Debt Relief

Overview

• In 2002, the external debt of low-income countries stood at about US$523 billion.
• Low-income countries owed US$104 billion to the World Bank. Of this, $82 billion was owed to the International Development Association—the part of the World Bank that provides zero interest loans and outright grants to the poorest nations. The International Bank for Reconstruction and Development was owed $22 billion.
• Total debt service being paid every day by low-income countries -$100 million
• Africa’s total external debt -approx $300 billion
• Many African countries spend more on debt than either health or education. (Eg Ethiopia, Gambia, Guinea, Madagascar, Malawi, Mauritania, Senegal, Uganda and Zambia all spent more on debt than health in 2002 (Source: Jubilee Debt Campaign)

Debt cancellation and the Millennium Development Goals September 2005, Oxfam

History of Debt Crises

• In the late 1970s and early 1980s, interest rates soared, to unprecedented levels. With those increases in interest rates, what were serviceable debt levels, suddenly became unsustainable. In the late 1990s, interest rates to emerging markets soared again. Even when countries do not have short term debt, there is a constant need to roll over debt, and when it is rolled over, they face higher interest rates.
• Most debt is denominated in dollars or other hard currencies, and accordingly, what is a manageable debt level becomes unmanageable when poor countries’ currencies are devalued or depreciate in relation to hard currencies.
• Many developing countries are dependent on exporting commodities such as agricultural products, minerals or metals, to earn money to pay off their debts. When export prices collapse, the debt burden becomes unsustainable.
• Many of the very poor countries borrowed extensively throughout the 1980s, hoping their economies would start to grow by more than enough to repay the debt but the growth did not materialize and the debt increased to unsustainable levels causing huge pressure for governments of these countries to meet the repayments.

History of Debt Relief:

Debt Relief for Poor Countries Robert Powell, IMF, Efforts to lighten the debt burden of poor countries go back at least two decades.

Statistics on Debt:

The Joint External Debt Hub (JEDH)—jointly developed by the Bank for International Settlements, the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD) and the World Bank (WB)—brings together external debt data and selected foreign assets from international creditor/market and national debtor sources.