Experts Group Meeting on External Debt

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Experts Group Meeting on External Debt

• Outcomes and the Way Forward
• Economic Commission for Africa
• 19 May 2004

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Discussion focused on 4 themes

• Improving the debt sustainability analysis
• Clarify legal aspects of external debt management
• Financing for debt relief and development
• Minimizing the impact of commodity price shocks

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Definition of debt sustainability is at the heart
of the debate

• Revise ways of measuring debt burdens nominal
  debt stock better than NPV of debt
• Revise which debt to include both external and
  domestic
• Debt repayment capacity based on fiscal revenues
  rather than export revenues
• Sustainability threshold ratios should be country
  specific rather than universal

4
Legal aspect is key to understanding the causes
of debt problem

• Proper attention should be paid to debt contracts
• Appropriate contracting parties
• Equitable division of losses
• Invalidation of contracts due to malpractices
• Clarify legal basis for addressing odious debt

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Debt relief must be considered in the context of
financing for MDGs

• Increase aid quantity
• Improve aid quality reduce administration cost
  and amount of tied aid
• Reassess the balance between grants and loans
• Resource transfers beyond sustainable debt
  servicing capacity should be in grant form

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Further debt relief is necessary and feasible

• Debt relief is more predictable than bilateral
  aid
• It reduces the transaction cost of managing aid
• It acts like direct budget support
• Feasible methods of financing
• IMF gold sales
• World Bank-use IBRD net income

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Commodity price shocks are responsible for
Africas failure to exit the debt trap

• Minimize price fluctuations by engaging in
  forward/futures contracts
• Establish a central institution to buy and sell
  commoditiesmarketing board type arrangements
• Provide concessional compensatory and contingency
  financing through IFIs
• Contingency credit line at the IMF not available
  to HIPCs Compensatory Financing Facility too
  expensive

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The way forward

• Africa needs a common position and a collective
  voice on debt relief
• Africa needs a timely response to global policy
  proposals that affect the continent
• Therefore, establish an Ad-Hoc Technical
  Committee to facilitate timely and competent
  African responses
• With experts from ECA, AU, NEPAD, ADB, sub
  regional org, and member states

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The state of play

• IMF/World Bank acknowledge debt relief should be
  considered as part of financing MDGs
• Debt sustainability analysis is revisited
• Alternative measures of debt stockmoving away
  from NPV
• Broader measures of repayment
• Country specific debt burden thresholds
• Consider both domestic and external public debt
  in assessing debt sustainability

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The state of play

• New financing modalities are considered
• Augmenting access to PRGF
• Improving access to grants for those countries
  chronically suffering from shocks
• Overseas Development Institute calls for IMF gold
  sales

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