Experts Group Meeting on External Debt Outcomes and the Way Forward Economic Commission for Africa 19 May 2004

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

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

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

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

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

Commodity price shocks are responsible for Africa’s failure to exit the debt trap Minimize price fluctuations by engaging in forward/futures contracts Establish a central institution to buy and sell commodities—marketing 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

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

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 stock—moving away from NPV – Broader measures of repayment – Country specific debt burden thresholds – Consider both domestic and external public debt in assessing debt sustainability

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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