HIPCs and Fragile countries are the groups most affected by shocks, both in the size and length of breaches, while Oil Exporters are less affected, except for the shock on exports growth (B2).

Overall, LICs on average are more vulnerable to suffer a downgrade in their risk ratings because of shocks affecting their solvency rather than liquidity, a result consistent with their historical – albeit decreasing – access to concessional financing.

# **4.3 Assessing Debt Vulnerabilities of SSA Oil Exporting Countries after the 2014 Oil Price Shock**

This section sheds some light on the SSA oil exporting countries’ debt vulnerabilities resulting from the oil price shock of late 2014, which directly affects their debt repayment capacity. The exercise illustrates how the different debt burden indicators – and the risk of debt distress – would change in each of the four oil exporting countries after the shock, if they were to substitute the lower exports and government revenues with new government (PPG MLT) debt, so that no adjustment is forced on the economy – no reduction in imports, government expenditures or changes in the exchange rate occurs. The magnitude of the changes in the debt burden indicators under such, albeit extreme, assumptions illustrates how exposed oil exporting countries are to oil price shocks or, alternatively, to what extent an adjustment to the above variables is warranted if a risk classification downgrade is to be avoided.

In order to evaluate how significantly the oil price shock can affect the countries’ debt situation, we make new projections for the five debt burden indicators using the latest available DSAs and a new oil price series that incorporates the drop of late 2014 and an assumed slow recovery thereafter. We begin by comparing the oil price projections made by the US Department of Energy in April of 2014, with those made by the World Bank Prospects Group in January of 2015. The comparison shows a drop of 45 percent in the oil price in 2015 (year average) and a recovery thereafter of 7 percent yearly until 2023. We use the projected drop in 2015 and the eight years recovery to recalculate the value in USD of each country’s exports, given the shares of oil in total exports (see Table 4.2 below). Starting in 2024 the price of oil and the value of total exports in USD are assumed to be the same as in the baseline of each country’s DSA. In addition, the change in the value of total exports during 2015-23 is subtracted from the baseline CAB and GDP series. In other words, using the new series for oil prices we compute new series for exports, CAB and GDP, which are then hardcoded into the DSA.

Similarly, given the share of each country’s oil revenues in total revenues (see Table 4.2 below), we compute a new series for total government revenues – to do this we apply the same 45 percent drop in 2015 and 7 percent yearly increase thereafter until 2023 to the oil revenues.

Next, two different scenarios are constructed. In the first we assume that the government contracts additional debt to finance its larger deficit, so that government expenditures remain the same as in the baseline. In this case the private sector is implicitly assumed to incur additional debt (or reduce imports) to finance its share of the larger current account deficit. In the second – more restrictive – scenario the government is assumed to contract new debt to entirely finance the larger current account deficit (i.e., new government debt finances the shortage of FX caused by the lower oil price). In both cases the new debt contracted by the government is assumed to be half from multilateral and half from commercial sources.

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