DELIVERING ON DEBT CANCELLATION, BUT POTENTIALLY BREWING NEW DEBT CRISIS

In response to the crushing debt burdens impeding poor countries’ ability to invest in development, creditors launched two rounds of debt cancellation for countries deemed to have the most unsustainable debt burdens. Despite the many significant benefits that the bilateral and multilateral rounds of debt cancellation have brought, the lack of sufficient development assistance is pushing countries towards additional borrowing, often for social investments, thus creating the potential for another debt crisis in the near future. Among the 20 African countries that have reached ‘completion point’ in the debt cancellation process, 11 are now facing high to moderate risk of debt distress through reaccumulation of debt. As the effects of the global financial crisis unfold in Africa, this figure is likely to increase. This should be prevented by increasing the amount of development assistance given in grants rather than loans; creating a framework of legal standards to ensure that any new debt is focused on economically productive investments; and establishing a fair and transparent process for orderly debt work-outs and analysing the possible odious origin of debts.