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Introduction
In the context of the Millennium Development Goals (MDGs), the international community has set itself a target of reducing poverty by half by the year 2015. Many observers have now come to the conclusion that, on present trends, there is very little likelihood that this objective can be achieved at any time close to that date in the poorer countries, including in Africa.1
In its report on Capital Flows and Growth in Africa (UNCTAD, 2000), as in subsequent reports on economic development in Africa, UNCTAD has argued that the current levels of GDP growth would have to be raised to seven or eight per cent per annum and sustained if poverty reduction targets were to be met. This would imply doubling the current amount of aid to the continent and
maintaining it at that level at least for a decade if the continent was to break the vicious circle of low growth and poverty. Such an action, within the context of an appropriate mix of domestic policies and supportive international measures, would generate sufficient investment and savings to reduce aid dependency in the longer term and place Africa on a sustainable growth path.
The continent’s debt problems and its resource requirements are inextricably linked to the capacity of African countries to generate capital accumulation and growth. Among the policy measures that UNCTAD has advanced (UNCTAD, 1998) is the need for an independent assessment of debt sustainability in African countries by a high-level panel of experts on finance and development, selected jointly by debtors and creditors, with an undertaking by creditors to implement fully and swiftly any recommendations
that might be made. While this recommendation did not find favour in the donor community, it was contended that the Heavily Indebted Poor Countries (HIPCs) Initiative, and later its enhanced version, would ensure a permanent exit solution to Africa’s debt problems. There now seems to be an emerging consensus, however, that many African countries continue to suffer from a debt
overhang despite the HIPC Initiative and various actions in the context of the Paris Club. The fact that even those countries that have reached (or are about to reach) the so-called completion point will soon find themselves in an unsustainable debt situation gives credence to the arguments advanced by critics with respect to the inappropriateness of the criteria applied in the debt sustainability analysis. And the fact that several more debt-distressed African countries are not eligible for HIPC debt relief reflects the lack of objectivity in the eligibility criteria.
Debt sustainability is basically a relative concept. The questions that beg for a response are: what level of debt is sustainable for countries in which the vast majority of the population lives on under $1 a day per person? Have debt sustainability criteria been based on internationally recognized benchmarks such as those of the MDGs, or on objectively and theoretically verifiable criteria? What is the relationship between Africa’s total external debt stocks and the actual amount of debt serviced? Is complete debt write-off a moral hazard or a “moral imperative”?
The current study tries to put these and other related issues in perspective and makes a number of recommendations on how to deal with Africa’s debt overhang, either through the adoption of new approaches or a major revision and improvement of present debt relief policies.
Footnotes:
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Gordon Brown and Jim Wolfensohn, “A new deal for the world’s poor”, The Guardian (2004).
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