rollovers were 15% of GDP (60% of 25%) and it would have been useful to know the share held by nonresidents, in addition to the other long-term external debts maturing during the next few years.

# _Early Warning_

The LIC DSF in IMF (2016) classifies Ghana at high risk of external debt distress based on the crossing of policy-based thresholds for two indicators: the PV of PPG external debt-to-GDP ratio and the debt service on PPG external debt to revenue ratio. The summary notes that this assessment, which pertains to PPG external debt, is “reinforced by vulnerabilities related to domestic debt”. As noted above, it also points out the financing risks, with bond spreads rising and high public gross financing needs.

However, there is no explicit analysis of public debt dynamics or international liquidity using the standard frameworks for EMs. As a result, the overall tone is reassuring. The last sentence of paragraph 9 concludes: <mark>“Though all indicators show sustainable paths under the baseline scenario, they could be on an explosive path under the historical and the most extreme shock scenario (with abrupt real exchange rate depreciation).” This flies in the face of the data and commentary presented above in the context of Tables 1 and 2, which show quite clearly that public debt was on an explosive path over 201315 and, in any reasonable definition of baseline, this should have been expected to continue given the difficult global macroeconomic environment at that time.</mark> <mark>Lest we are accused of exploiting the wisdom of hindsight, similar conclusions on Ghana were drawn in ADF Lab (2016), which was written in early 2016. This paper covered seven other Sub-Saharan African countries including Ethiopia and Zambia, with more pessimistic conclusions about public debt sustainability than then-current IMF-World Bank LIC DSAs using the same data.</mark>

# **4. The 2017 “Overhaul” of the LIC DSF**

The debt dynamics of Ghana and other LICs over 2013-15 provided compelling cause for revisiting the LIC DSF and shifting the focus to nominal public debt-to-GDP and its dynamics and international liquidity. The time was ripe for an overhaul of the LIC DSF.

<mark>Such an overhaul appeared to be imminent.</mark> A consultation seminar was held during the 2016 Spring Meetings at IMF HQ in Washington DC to discuss the motivation for a review of the LIC DSF:<sup>6</sup>

- Allowing for a changed financing landscape with more market debt from domestic and external sources and a shift away from official financing sources;

- Strengthening the analysis of public debt by incorporating domestic debt (which, absent financial repression, is typically issued on commercial terms);

- Reflecting market risks better (debt rollovers, yield spreads relative to benchmarks, international liquidity);

- Generating better early warning and more robust risk ratings.

The review was carried out by a joint IMF-World Bank team. It culminated in an IMF Staff Report that was approved by the IMF’s Board in September 2017 (IMF 2017). The new LIC DSF was rolled out by the World Bank and IMF on July 1, 2018.

> 6 The second author of this paper was present during this consultation seminar.

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