UN study argues case for forgiving Africa's debt burden

A new United Nations report argues that with many African countries struggling to service their debt while striving to reach the Millennium Development Goals (MDGs), the continent's financial obligations should simply be written off.

Debt Sustainability: Oasis or Mirage, published today by the UN Conference on Trade and Development (UNCTAD), says any lasting solution to the debt overhang hinges as much on political will as on financial rectitude.

According to UNCTAD, Africa received some $540 billion in loans between 1970 and 2002. Despite paying back close to $550 billion in principal and interest, it still had a debt stock of $295 billion at the end of 2002.

The report argues a robust economic case for a total cancellation of Africa's debt, saying that 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.

Continued debt servicing by African nations would constitute a nominal reverse transfer of resources to creditors by a group of countries that by all indications could least afford this. To ensure that the continent will be able to reduce poverty by half by 2015, as called for by the MDGs, growth levels will have to at least double to some 7 to 8 per cent annually for the next decade, the financial requirements of which are incompatible with present and projected levels of debt servicing.

Even a full debt write-off, however, would only be a first step towards restoring growth and meeting the MDGs. UNCTAD estimates that such a write-off would represent less than half those countries' resource requirements, with the gap filled by increased official development assistance (ODA) grants as a prelude to Africa increasing the level of domestic savings and investment required for robust and sustainable growth.

The report concludes that for any debt relief framework to deliver tangible results, Africa needs to actively pursue policies for prudent debt management, economic diversification and sustained economic growth. Doing so calls for better access to markets, and increased investment in human and physical infrastructure.