, Guinea, Kenya, Malawi, Nigeria, Rwanda, Senegal, Sierra Leone, Togo, Uganda and Zambia.

> 18 Source: UNCTAD. “World Investment Report 2014”. UNCTAD, Geneva. June 2014.

19