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Note: This document is from the archive of the Africa Policy E-Journal, published by the Africa Policy Information Center (APIC) from 1995 to 2001 and by Africa Action from 2001 to 2003. APIC was merged into Africa Action in 2001. Please note that many outdated links in this archived document may not work.

Africa: UN-NADAF NGO Debt Paper
Date Distributed (ymd): 960915

Background Paper Number 1, NGO Forum, UN-NADAF Mid Term
Review, September 13-14, 1996

The Unresolved and Deepening African Debt Crisis by Opa
Kapijimpanga, African Forum and Network on Debt and
Development (AFRODAD) Zimbabwe

1.0 Introduction

Under the United Nations New Agenda for the Development of
Africa, launched in 1992 in New York following UN Resolution
46/151, the international community committed itself to
resolving the African debt problem. It was recognized that
Africa's debt burden was a critical bottleneck constraining
the recovery and development of the continent. It was also
recognized that despite the implementation of several
international initiatives, the situation had not significantly
improved.

Servicing the debt accounted for over 30% of the continent's
exports. At the G7's London Summit in July 1991, participants
had agreed that Africa deserved special attention. They
therefore called for relief measures in favour of the poorest,
most indebted countries that would go beyond the Toronto
Terms. The G7 then also called on the Paris Club to continue
its discussion on how these measures could best be implemented
promptly.

The New Agenda specifically envisioned the following measures:

a) Cancellation of official ODA debt and debt servic;

b) Write off of private commercial debt and use of debt buy
backs or swaps for defined development activities;

c) Support to African countries whose debt was mainly to
official creditors or to multilateral institutions;

d) Additional measures for Africa to benefit from new
financial flows, particularly ODA;

e) Serious consideration to organisation of an international
conference on Africa's external indebtedness.

Since 1992, the African debt crisis has been discussed fairly
extensively in many official and other fora. While in some
circles the problem has been recognised no comprehensive
solution has yet been implemented. In other circles, the
problems was just wished away.

We participate in the UN-NADF Review with the expressed belief
that this process provides a forum for discussion that will
speed up the realisation of commitments made by the
international community in resolving Africa's debt crisis.

2.0 The unresolved and deepening debt crisis:

Africa's debt burden continues to make claims on the necessary
resources for development. During 1994, Africa's scheduled
debt service was 400% of actual debt service; scheduled debt
service was more than 80% of foreign exchange earnings. For
countries like Tanzania and Madagascar, just to name two, the
scheduled debt service was and remains more than 100% of
foreign exchange earnings. This indicator reveals that for the
severely indebted African countries, the only real solution is
a comprehensive debt relief that will close the gap between
the scheduled and actual debt service thus reducing the heavy
arrears. Clearly, merely rescheduling of loans is not a
solution to the problem of African debt.

Moreover, up to US$ 200 million a year in ODA is being
diverted from meeting Africa's development needs to
refinancing the debt. This matter begs serious discussion as
such diversion has only undermined efforts aimed at human
development and eradicating poverty in Africa. Unless a
comprehensive solution towards an exit of the debt problem is
found, Africa will continue to have fewer and fewer resources
available for meeting its mounting development needs

Furthermore, as a result of policy changes in the context of
adjustment processes, African Governments have had to assume
some of the debt held by the private sector, especially the
parastatal sector in the wake of privatisation. The country's
debt burden has shifted to the Government to a very high
extent as shown by the percentage of total debt stock now
attributed to the Government in Ghana (72.8%); Guinea-Bissau
(91.6%); Madagascar (85.3%), Tanzania (89.5%) and Zambia
(68.7) just to name a few. The debt burden has therefore
created a great deal of pressure on government budgets. As a
result, investments in human development and eradication of
poverty have suffered.

2.1 Official Bilateral Debt:

Despite the G7's many declarations for action to reduce the
debt stock of the severely indebted African countries,
progress at the level of the Paris Club has been extremely
slow. At the end of 1994, the Paris Club agreed to go for the
Naples Terms which would provide a 67% debt stock reduction
for the low income countries meeting their criteria. However,
the 67% was to be applied to the pre-cutoff date loans. The
cut off date, defined as the time of first rescheduling has,
for many African countries, not included the post-cutoff date
period during which the economies were troubled and therefore
had to apply for rescheduling.

In February 1995, Uganda had been given a 67% debt stock
relief for loans after the cut off date of 1981. This offer
was supposed to enable Uganda to exit the debt crisis. In
reality, the net effect on total Uganda debt was about 3%! It
seems inevitable that the cut off date should be redefined to
also cover some years after the first rescheduling. That
period would then take into account the specific conditions
that continue to make it difficult for the African countries
to meet their debt repayment obligations.

Furthermore, in order to achieve a meaningful reduction on
debt stock that would secure an exit situation, the actual
applied percentage would need to be higher than 67%. Up to 90
per cent has been suggested and should be considered
seriously. More recently, it has been suggested that the Paris
Club could put into place the following sequencing of debt
relief measures:

a) After three "successful" years of meeting the applied
conditionalities, a debtor country would receive a 67% debt
service reduction;

b) After another three years, if its position was still not
sustainable, it would then receive a comprehensive debt stock
reduction (90%) to secure an exit out of the unsustainable
debt situation.

It can be imagined that this kind of sequencing will not bring
a solution to the African debt crisis before the end of this
century. A minimum exit is needed to bring the total debt of
the severely indebted African countries to sustainable levels.

The overall range of eligibility criteria, the instruments and
the conditionalities should be a matter of negotiation in a
forum that would be made up of creditors (both the Paris Club
and non-Paris Club members) on the one hand and African
debtors, the UN-Economic Commission for Africa (UN-ECA) and
the Organisation for African Unity (OAU) on the other. This
suggests a change in the institutional framework in which
Africa's debt crisis should be discussed if a meaningful
solution should be found.

2.2 Commercial Bank Debt:

Contrary to the ordinary view that commercial debt is no
longer a problem for sub-Saharan Africa, commercial debt still
accounts for a reasonable size of arrears due (some US$ 11,818
billion in 1994). Mechanisms which facilitate buy backs at
reasonable costs are in place and could be further implemented
to reduce the debt overhang. The debtor countries need to
pursue these options more rigorously.

2.3 Multilateral Debt:

In July 1995, a World Bank Task Force had called for a
mechanism to resolve the multilateral debt problem of the
Severely Indebted Low Income Countries. This acknowledged that
multilateral debt has emerged to be the most problematic for
Africa today. This has largely been because the multilateral
institutions have been rigid and unable to take measures
comparable to those undertaken on official bilateral debt such
as rescheduling and outright write-offs. For Africa, the
"preferred creditor status" of the international financial
institutions has meant that even when a country is with
drought, the obligation to repay is paramount. Failure to do
so earns the country a negative mark which then affects access
to financial resources, even from official bilateral donors.

Little progress has been made since July 1995. Major reasons
have been:

a) The institutions would like to continue to shield
themselves from the responsibility of the large multilateral
debt overhang by transferring the responsibility to official
bilateral donors. The case has been made conclusively for the
ability of the IFIs to contribute to a Multilateral Debt Fund
and to use their own resources to write off some of the bad
debt. It would simply not undermine the integrity of either
the IMF to sell some of its gold or the World Bank to use IBRD
net income, interest subsidy account and gradual use of
reserves to address the debt issue. However, the Bretton Woods
institutions have opted for large refinancing of their loans
through official bilateral funds. The IMF, for example, would
abdicate its collective responsibility by establishing its own
permanent ESAF. In our opinion, this will not help resolve the
African multilateral debt problem at all. It is our belief
that the Bretton Woods institutions are not adequately
accountable as was envisaged by the UN Security Council in
1945.

b) There is no agreement yet on the criteria that determine
which countries qualify and therefore the number of countries.
The IMF, in particular, assumes unrealistic export growth to
show that only a handful of countries really have a debt
crisis. To get over these problems, the Bretton Woods
institutions should negotiate eligibility, level of debt
sustainability and conditionalities and the UN-ECA and the
OAU. This would make the negotiating forum more transparent
and politically acceptable.

Furthermore, the European Union could convert a larger part of
the African debt into grants and meet some of the balance
through using part of the STABEX funds as well as through
adjustment funds. The African Development Bank and Fund
require special attention and support. New mechanisms for
realising this should be put into place taking into account
the reorganisation efforts going on at the Bank and Fund.

3.0 The Need for a Comprehensive Solution

The commitments made at the start of UN-NADAF should be
honoured before the end of this century. As has been shown by
experts in the field, there are no longer any technical
reasons why the African debt crisis cannot be resolved. It
remains a political issue requiring the political will to deal
with the crisis by way of both short term and long term
measures.

In the short term, a total and comprehensive debt stock
reduction to sustainable levels should be found through the
actions of the various actors themselves. This would mean that
the bilateral donors, the World Bank and IMF must contribute
to resolving the debt crisis in their own right before looking
to others. Special attention should be paid to the African
Development Bank and the African Development Fund which would
require an appropriate mechanism to enable them to play their
institutional role in the development of the continent.

Beyond the short-term, sustainable measures should be put into
place by both debtors and creditors to ensure the problem does
not recur in the future. In this regard, the following issues
should be considered:

a) Resources need to be allocated so that they enhance the
capacity of the severely indebted African countries. On going
evaluation should be essential.

b) Current loans should not have a negative effect on the debt
overhang. i.e. refinancing of loans should be reconsidered and
discussed.

c) Adjustment loans which include balance of payments support,
technical assistance and general government budget support
should be analysed for their impact on enhancing productive
capacity in the African countries and for future impact on
debt burden.

4.0 Conclusion:

It is our sincere hope and expectation that this Mid Term
Review provides for the international community to reaffirm
Africa's desire to achieve meaningful development during the
21st. century. The major prerequisite to this is removing some
of the major constraints that the African continent is faced
with; that of a severe debt overhang and the limited space in
which the African people can define the policies and
sequencing of policy measures necessary for the transformation
of their economies. We also call for serious consideration to
be given to organising an international conference on Africa's
external indebtedness before the end of this century as
envisioned in the commitments under this programme.

African Forum and Network on Debt and Development
(AFRODAD), P.O. Box MR 38, Marlborough, Harare Zimbabwe Tel:
263-75-2481 Fax: 263-4-722363 E-mail: [email protected]

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This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC), the educational
affiliate of the Washington Office on Africa. APIC's primary
objective is to widen the policy debate in the United States
around African issues and the U.S. role in Africa, by
concentrating on providing accessible policy-relevant
information and analysis usable by a wide range of groups and
individuals.

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