14 October 1993
UNITED NATIONS ^ Mw
ECONOMIC AND SOCIAL COUNCIL ENGLISH
Original : FRENCH
UNITED NATIONS ———
ECONOMIC COMMISSION FOR AFRICA Seminar/Workshop on Review of Africa's
External Debt Situation and the Impact of Declining Commodity Prices on Africa's Capacity to Service it External Debt; and Review of Pragmatic Ways and means for Alleviating Africa's External Debt Burden Addis Ababa (Ethiopia)
15-18 November, 1993
ANALYSIS OF THE IMPACT ON AFRICA'S EXTERNAL DEBT OF DEBT RELIEF INITIATIVES TAKEN UP UNTIL NOW
I. INTRODUCTION
TABLE OF CONTENTS
Paragraphs 1 -4
II AFRICAN DEBT AND DEBT SERVICING: DIMENSIONS,
CHARACTERISTICS AND STRUCTURES 5 - 19
A. The debt status 5 " J:3
B. Debt servicing 14 - 19
III. IMPACT OF INITIATIVES TO REDUCE BILATERAL DEBT 20 - 36
A. The Toronto Terms 21 - 26
B. The Trinidad Terms 27 - 32
C. The Netherlands proposal 33 - 36
IV. IMPACT OF IMF AND WORLD BANK OPERATIONAL
DIRECTIVES 37 - 45
A. IMF operational directives 37 - 42
B. World Bank initiatives 43 - 45
V. IMPACT OF INITIATIVES TAKEN TO REDUCE THE
PRIVATE DEBT BURDEN 46 - 54
A. The Brady Plan 46 - 50
B. The IDA Debt-reduction Facility
(DRF) 51 - 54
VI. CONCLUSION 55-59
VII. STATISTICAL ANNEX
ANNEXES
I. Africa's external debt, 1982-90
II. Africa's external debt burden, 1982-90 III. Net external debt, resource transfers 1984-90 IV. Servicing Africa's external debt, 1983-90 V. Interest arrears on African debt, 1983-90
I. INTRODUCTION
1. Ten years after the emergence of the debt crisis, African countries continue to see their debt-servicing capacity weaken.
Despite the general progressiveness towards concessions and successful rescheduling,1 Africa's indebtedness remains an overwhelming responsibility and an important obstacle to development. Since 1988, the international community has acknowledged the need to establish strategies for reducing indebtedness and lightening the debt burden.
2. Among the elements which have precipitated the emergence of such strategies may be cited the accumulation of payment arrears even after rescheduling, tue insistence of African countries on a regional approach to the crisis instead of bilateral negotiations,2 the suspension of loans by the International Monetary Fund (IMF) to some countries with considerable loan interest arrears accumulated and negative net transfers.
3. Between 1988 and 1990, four major debt-reduction initiatives emerged - the Toronto Terms, the Brady Plan, the Trinidad Terms and the Netherlands Proposal. The IMF and the World Bank, which are Africa's foremost multilateral creditors, have also adopted new operational guidelines, in order to play a more active role in the process of alleviating the debt burden. Furthermore, some countries such as France, have taken the multilateral decision to cancel a portion of the public debt of certain African countries South of the Sahara. It should be remembered that the French initiative at the Dakar Conference in October 1988, anticipated the cancellation of the public debt owed to France by 35 African countries, valued at US$ 7 billion. The French gesture carried through for US$ 3.2 billion, about 44 per cent of the public debt.
More recently, at the African-French Summit at Libreville (Gabon) France announced a restructuring plan for the trade debt of 4 middle-income African countries at intermediate interest rates, financing of which would rise to US$ 800 million.
1 From 1976 to 1988, public creditors agreed to 126 reschedulings to 45 countries, involving an amount of $US 95 billion. From 1981 to 1988, commercial banks processed 114 restructured loans with 40 countries, involving an amount of $US 40 billion.
2 Statements of the African Group to the United Nations Conference on Trade and Development (UNCTAD) and to the Organization of African Unity (OAU), regarding a common African position on the debt crisis.
E/ECA/TRADE/92/22 Page 2
4. The present study examines the African debt situation and analyses the impact of the proposals for alleviating the obligations imposed by debt servicing. It contains a clear assessment of the impact of reduction initiatives on:
(a) bilateral debt (b) multilateral debt (c) private debt.
This analysis is preceded by a survey of the dimensions, characteristics and structure of African indebtedness.
II. AFRICAN DEBT AND DEBT SERVICE: DIMENSIONS, CHARACTERISTICS AND STRUCTURE OF AFRICAN INDEBTEDNESS
A. Debt status
5. Table 1 of the statistical annex shows that the total African foreign debt rose from about US$ 140.3 billion in 1982 to US$ 269.5 billion at the end of 1990, a growth of almost 100 per cent in current dollar value. The first estimates for 1991 reported a global indebtedness status of US$ 264.3 billion, that is, a decrease of 2.6 per cent compared to 1990 figures. It should be noted that this decrease was attributable in part to the 50 per
cent reduction of Egyptian debt by the Paris Club creditors.3 The
growth of debt incurred to public creditors has been especially rapid. The multilateral debt has increased by almost 150 per cent in nominal terms, reaching US$ 171 billion in 1990, compared to US$47.5 in 1982. The growth of private debt has been more moderate rising from US$ 70 billion in 1982 to almost US$ 100 billion in
1990, that is, an increase of more than 40 per cent.
6. Sub-Saharan Africa (not including South Africa and Namibia)
has recorded the highest growth rate of indebtedness. Between 1982 and 1990, the debt owed to public creditors almost tripled, rising from US$ 35.9 billion to US$ 107.5 billion. During the same period, the growth in private debt was only 49.3 per cent. In North Africa (Algeria, Egypt, Libya, Morocco and Tunisia) the growth rates for public and private debts were 85.7 per cent and 30 per cent, respectively.
7. In 1990, almost two-thirds of total African debt, (63,6 per
3 The Paris Club is the authority under which negotiations for restructuring bilateral debt owed
to member States of the Organization for Economic Cooperation and Development (OECD) takes
place.other hand, the share of private debt gradually fall from 50.6 per cent in 1982 to 36,4 per cent in 1990.
8. Table 1 reveals the same structural trends in indebtedness, subregionally. In North Africa, private debt which accounted for more than half of total indebtedness in 1982, did not represent more than 42 per cent in 1990. The bilateral debt of this subregion rose from 40 per cent of total debt in 1982 to 48 per cent in 1990, while the share of multilateral debt rose from 9 per cent to 13 per cent. In sub-Saharan Africa, the growth in bilateral debt has been more rapid, increasing from 28 per cent in 1982 to 40 per cent in 1990, while the share of multilateral debt recorded a relatively modest increase from 21 per cent in 1982 to 26 per cent in 1990. On the other hand, the private debt burden has greatly diminished, falling from 51 per cent in 1982 to 34 per cent in 1990.
9. In the context of stagnation of production and falling export levels, the debt burden is extremely heavy, especially on sub- Saharan Africa. Table 2 reveals that the GNP/debt ratio in sub- Saharan Africa rose from 39 per cent in 1982 to more than 110 per cent in 1990, while the exports/debt ratio practically doubled, rising from 88 per cent in 1982 to more than 345 per cent in 1990.
By way of comparison, these rates were 40 per cent and 261 per cent, respectively, in 1990 for Latin America and Caribbean countries and 50 per cent and 140 per cent, respectively, for Eastern European countries.
10. The trends in debt structure show that African countries have increasingly less access to external financing other than official sources. During the 1982-1990 period, only multilateral creditors accorded substantial new loans for financing structural adjustment programmes (SAP). The increased flow from Paris Club creditors, especially, reflects the impact of interest capitalization in the framework of debt restructuring operations. Around 45 to 50 per cent of non concessional debt owed to the Paris Club members by low-income African countries arises from interest capitalization on an amount totalling around US$ 20 billion.
11. The increasing importance of multilateral debt as a share of total debt is worrying, due to the fact that this debt category is not currently addressed by rescheduling agreements,, Faced with accumulated payment arrears the situation has already interrupted multilateral financial flows to some countries such as Sudan, Somalia, Liberia, Zambia and Sierra Leone.
12. Table 3 shows that net transfers for debts owed to IMF were
negative, amounting to US$ 5.4 billion, of which US$ 3.7 billion
came from sub-Saharan Africa. On the other hand, net transfers to
E/ECA/TRADE/92/22 Page 4
the World Bank remained positive due to the increased IDA-type financial flows, within the context of the special assistance programme for Africa. Net transfers linked to the non-concessional debt owed to the World Bank have been negative since 1987. Net transfers to service private debt, have remained constantly negative and increased in accumulated value between 1984 and 1990, to US$ 25 billion, of which US$ 17 billion came from North Africa.
13. The global net transfers to Africa rose to US$ 8 billion on average annually between 1982 and 1990. The global net transfers remained positive primarily because of:
(a) The great increase in unrequited transfers (grants) which rose from US$ 7 billion in 1981 to almost US$ 14 billion in 1990, largely responding to the urgent need of countries affected by civil war?
(b) The accumulation of debt servicing payment arrears. It is not certain whether Africa, in the medium term will benefit from high transfers in comparison to other developing regions, because of the recent upheavals on the international scene and the growing competition for financial resources that has resulted,"
B. Debt service
14. At the end of 1990, the total African foreign debt rose to US$
27.4 billion, that is almost 30 per cent of the export value of goods and services. This relationship was even higher in North Africa with the ratio at 34.4 per cent, compared to 24.9 per cent
in sub-Saharan Africa.
15. Analysis of Table 4 shows that the servicing of the private debt of North African countries was more than 68 per cent of the total debt service of the subregion between 1983 and 1990, while private indebtedness was less than half of total North African indebtedness- In comparison, bilateral debt service rose to 20 per cent of total service with a bilateral debt estimated at around 42 per cent of the total debt. With regard to the multilateral debt, it absorbed 12 per cent on average of debt-service payments.
16. In sub-Saharan Africa, the debt service rose to US$ 81 billion between 1983 and 1990, of which 54 per cent serviced private debt, 17.6 per cent bilateral debt and 28.4 per cent multilateral debt.
* For a detailed analysis of net financial flows and transfers to Africa during the 1980s, see the
ECA document, Tmpact of the Recent International Trends in Net Resource Transfers tAM
E/ECA/TRADE/92/10
17. Table 5 reveals that African countries fiouth of the Sahara are increasingly unable to meet their debt-servicing obligations. The ratio of actual debt-servicing to the amounts falling due gradually declined during the 1980s. This ratio was 89 per cent in 1982, 85 per cent in 1983-1985, 60 per cent in 1986-87 and less than 40 per cent in 1988-90. In North Africa, only Egypt and Morocco succeeded with difficulty in escaping from accumulation of arrers.
18. Despite repeated debt reschedulings and relief measures announced, the debt structure shows less concessionality. The share of the concessional debt in North Africa's bilateral debt fell from 54 per cent in 1983 to 43 per cent in 1990. It should be noted, however, that Egyptian bilateral debt continues to benefit from strong concessionality. Sub-Saharan African countries which have rescheduled their debt on several occasions8 have recorded high growth of the bilateral debt. However, in a parallel way, they have not benefitted from more favourable conditions. The
degree of concessionality of bilateral debt has decreased, falling
from 60 per cent in 1983 to less than 42 per cent in 1990. This trend reflects the capitalization of interests as well as the cancellation of some concessional types of debt.19. The conclusion which can be drawn from analysis of debt trends and debt servicing is that the debt strategy, which before 1989 consisted of a "slow pace" policy (extensions and grace periods) has neither produced debt reduction nor significant service relief.
This strategy did not prevent accumulation of considerable interests arrears which represent an increasingly high percentage of the debt service (see figure 1). Moreover, the need to subordinate a debt rescheduling agreement to the adoption of a structural adjustment programme (SAP) - the effectiveness of which remains to be seen - has led to the exclusion of some countries which have never reached an agreement with the IMF.
7 Of the 45 sub-Saharan African countries, 33 have rescheduled their debts due to Paris Club
creditors at least once; 18 have rescheduled at least 3 times.E|ECA|TRADE|92|22 Page 6
Figure 1
Debt Service and Interests Arrears
30
Debt Service Arrears
1983 ' 1964 { 1HS ~1^6 1987 ' 1986 1989 1990
III- IMPACT OF BILATERAL DEBT REDUCTION INITIATIVES
20. The present study is essentially interested in initiatives aimed at global regulation of the debt crisis, but examines here only the impact of bilateral debt reduction proposals within the very important framework of the Piris Club. Three proposals of this type were presented between 1988 and 1990; the Toronto Terms in 1988, the Trinidad Terms initiated by the British Government during the Commonwealth Summit and the Netherlands proposal presented during the second United Nations Conference on Less Developed Countries held at Paris in September 1990. Unilateral initiatives, such as that taken by France, should be considered more as supplementary rather than as the introduction of a global solution.
A. The Toronto Terms
21. These Terms consist of all the proposals adopted at the end of 1988 for relieving the bilateral debt (public assistance and commercial credit guarantees of the most impoverished countries, having the most prolonged difficulties with debt servicing. The Toronto Terms proposed rescheduling of concessional debt with a 25 year maturity, including a 14-year grace period. With regard to the treatment of non-concessional debt, the Toronto Terms anticipated a choice of three options:
(a) Option A: Partial cancellation. Cancellation of one third of eligible maturities and rescheduling of the balance at market rates, with a 14 year maturity, including an 8-year grace period;
(b) Option 9: Longer Bflfr\uri't:ieP- Rescheduling of the total debt service, at market rates with a 25 year maturity, including a 14 year grace period;
(c) option C; concessional interest rate. Rescheduling of total debt service, at a concessional rate, with 14-year maturity, including an 8-year grace period. The concessional interest rate corresponds to the market rate reduced by 3.5 points or one half - if this is lower than 3.5 points.
22. The programme criteria selected are: GNP per capita lower than or equal to US$ 425; debt service equal to or higher than 30 per cent of exports; participation in an IMF structural adjustment facility. Twenty-six countries have been potential beneficiaries under this initiative.
E/ECA/TRADE/92/22 Page 8
23. Eighteen African countries have already profited under the Toronto Terms. The rescheduled amounts have reached a little more than US$ 5 billion. Among the first 15 restructuring operations, 30 per cent were done in accordance with option A, 36 per cent in accordance with option B and 34 pei cent in accordance with option C. Paradoxically, option B, which is the least favourable in terms of reducing the future obligations of rescheduled debt is the one which was most often chosen. With a third of the total debt rescheduled according to option B the current value of future debt obligations will be reduced by 15 per cent, compared to 33 per cent with options' A and c.
24. The amount of debt relief effectively negotiated in application of the Toronto Terms was limited to US$ 100 million per year from savings realized on the bilateral debt service. In many respects, the Toronto Terms seem insufficient for significantly reducing the continent's debt burden. First of all, the Terms do not apply to the whole debt, but orly the successive repayments (the debt reaches term after a maximum 18-month period of consolidation). Next, debts rescheduled before the Toronto Terms could not benefit because of certain clauses built into the agreements. Finally, the Toronto Terms do not apply to middle- income, heavily-indebted countries such as Nigeria, C6te d'lvoire,
Gabon and Morocco.
25. The World Bank projections *, within the hypothesis of the application of the Toronto Terms have on several occasions and according to the same options, given the following results:
(a) Between 1999 and the year 2000 the value of the savings realized on the debt service will rise to US$ 1.85 billion?
(b) The reduction of the annual service which applied in 1988 will be around 2.5 per cent;
(c) The total reduction of what is due to all bilateral creditors will not total more than US$ 2 billion by the end of the year 2000;
World Debt Tables, 1989-1990, volume I.
(d) In supposing that the Toronto Terms will be applied by other bilateral creditors who are not members of OECD, the actual value of the savings realized will be US$ 2.7 billion, that is a reduction of the annual debt service by 3.4 per cent and the reduction of the total debt by US$ 3 billion by the end of the year
2000.
26. Definitely, application of the Toronto Terms to the integrity of the bilateral debt of low-income African countries will allow reduction of the debt/export ratio of these countries to 21.6 per cent, compared to almost 25 per cent in 1990. Nevertheless, this ratio is far from being compatible with the capacity of low-income African countries to ensure servicing of their debt. It is to be noted that at the start of the 1980s, these countries, did not pay, on average more than 1? per cent of export earnings indebt servicing. From 1988 to 1990, they did not pay more than 14 per cent of their debt-servicing obligations, a figure which is equal to 10 per cent of export earnings.
B. The Trinidad Terms
27. This initiative was aimed at cancelling two thirds of the total bilateral debt of the poorest developing countries;
rescheduling of debt at market prices with a 25-year maturity, including a five-year grace period; and capitalization of the total or of a portion of the interest on payment arrears during the grace period.
28. One of the objectives of the Trinidad Terms was to ensure that the increase in debt servicing repayments should be proportional to the growth in the payment capacity of the debtors. However, the major inconvenience of this plan is that the payments made during the first years, following the grace period, were much higher than the export growth rate. Consequently, the Trinidad Terms penalized the countries with the lowest export performance during the first years of the debt service payments.
29. Application of the Trinidad Terms to eligible countries would result in a more substantial reduction of the debt service, compared to the Toronto Terms. Figure 2 presents the debt service projections according to the three scenarios: debt service without a reduction plan; debt service within the framework of the Toronto Terms; and debt service according to the Trinidad Terms. It turns
E/ECA/TRADE/92/22 Page 10
out that in terms of debt service reduction, the most favourable option is the Trinidad Terms. In this context, there is no repayment during the first five years and future debt servicing obligations are proportional to exports. It may be said that the Toronto Terms would entail a strong increase of future debt servicing obligations.
Fig ure 2
Debt Service Projections
12-r
10-
CQ
u is n 17 18 19 20 Years (second year, third year
Actual Service
Phe Toronto Plan
The Trinidad Plan
E/ECA/TRADE/92/22 Page 12
30. The Trinidad Terms also have the advantage of reduction of two thirds of total bilateral debt in one round (compared to one third under the Toronto Terms). This avoids the procedure of repesated reschedulings and removes at the same time the heavy administrative charges inherent in periodic reschedulings.
31. Integral application of the Trinidad Terms would produce a reduction of the debt stock of eligible African countries by around US$ 18 billion. Nevertheless, the projections show that the debt/export service ratio would not fall more than 20 per cent lower than the very optimistic hypothesis; while there is little probability of an annual export growth rate of more than 8 per cent during the 1990 to 1997 period. The debt/export ratio would be around 18.1 per cent 7. It should be noted that during the 1980s, the export growth rate was not more than 2 per cent.
3 2. Although the Trinidad Terms represent progress and marked improvement in comparison to the Toronto initiative, they will need some improvement. Projections studies 8 have shown that the Trinidad Terms will not be significant to more than half of the eligible countries (22 countries in al1). For the rest, supplementary measures will be necessary, such as cancellation of a higher proportion of the debt, application of a plan to the whole bilateral debt, concessional interest rates on residual rescheduled debt and longer maturities for those countries with the lowest export performance.
C. The Netherlands proposal
33. The Government of the Netherlands recently proposed total cancellation of the bilateral debt of the least developed countries experiencing prolonged repayment difficulties and other low-income countries which have adopted structural adjustment programme- Applied in its totality to low-income African countries, this plan would cancel US$ 40 billion, in debts and reduce debt service by US$ 3-4 billion, annually.
34. The Netherlands plan essentially proposes cancellation of debt to be applied to all bilateral debt. For this reason,, there was little probability that it would be adopted. First of all, some
7 World Bank, "Special programme for assistance; Proposals for the second phase" 1990, Annex D.4.
s "Africa's Acjjustment and the foternal pgbt Problem: Issues and options", document presented during the joint seminar of the Association of African Central Bank and the International Monetary Fund, 25-27 February 1991, Gaborone, Botswana.
Paris Club creditors, such as Japan and the United States, remain strongly opposed to the idea of total debt cancellation. The member countries of OPEC (whose credits represent 8 per cent of sub-Saharan bilateral debt) were also reluctant given the financial implications of the Gulf crisis and the reconstruction of Kuwait.
Similarly, the cancellation of bilateral debt to member States of the Council for Mutual Economic Assistance (CMEA) which is formed by the former socialist countries of Eastern Europe, is also improbable, given the costs implied in the economic and political changes within these countries.
35. Even supposing that all bilateral debt is cancelled according to the Netherlands plan, this would not significantly reduce the debt service ratio. On the basis of an export growth projection of 5 per cent and 8 per cent annually until 1997, the measure will
realize a debt service/export ratio of 20.4 per cent and 16.8 per cent, respectively. It is noted, however, that in 1988 to 1990, sub-Saharan African countries could not be in a position to meet more than 40 per cent of the debt service due; that is a little more than 10 per cent of annual export earnings.
36. It is, therefore, clear that bilateral debt reduction measures are not enough to resolve the African debt crisis. It is necessary to focus on a global strategy for reducing all categories of debt:
bilateral, multilateral and private.
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IV. THE IHPACT OF IMP AMD WORLD BANK OPERATIONAL DIRECTIVES
A. IMF operational directives
37. It is partly to stop the continuous deterioration of balance of payments in many developing countries that the Fund in 1986 created its Structural Adjustment Facility (SAF), a mechanism which is mandated to supply assistance under favourable conditions (interest rate of 0.5 per cent with repayment over a period of from 5 to 10 years) to low income countries which would undertake macro- economic and structural adjustment programmes. The following year, the Fund received resources from a number of donor countries.
These resources allowed it to increase its adjustment loans from the Enhanced Structural Adjustment Facility (ESAF) which started to function in January 1988 and whose commitment period was recently extended to 3 years instead of the initial 2 years .9 The total resources placed at the disposal of these two mechanisms rose to around US$ 12 billion.
38. At the end of 1990, 20 sub-Saharan African countries had accepted SAPs, for a totsLl commitment of US$ 1.6 billion.
Furthermore, up until now 16 countries have concluded an ESAP for a total amount of US$ 3.8 billion. Although the resources were provided on very liberal terms, disbursement did not occur until after prolonged negotiations for adoption of a SAP. Six years after the establishment of SAF and the ESAF, disbursed funds were no higher than US$ 3.2 billion; that is 27 per cent of SAF-KSAF
resources.
39. The SAF and ESAF have allowed some real relief, although very limited, in the outstanding debt due to the Fund because of liberal refinancing terms, with drawings applied on the higher credit disbursements. Nevertheless, such mechanisms remain marginal to the problems caused in a growing number of countries such as Sudan, Zambia, Sierra Leone and Liberia which have had their drawing rights suspended because of payment arrears with the Fund. In order to allow such countries to catch up with their arrears, the Fund in 1990 proposed a new formula called "the Rights Approach".
This mechanism freezes payment arrears for a period of time in order to mobilize funds from bilateral donors. Throughout the programme period, which extends for 3-4 years, the country is released from interests and frozen arrears and has to adopt an SAP.
Each year, the country accumulates drawing rights which allows it access to the facilities of the Fund and to absorb payment arrears.
7 IMF survey, 3 August 1992, p 251
40. Zambia is the first and only country of the continent to have benefitted from "the Rights Approach". The resources mobilized during the first year of the programme reached US$ 650 million, that is, 46 per cent of the arrears owed to the Fund which totalled US$ 1.4 billion. This mechanism inadvently pressures beneficiary countries with significant interest charges on the accumulated arrears. Relief from this charge is absolutely necessary for stimulating donor countries to participate actively in the programme and to increase resource flows for investment purposes rather than only for absorption of arrears.
41. A number of other proposals have been advanced to assist low income countries to guarantee their debt service to the Fund. One was to substitute on-going loans for others which would grant more favourable conditions (repayment maturity extensions) and IDA-type refinancing) and have fewer constraints than those offered by the SAP and ESAP mechanisms. Beyond a more substantial reduction of the debt, this formula would give borrowers more time to fulfil their obligations.
42. Another option would be to issue special drawing rights to cancel the debt obligations to the Fund of the most impoverished countries. Given the inflationary impact of such a measure, such a solution would risk being seen as more difficult to accept than the other to give the Fund the necessary resources to allow it to rearrange or to replace the debt. Without increased assistance from bilateral donors, all multilateral debt relief action will have the effect of absorbing at least a part of the Fund's available resources for financing new aid programmes in low-income countries.
B. World Bank Initiatives
43. During the second half of 1987, the World Bank was able to establish the Special Assistance Programme for Africa, with commitments obtained from major donors. The Programme was aimed at coming to the aid of countries which have debt problems. The 12 sub-Saharan African countries which participated in the programme in 1989 have had their debt obligations reduced by US$ 50 million, that is, 2 per cent of their debt service.J.O
44. In September 1988 the Bank set up a special facility for reducing the level of the concessional debt contracted by African countries (see table 3). These funds, financed by a 10 per cent levy on the profits of the Bank and by commitments from Norway and Sweden, aims at covering up to 90 per cent of interests owed by low-income countries on the non-concessional debt due to the Bank.
10/ World Bank, World Development Report 1990, Oxford University Press.
E/ECA/TRADE/92/22 Page 16
However, very few countries have benefitted from this facility because of the slowness of the disbursements tied to adoption of SAPs. Of the 27 potentially eligible countries, only 8 have reached an agreement with the Bank for a total amount of US$ 160 million; that is less than a half of US$ 340 million paid by these countries in servicing of their non-concessional debt.
45. The Bank is currently trying hard to refinance structural adjustment loans on more favourable terms. This objective has not yet been achieved- Furthermore, the relief offered is only a negligible proportion of the non-concessional debt contracted.
Payments on this type of debt are expected to rise to US$ 2 billion in the next five years. Consequently, a better option would be to refinance this debt category through IDA loans or with grants- V. IMPACT OF DEBT-RELIEF INITIATIVES ON PRIVATE DEBT
46. This initiative deals mainly with indebtedness of middle- income countries11 and is aimed at reducing the burden of private debt by increasing financial flows and investments to developing countries. The principal elements of such a plan could include:
(a) banks agreeing to include reduction of the debt and/or debt service of debtor countries in their rescheduling "menus";
(b) banks could agree to accept the general levy of the clauses forbidding bilateral negotiations between creditors and debtors;
(c) The Fund and the World Bank could agree to support the debt reduction programmes by granting guarantees on the main tax relief and eventually on a portion of the interests.
47. The basic idea of the Brady Plan is to guarantee in an intangible way new commitments, interests and principal, by means of the exercise called "Debt-to debt swaps" by which on-going debt is converted after relief to a new debt of less value superficially, but more eligible for renegotiations due to the guarantee by industrial countries (direct or through the intervention of multilateral bodies).
48. Among the African countries meeting the conditions for benefitting under this plan, only Morocco has signed a rescheduling agreement through which US$ 1.2 billion of debt (that is close to
'V In total, 16 AMcan countries are eligible under this plan: Congo, Cdte d'lvoire, Gabon, Gambia, Guinea, Madagascar, Morocco, Mozambique, Niger, Nigeria, Senegal, Sierra Leone, Sudan, Togo, Zaire and Zambia.
6 per cent of Morocco's global indebtedness) has been rescheduled for periods covering 15 to 20 years. The agreement also included
a cash buy-back arrangement.
49. Several questions have been posed on the capacity of the Brady Plan to mobilize commercial banks and to generate resources that would allow substantial reductions of commercial debt. The funds which are loaned by the World Bank and the IMF to guarantee (partially) the payment of interests after conversion and to finance buy-back of the debt after relief are rather limited.
Furthermore, this programme raises a series of problems such as the incidence of banking capital, the contrasting positions of banks, the problem of additional loans (new money) and the risk of encouraging defaulters while penalizing the ones honouring their
signature.
50. Such factors, especially the difficulty of ensuring equal treatment of all commercial credits as well as the distribution of costs, explains the lengthiness of negotiations for arriving at an agreement. To facilitate negotiations and to speed up application of the Brady Plan, two proposals were put forward1"■ 12
(a) administration by a single ad-hoc international agency or authority, of all aspects of debt reduction and debt servicing
operations;
(b) harmonization of national taxation systems and of surveillance of loans abroad. Such operations have an effect on banking capital which differs according to the national banking regulations. Elimination of distortions would help to ensure equal treatment of banks which would considerably help to reduce the delays in debt reduction negotiations.
B. The IDA debt reduction facility fDRFl
51. The IDA debt reduction facility was established by the World Bank to assist the countries which were too poor to adopt the Brady Plan. This fund is financed by a levy of US$ 100 million and sets a maximum loan of US$ 10 million per eligible country. Application of this plan is tided to adoption of an SAP and appropriate debt management strategies.
nl See the report of the Secretary General of the United Nations Organizations on The external debt crisis and development A/45/380, 8 October 1990 page 91, paras 85-86.
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52. Niger was the first African country to have benefitted from this new debt fund. Niger received a grant of $ 23 million, of which $ 10 million come from IDA resources, $ 10 million is supplied by France and $ 3 million by Swit2erland. These funds allowed Niger to buy-back $ 108 million of commercial debts at 18 per cent of their face value. Ot the 14 countries eligible only Mozambique seemed close to an agreement with the bank at that time.
53. The fact that since its creation in 1989 only one country, Niger had benefitted from the DRF shows a certain heaviness in the negotiations mechanism; partly due to the reluctance of commercial banks to participate in the operation for the same reasons as those
raised for the Brady Plan. To increase the impact of the DRF, it
may be necessary to expand the eligibility criteria and to plan more rapid and less constraining negotiation mechanisms.54. The private debt reduction plans until now have not dealt with more than 1 or 2 cases per year, although some thirty developing countries await their application. At this pace, it would be difficult to anticipate a settlement of the debt crisis within the
present decade.
VI. CONCLUSION
55. Analysis of African external debt has raised the following principal characteristics:
(a) a tendency for an increase in the debt and debt service, despite repeated reschedulings through the Paris Club and some debt cancellation;
(b) the burden of multilateral debt in the total debt is increasingly and its servicing is not eligible for rescheduling;
(c) deterioration in debt-servicing capacity of many African countries, illustrated by the accumulation of payment arrears;
(d) deterioration of the debt and debt-servicing ratios.
56. Given the structure of Africa's external debt, dominated as it is by the bilateral component, the Paris Club remains the most important framework for bilateral debt renegotiation. However, the current debt relief measures include those that the Paris Club is trying hard to correct by introducing the new options which deal with the concessional elements offered and a more substantial
reduction of the debt stock and debt-servicing." The analysis has shown that for these initiatives to be effective and to respond to long-term growth and development needs of African countries, they must go beyond debt cancellation and be accompanied by additional
resource flows to support development in Africa.
57. international organizations should play a more active role in the debt relief process. The initiative taken by the World Bank and the Fund aim generally at reducing the burden of multilateral debt through replacement of non-concessional debt with a new debt offering more concessional terms. Despite such measures, interest arrears on non-concessional multilateral debt have grown. It is, therefore, very important that the Fund and the Bank should reconsider the conditions for access to the financing facilities offered in order to increase loans for supporting economic reforms.
58. With regard to private debt reduction, only two countries had benefitted from on-going initiatives: Morocco under the Brady Plan and Niger under the DRF. The principal impediments to rapid implementation of these different plans are the restrictive conditions of their application and the reluctance of commercial banks to agree on reduction of debt stock and debt-servicing.
59. During the 1987-1990 period, sub-Saharan African countries did not actual pay more than 40 per cent of their debt service falling due; that is 10 per cent of export earnings. This last figure should therefore be considered as reflecting the effective debt service payment capacity of these countries. For the burden of debt to be compatible with this capacity, it would have to be reduced drastica 1 ly by $ 7 bi 11 ion. The efforts made by the international community, although important, seem inadequate. The projections show that, under the most favourable terms, that is the Netherlands proposal, the debt service of 22 African countries eligible under the Special Programme of Assistance for Africa would not be reduced by more than $ 3 to 4 billion. It would be necessary, therefore, not only to strengthen current debt relief measures but to go beyond in order to remove the impediment which debt represents to economic growth and development.
I3/ In December 1991, the Paris Club took new initiatives to strengthen the provisions of the Toronto Terms. These included: (a) very long-term rescheduling of concessional debt and (b) reduction of half of the concessional debt with rescheduling of the balance on market rates with a maturity of 23 years and a grace period of 6 years. This initiative represents progress in comparison to the Toronto Terms. It is nevertheless, less radical than the Trinidad Terms and Netherlands Proposal. See FJIMHKE 3"^ Development. March 1992 pp 42-43.
E/ECA/TRADE/92/22 Page 20
Table 1: African external debt 1982-1991 (in $US billions)
NORTH AFRICA
Total external debt outstanding
- bilateral debt - multilateral debt - private debt
SUB-SAHARAN AFRICA Total external debt
outstanding
- bilateral debt - multilateral debt - private debt
DEVELOPING AFRICA
Total external debt outstanding
- bilateral debt - multilateral debt - private debt
1982
67.8
27.2 6.4 34.2
72.5
20.5 15.5 36.7
140.3
47.7 21.8 70.9
1986
91.7
39.1 10.6 41.8
115.4
41.4 28.5 45.5
207.1
80.5 39.1 87.3
1990
107.2
48.3 14.0 44.9
162.3
64.6 42.9 54.8
269.5
112.9 58.9 99.7
Sources: DECD, 1990, survey; WDT 1991-1992
Table 2: Africa's external debt indicators 1982-1990 (US billions, percentage)
NORTH AFRICA Total external debt
outstanding
- GNP
- Export of goods and services - Debt/GNP %
- Debt export (%) SUB-SAHARAN AFRICA
Total external debt outstanding
- GNP
- Export of goods and services - Debt/GNP (%) - Debt/exports (%) DEVELOPING AFRICA Total external debt
outstanding
- GNP
- Export of goods and services - Debt/GNP (%) - Debt/exports (%)
1982
67.8
121.9 47.9
55.6 141.4
72.5
187,9 38.6
38.6 187.6
140.3
309.8 86.6
45.3 162.0
1986
91.7
135.7 35.0
67.5 261.6
115.4
154.2 35.1
74.8 328.5
207.1
290.0 70.2
71.4 295.1
1990
107.2
137.9 45.6
77.7 235.1
162.3
147.6 47.2
110.3 345.1
269.5
285.5 92.8
94.6 291.0
Sources: See table 1
E/ECA/TRADE/92/22 Page22 Table3:Metresourcesforexternaldebttransfers (billionsofdollars) NorthAfrica Netdebttransfers -biLateraldebt -IMFdebt -UBdebt *IDA *non-concessional -privatedebt Sub-SaharanAfrica Netdebttransfers: -bilateraldebt -IMFdebt -UBdebt *IDA *non-concessional -privatedebt DevelooinuAfrica Netdebttransfers -bilateraldebt -IMFdebt -WBdebt *IDA *non-concessional -privatedebt
1984 1.44 3.62 0.03 0.36 0.09 0.27 -2.61 1.96 4.44 -0.04 1.02 0.72 0.30 -3.42 3.40 8.06 -0.01 1.38 0.81 0.57 -6.03
1985 0.56 2.U -0.08 0.26 0.04 0.22 -1.72 0.36 1.91 -0.43 0.83 0.80 0.03 -2.01 0.9 4.05 -0.51 1.09 0.84 0.25 -3.73
1986 0.21 1.27 -0.46 0.19 0.03 0.16 -0.8 2.47 1.94 0.95 1.34 1.31 0.03 0.07 2.68 3.28 -1.41 1.56 1.34 0.19 -0.73
1987 0.20 3.87 -0.28 -0.05 0.02 -0.07 -3.34 4.00 0.77 -0.57 1.50 0.57 -0.07 2.30 4.20 4.94 -1.15 1.45 1.59 -0.14 -1.04
1988 0.03 1.21 -0.24 -0.18 0.01 -0.19 -0.76 2.23 1.58 -0.47 0.84 1.53 -0.71 0.25 2.26 2.86 -0.71 0.66 1.58 -0.92 -0.51
1989 3.47 3.4 -0.18 -0.06 0.10 -0.16 -3.46 2.74 3.61 -0.72 1.18 1.57 -0.39 1.37 -0.72 3.91 -0.90 1.12 1.67 -0.55 -4.83
1990 -3.81 1.09 -09.22 -0.01 0.04 -0.05 -4.66 1.13 3.36 -0.54 1.55 1.96 -0.41 -3.27 -2.68 4.45 -0.76 1.54 1.54 -0.46 -7.93 SourceWDT,1991-92;
Table 4: Africa's external debt service 1983-1990 (billions of dollars)
NORTH AFRICA
Total debt service - bilateral - multilateral - private
SUB-SAHARAN AFRICA
Total debt service - bilateral - multilateral - private
DEVELOPING AFRICA Total debt service
- bilateral - multilateral - private
1983
11.2 1.5 0.5 9.2
8.6 1.1 1.4 6.0
19.8 2.6 2.0 15.2
1990
15.7 3.5 2.3 9.9
11.7 3.1 4.0 4.6
27.4 6.6 6.3 14.5
Total values 1983-1990
100.1 20.2 11.6 68.3
81.2 14.3 23.1 43.8
181.3 34.6 34.7 112.1
E/ECA/TRADE/92/22 Page 24
Table S: Were* amen m debt 1983-1990 (trifficnofdoUin)
1983 1984 1985 19S6 1917 1918 1989 1990
Tool debt service
Egypt Morocco Sub-Sahann Africa
Total debt ktvkc
Sudan
Total debt service
11.2 0.7 0.7 0.0
8.6 0.9 0.4
19.8 1.6
10.9 0.9 0.8 0.1
10.5 1.3 0.6
21.4 2.2
11.1 1.3 1.1 0.1
11.7 2.0 0.9
22.8 3.2
12.1 2.2 2.1 0.1
12.6 2.0 1.8 0.2
10.5 2.8 1.2
22.6 5.0
8.9 4.7 1.8
21.5 6.7
12.4 2.2 2.1 0.1
io.i 6.5 2.2
22.5 8.7
14.0 3.5 3.3 0.2
9.2 7.4 2.9
23.3 10.9
15.7 4.4 4.2 0.2
11.7 8.0 3.4
27.4 12.4
