emmanuel tumusiime - mutebile : global perspectives on sovereign debt restructuring comments by mr emmanuel tumusiime - mutebile, governor of the bank of uganda, kampala, 7 august 2014. * * * i would like to thank mr. otieno for a very insightful and thought provoking paper. as mr. otieno noted, the hipc and mdri debt relief initiatives had brought down external public debt levels substantially by the mid - 2000s in those african countries which had access to debt relief. at that time, the recipients of external debt relief agreed to curtail future external borrowing, especially on non - concessional terms, usually under the auspices of an imf programme. however, as pointed out by mr. otieno, since the mid - 2000s, sovereign borrowing has accelerated, and now includes borrowing on semi concessional and even fully commercial terms. three factors lie behind the increase in external borrowing by african countries. first, many countries have large needs for public investment which cannot be financed without increased borrowing. secondly, in real terms, the economies of ssa were more than twice as large on average in 2013 than they were in 2000, because of annual real growth of gdp averaging 5. 6 over this period. this growth has raised the capacity of african economies to service debts and thus raised the amount of public debt that they can safely contract without risking running into problems of debt sustainability. finally, because of developments within global capital markets, notably the very low interest rates and abundant liquidity, some african countries are now able to access commercial debt at reasonably attractive rates. nevertheless, we should not be complacent about the dangers of too large and rapid a buildup of sovereign debt. it would be unwise to ignore the possibility that african countries will never again have to seek debt relief in the future. as such we need to think very carefully about the modalities through which sovereign debt relief might be applied in circumstances where sovereign debt is very heterogeneous, comprising traditional concessional debt from multilateral financial institutions, semi concessional debt from official bilateral and multilateral lenders, and commercial debt which includes both borrowing from banks and sovereign bond issues. as the recent dispute between the argentine government and vulture funds which had purchased argentine sovereign debt at a discount but now demand repayment in full, has reminded us, the world lacks an effective framework for ensuring that, in cases where governments cannot realistically service their debt in full, their

potential for further correction. this can have knock on effects for liquidity and margin demands in some market segments. 8 so financial markets are in a more vulnerable place. vulnerable to disorderly market corrections. vulnerable to a slowdown in economic activity and higher borrowing costs. and vulnerable to tightening financial conditions and changes in investor behaviour. while the financial sector got through the pandemic, relatively unscathed, i am cautious about drawing too much comfort from this. during covid - 19, monetary, fiscal and regulatory policy were all very supportive in tackling the challenges of the pandemic. we are in a very different risk and policy environment today, and one which contains some new risks. my colleague andrea enria, chair of the ecb supervisory board, put it well recently, where he observed the dangers of over - optimism based on an overly positive view of how the banking sector fared throughout the pandemic. his message - applicable beyond banking and to the system as a whole – is simple : that firms must remain focused on risk management and prudently monitor the multi - faceted risks from a fast - changing economic environment. firms need to be : alert to developments in the risk outlook ; proactive in the early recognition and management of those risks ; and aware of possible pitfalls in the estimates provided by internal models. 9 the changing nature of financial services innovation and transformation are an increasingly core part of financial services, to meet new consumer demands and address new challenges. financial services operating out of ireland are increasingly provided on a global and cross - border basis, reflecting the integrated nature of the sector. our open economic approach and innovative business culture, along with a highly educated and tech savvy workforce allows financial innovation to occur at a rapid pace. what do i mean? what are we seeing? first, every day we all see the rapid evolution in how banking, insurance and other financial services are being provided to customers. customers are demanding more mobile, more app based and more online delivery channels. we are seeing a transformation in electronic payments, and consumer demand for instant payments. we are seeing new and innovative technology - driven business models targeting the more attractive aspects of “ traditional ” financial services. these are driven by the advent of open banking or new cloud and block - chain based technologies. we are seeing technology - driven new products, for example in the crypto area, which can develop at a scale and pace – and at times can raise serious questions around sustainability and raise concerns