Economic Development in Africa 2004

Debt Sustainability - Oasis or Mirage?

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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. The continent’s debt problems and its resource requirements are inextricably linked to the capacity of African countries to generate capital accumulation and growth. The current study questions Africa’s debt sustainability and tries to put these and other related issues in perspective making 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.

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Africa’s debt overhang and HIPC debt relief: What are the issues?

The debt relief mechanisms launched in the late 1980s in the wake of Latin American debt crisis addressed the commercial bank debt of middleincome developing countries. At the same time, in 1980, 56 per cent Africa’s total public and publicly guaranteed debt was official, and by 1995 figure had increased to about 77 per cent. Corresponding ratios for multilateral debts were 14 per cent (1980) and 27 per cent (1995). Between 2000 2002, more than 80 per cent of Africa’s public and publicly guaranteed debt was official, and about one third of it was multilateral debt. Debt owed multilateral financial institutions (MFIs) was considered immutable because concerns with respect to the preferred creditor status of these institutions.

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