Improving Public Debt Management
In the OIC Member Countries
30
Figure 2-11: Interest Rates on Public Debt Worldwide
Note: The graph displays the average interest rate on newly committed public debt contracts in a given year.
Sources: World Bank (2016) International Debt Statistics, calculations by the Ifo Institute.Currency Risk
Currency compositionThe effect of exchange rate changes on the level of public debt depends on the currency
composition of debt. Governments especially in emerging and developing countries face a
tradeoff. On the one hand, debt denominated in foreign currency is usually less expensive.
Foreign interest rates are generally lower, because domestic interest rates include risk premia
that arise from a higher possibility of a devaluation of the local currency. On the other hand, if
the currency indeed devaluates, the debt burden expressed in local currency increases. To
assess the risks of devaluations, debt denominated in foreign currency can be expressed
relative to the central bank’s international reserves or to export revenues.
Figure 212 shows that the share of debt denominated in domestic currency has decreased
slightly since 1995. In 2015, it made up 64% of total debt on average. The differences between
different income groups are significant: While highincome countries’ debt is almost entirely
denoted in domestic currency, debt in lowincome countries is primarily denominated in
foreign currency.
0
2
4
6
8
%
1980 1985 1990 1995 2000 2005 2010 2015
Year
All Official creditors Private creditors
0
2
4
6
8
%
1980 1985 1990 1995 2000 2005 2010 2015
Year
All Low income
Middle income
2
4
6
8
10
12
%
1980 1985 1990 1995 2000 2005 2010 2015
Year
All East Asia, Pacific
Europe, Central Asia Latin America & Carib.
MENA North America
South Asia Sub-Saharan Africa