Debt servicing at any level is incompatible with attaining the United Nations Millennium Development Goals (MDGs) in many African countries, according to Debt Sustainability: Oasis or Mirage?, released today by the UN Conference on Trade and Development (Unctad).
The report concludes that any lasting solution to the debt overhang hinges as much on political will as on financial rectitude.
Between 1970 and 2002, Africa received some $540-billion in loans; but despite paying back close to $550-billion in principal and interest, it still had a debt stock of $295-billion as at the end of 2002.
The figures are even more disconcerting for sub-Saharan Africa, which received $294-billion in disbursements, paid out $268-billion in debt service and yet remained saddled with a debt stock of some $210-billion.
The report concludes that this amounts to a reverse transfer of resources from the world’s poorest continent.
The report also contests the popular impression that Africa’s debt overhang is simply the legacy of irresponsible and corrupt African governments. While certainly part of the story, particularly under the cloak of cold-war politics, external shocks, commodity dependence, poorly designed reform programmes and the actions of creditors have all played a decisive part in the debt crisis.
A more nuanced picture shows that the debt profile moved from “sustainability” in the 1970s to “crisis” in the first half of the 1980s, with much of the debt being contracted between 1985 and 1995 under the guidance of structural adjustment programmes and close scrutiny by the Bretton Woods institutions .
The report argues a robust economic case for a total cancellation of Africa’s debt:
Low levels of savings and investment leading to high poverty and adverse social conditions are among the biggest constraints on growth in low-income African countries.
Continuing debt-servicing by African countries would nominally constitute a reverse transfer of resources to creditors by a group of countries that by all indications could least afford this.
In order to ensure that Africa will be able to reduce poverty by half by 2015, at the very least growth levels will have to double to some 7% to 8% per annum for the next decade, the financial requirements of which are incompatible with present and projected levels of debt servicing.
The report calls for a moratorium on debt servicing (without additional interest being accrued) pending the institution of an independent panel of experts to assess the sustainability of debt based on a realistic and comprehensive set of criteria, including those of meeting the MDGs. The report recommends that such an assessment should include all public debt.