1. The status quo of African indebtedness. According to statistics from the Africa Development Report, the total external debt of Africa in 1980 was 123.339 billion US dollars, and rose to 288.773 billion US dollars in 1990 and 338.51 billion US dollars in 1996; debt cost service in 1980 was 18.977 billion US dollars, 27.738 billion US dollars in 1990, and 32.53 billion US dollars in 1997. Throughout the 1980s, African indebtedness increased by 9.1% annually on average, and debt service by 14%.[1] The huge amounts of debt and unsustainable debt service have increasingly constrained economic and social development of African countries, making many of them virtually “insolvent”. The debt issue has become a growing concern for African countries and the international community at large.

2. History behind the debt crisis of Africa. After 3 to 4 centuries of colonial exploitation, African countries have for long been suffering from economic handicaps resulting from irrational economic and social structure as well as mono-economic pattern. Combined with drastic changes in commodity prices in the world, these factors constitute the major reasons for the imbalanced international payments for African countries over a long period of time. Besides, rise-and-falls in international capital markets dominated by western powers also explains to a large degree such debt levels of African countries. In the 1960s and 1970s, most newly independent African countries vigorously sought official loans from foreign governments for their national construction and industrial adjustment, because of shortfalls in construction money and the Cold War (the Cold War provided a market for African countries that wanted to borrow, and some powers were more than willing to lend out of their own interests). Debt was not such a prominent issue due to stable supply of money and ensuing economic development for African countries. After the two international oil crisis in the middle and late 1970s, international payment imbalances began to emerge and the debt level rose for many African countries. The 1980s saw a surge of indebtedness for Africa, which doubled during the period. As the economic restructuring programs were implemented in sub-Saharan Africa in the 1980s, this region’s total debt began to rise gradually since 1990s, leading the debt ratio to be very high and national economies to be heavily dependent on foreign debts (see chart 1).

3. The emphatic indebtedness reflects long-term failure of the international community to act decisively on this issue. African debts consist of mainly long-term and official debts (see chart 2). From the 1980s, international multilateral financial organizations started to address this issue, at a time when the total debt level of Sub-Saharan Africa was still not very high. However, after more than 10 years of restructuring, the debts rose to become a major hindrance for the economic growth in most of African countries. To a large degree, it mirrors the lack of interest from the international community for solving the African debts.

Since the 1980s, settlement of African debts has been mainly conducted through structural adjustment schemes for the low-income African countries by international multilateral financial organizations such as the World Bank and the IMF. In other words, the debt-ridden countries were required to make structural changes on their economy and society and implement relevant reforms in return for loans and aids, as a means to spur their economic growth. At the same time, under the arrangement of the IMF, many bilateral debts were restructured, but such an effort didn’t seem to work very well. “Between 1980 and 1987, 51 countries received at least one structural adjustment facility or sector-structural loan, with a total value of 15 billion US dollars.” “Close to half of all structural adjustment credit went to Sub-Saharan Africa.” “In sub-Sahara Africa, structural loans from the World Bank were mainly used to support agriculture and institutional reforms of public administration.” The priority of the reform focused on tapping export potentials of African agricultural products on the one hand, and on the other hand, it stressed institutional reform and privatization so as to raise efficiency of public offices and profitability of enterprises. [2] The IMF sought to promote structural shifts and reforms in targeted countries through monetary policy changes. In 1986, The IMF set up structural adjustment loans to provide aids for countries that implemented comprehensive macroeconomic and structural reforms (0.5% interest rate with maturities up to 5.5 to 10 years). In the latter half of 1987, the IMF and the World Bank took further measures to address the debt issue for extremely low-income countries. Starting from January 1988, the IMF greatly expanded the provision of structural adjustment credit through Enhanced Structural Adjustment Facilities. And the World Bank established a “Special African Program” to help the debt-ridden countries. In 1988, the Group of 7 countries reached agreement to further cut bilateral debt repayment obligations by extremely low-income countries. The debt relief arranged by the G7 (possibly no more than 100 million US dollars per year) was a small part compared with the annual obligatory debt repayment owed by these countries (about 21 billion US dollars).[3]

The net flow of credit from the IMF to Sub-Saharan Africa started to slow in 1984. Between 1986 and 1987, as the early loans of IMF became due, the direction of the new loans reversed. In the middle of the 1980s, as economic conditions of these countries continued to deteriorate, the majority of countries in this region had been struggling, with average export income reaching only 64% of the 1980’s level, actual aid inflow being much lower than the early 1980s level (in constant dollar value), and actual per capital GDP falling below the 1970-1971 level.[4] In the 1990s, the balance of international payment of African countries continued to worsen, combined with heavier debt burdens, which not only severely constrained social and economic development in low-income African countries, but also hampered development of other countries, given the increasing economic links around the world. Therefore, finding a solution for the debt issue in the heavily-indebted and poor countries in Africa was put on the agenda.

Chart 1   Trend of debt ratios of Sub-Saharan African countries

     From 1990 to 1998

   Source: IMF Research Department，December 1998.

      Notes: a means estimate, b long term debts and mortgage payment of interest, c total payment of interest and d main payment of long term debts.

4. Implementation of HIPC Initiative in Africa  Since its inception in 1996, the HIPC（Heavily Indebted Poor Countries）Initiative has scored considerable progress. [5] By July 2002, among the 42 countries that were eligible for relief under this initiative, 6 reached the “completion point”, including 5 African countries (Burkina Faso, Mauritania, Mozambique, Tanzania and Uganda), and 20 countries reached the “decision point”, of which 16 were from Africa. Among the 25 African countries that implemented the Poverty Reduction Strategy Papers (PRSP)[6], only 6 of them saw their papers passed, and 5 reached the completion point for HIPC Initiative, thus qualified for further debt cuts and relief. Such an initiative committed debt reduction of 51.32 billion US dollars in total for heavily indebted poor countries in Africa that were qualified for relief. Take Sub-Saharan Africa alone for example, the total debt amount of 21 relief-eligible counties in 1996 was 107.364 billion US dollars, and by 2002 committed debt and interest reductions reached 41.44 billion US dollars, about 38.60% of the total debts.[7]

Chart 2   Debt structure of the Sub-Saharan African Countries

   Source: Africa Development Report 1980~2000.

Note: a means estimate.   

Short-term Results Achieved by National Reforms

1. Active cooperation with the international community.  The approval rate of PRSPs[8] has reflected the impact of HIPC countries’ own efforts on debt relief. By July 2002, 6 countries adopted PRSPs, and 3 of them (Uganda and Burkina Faso in 2000, Mauritania in 2001) adopted PRSPs directly without making an interim PSRP. It showed that progress in these countries as a result of their economic reforms had won approval from donors. Poverty-reduction strategies drafted by these countries, though different in forms and contents, had all reflected their development demands to a certain degree. These included participation in detailed progress of PRSP implementation; active dialogue with the international community over poverty-reduction; oversight and supervision on domestic reform targets, relevant economic indicators and implementation of reform and poverty-reduction efforts; and development priorities. [9] It demonstrated an active attitude of recipient countries toward cooperation with the international community and a willingness to share experiences with other developing countries. In this process, these countries lobbied hard for international aid in an active and cooperative attitude and pushed for economic reforms by taking this advantage. Mozambique, for example, started the work of democracy and poverty-reduction as early as in the reconstruction period after the civil war in 1992. In 1995, Mozambique established the first poverty reduction strategy, and started the first national poverty-assessment. In October 1999, on the basis of previous work on poverty reduction, the government of Mozambique formulated the National Action Plan for the Reduction of Absolute Poverty.[10] Tanzania also drew up a National Poverty Eradication Strategy in 1997. Uganda adopted Poverty Eradication Action Plan in 1997. Burkina Faso and Mauritania established national commissions in charge of poverty reduction matters. In the meantime, Uganda also became a targeted nation for the Comprehensive Development Framework by international multilateral financial organizations[11]. Active participation by these countries in development aid by the international community had improved external environment for their national reforms and economic development.

2. Formulation of appropriate development plans in light of national conditions and vigorous promotion of internal economic reform.  Effective poverty alleviation was also a result of these countries’ vigorous pursuit of national economic reform agenda in light of their national realities. As some parts of the African economy grew in recent years, some economies maintained stable growth and gradual improvement of their development environment, which provided conditions for these countries to make the right development policies with consideration of their national characteristics. Over the past few years, tourism has become a major sector of growth in Eastern Africa. The East African Community (EAC), consisting of Kenya, Uganda and Tanzania, actively explored tourist resources and greatly spurred economic development. In 1989, incomes from tourism accounted for 7.4% of all national revenues of Tanzania, and the ratio rose to 17% in 1996; contribution of tourism to national revenues in Uganda increased from 1.1% in 1989 to 6.5% in 1996.[12] The EAC countries even introduced privatization reforms in such essential sectors such as telecommunication to attract FDI. The Tanzanian government is planning to sell shares in tea, sisal and wine-making industries. Privatization in Uganda has been extended to railway and commercial banking. Since 1980s, with involvement of international financial organizations, Mozambique tightened its fiscal and monetary policies, and introduced reforms to cut unemployment, push privatization, increase capital investment, enhance efficiency of the public sector and restructure debts. In the Western Africa, a single currency and traditional ties with France helped a lot of countries achieve good growth in the 1990s. During the same period, Mauritania has been enforcing large scale economic reforms, and has basically maintained balance in international payments and low inflation. Close economic cooperation with the EU was also a reason for better performance in this region.

A case-study of countries with faster debt reduction

Among African participants in the HIPC program, 6 countries have reached the decision point or have had their PRSPs approved by July 2002, namely Burkina Faso, Mauritania, Mozambique, Tanzania, Uganda and Niger. How are these economies faring, and how effective is the HIPC in Africa?

1. These economies are small in size, and are long-term beneficiaries of aid policies of multilateral financial organizations.  Of the 6 economies that have faster pace in poverty reduction, except Tanzania, the rest 5 countries of Burkina Faso, Mauritania, Mozambique, Niger and Rwanda are all small economies. In 1999, GNP of the 5 were respectively: 2.3 billion, 1 billion, 3.9 billion, 2 billion and 2.1 billion US dollars, below the average level of low-income African countries.[13] Take OECD for example, its member countries have pledged 0.7% of the GDP for overseas development aid, but real average delivery is only 0.25% and the gap between committed amount and actually delivered amount is about 100 billion US dollars each year.[14] Such meager aid is only going to be effective in small countries, and serves as a façade project for aid to low-income countries. Furthermore, African countries with more progress in PRSPs are also those constant aid-receivers of aid from international financial organizations. As early as in October 1987, Mauritania, Mozambique, Niger, Tanzania, Uganda, Zaire[15], Somalia, Senegal, Sierra Leone, Guinea, Guinea Bissau, Central Africa, Chad received Structural Adjustment Facilities by submitting a 3-year macro-economic reform agenda to the IMF[16], and open economic policies were key conditions for  getting aid.

Chart 3  Debt trends of the 6 African countries

     Source：African Development Report 2000.

Chart 4  Debt cost service of the 6 African countries

    Source：African Development Report 2000.

2. A fine track record of development behind regional economic development. A comparative study of average annual GDP growth rates of various regional economic organizations in Africa including ECOWAS, WAEMU, MRU, UDEAC/CEMAC, CEPGL, EA, COMESA, SADC and AMU) [17] between 1990 and 1998 showed that EAC enjoyed the biggest growth of 3.8% with each of the three Eastern African countries having a higher rate than average. Of the 6 countries with quicker poverty reduction rate, Tanzania and Uganda are members of EAC. The next fastest-growing grouping was ECOWAS, with a rate of 3.3% and Mauritanian and Burkina Faso being its members. The third place was WAEMU, at 3.0%, with Burkina Faso and Niger being its members. The fourth place was COMESA, at 2.8%, with Uganda being its member. The fifth place was AMU, of which Mauritanian is a member. The sixth place was SADC with its average growth rate being 1.8% but Mozambique and Tanzania at 5.4% and 3.1% respectively.[18]

Between 1990 and 1999, annual GDP growth rate of COMESA countries was 2.8%. Burkina Faso’s annual GDP growth during this period was 4.3%, ranking the 2^nd place among the 16 members of ECOWAS and being higher than most of the rest. Among the 8 WAEMU countries, Burkina Faso’s rate was second only to Benin, but was higher than the 3.0% average. From 1990 to 1999, Mauritanian’ GDP grew by 4.0% annually, which was third in ECOWAS, and was 2.4% higher than the average of AMU. Tanzania in the same period grew by 4.0% annually, lower than the EAC average, but much higher than the 1.8% average of SADC (certainly the whole region experienced rapid growth in the 1990s with all countries exceeding 3.0% except for Angola’s 0.3%, the Democratic Republic of the Congo’s -6.0%, South Africa’ 1.3%, Zambia’s 0.8% and Zimbabwe’s 2.9%). Mozambique was the fastest-growing economy in SADC with its GDP growing by 6.4% annually. The average annual GDP growth of Niger in the 1990s was 2.4%, lower than the 3.0% average of WAEMU.[19]

Throughout 1990s, 4 of the 6 African countries enjoyed much faster growth than the rest of Africa, except for Niger, which was slightly lower than African Average. North Africa has always been the better-off part of the continent, and a strong momentum was kept throughout the 1990s. Mauritania was one of the worst performing economies in North Africa, with an average annual GDP growth of 2.9% between 1990 and 1995, and 4.5% between 1996 to 1998, mostly driven by the mining sector especially iron ore.[20]

An analysis of countries with higher debt-reduction rate

1. There is a marked difference in the implementation of HIPC in different countries.   According to information released by the IMF and the World Bank in July 2002,[21] debt-reduction has been achieved to various degrees in HIPC countries. Take the Sub-Saharan Africa for instance, the 21 countries eligible for debt relief had a total debt of 107.364 billion US dollars as of 1996, and by 2002 committed debt and interest reduction reached 41.44 billion, an average reduction rate of 38.60% but with sharp variations in different countries.

Those countries with reduction rates higher than 70% included: Guinea Bissau（84.31％）, Sierra Leone（81.41％）, Rwanda（77.37％）, the Democratic Republic of the Congo（76.41％）, Mozambique（73.60％）, Burkina Faso（71.87％）；countries with rates between 50％ to 70％ included：Ghana（59.66％）, Niger（57.80％）, Zambia（54.13％）, Uganda（53.08％）；rates between 30％ to 50％ included：Malawi（43.25％）, Tanzania（40.47％）, Madagascar（35.93％）；rates below 30％ included：Benin（28.86％）, Mali（28.81％）, Chad（26.08％）, Guinea（24.69％）, Senegal（23.21％）, Cameroon（21.02％）, Ethiopia（19.15％）and Cote d'Ivoire（4.06％）.

These figures showed a sizable difference among the reduction rates of different countries: the country with highest rate was Guinea Bissau（84.31％）, and the lowest was Cote d'Ivoire（4.06％）. On the one hand, those countries with higher reduction rates actually had smaller debts in absolute terms, especially among HIPC countries (except for the Democratic Republic of the Congo), while those with lower rates had bigger debts. On the other hand, according to economic indicators of the Sub-Saharan African countries released by the World Bank, difference in per capita GNP was not so pronounced as that of debt reduction rates as of 1997. Except for Mozambique and Burkina Faso, countries with rates higher than 70% were mostly those countries that were seriously destabilized by internal factors. This article does not seek to study those countries with conflicts, as their bilateral and multilateral aids are more influenced by the international community due to considerations of regional stability and share of interest.

2. Countries with faster debt-reduction are clearly affected by orientation of bilateral aids.  Bilateral aids were largely determined by strategic considerations of western countries when they chose recipient countries in Africa. Therefore, some indebted countries made faster progress under HIPC than others due to more strategic consideration of big powers out of their own interest. Take Britain and France for instance, of the 34 African countries eligible for the HIPC program, 8 were commonwealth member nations, including Gambia, Ghana, Kenya, Mozambique, Sierra Leone, Tanzania, Uganda, Zambia, all of which accounted for 23.5% of African HIPC countries and 50% of all commonwealth nations. CFA has 13 countries, including Benin, Burkina Faso, Cameroon, the Republic of Central Africa, Chad, Comoros, Congo, Cote d'Ivoire, Guinea, Mali, Niger, Senegal and Togo, all of which accounted for 38.2% African HIPC countries and 92.9% of CFA countries. It showed that creditor countries with close links with Africa usually played an active role. Of the 6 countries whose full PRSPs had been approved, 3 were commonwealth nations (Mozambique, Tanzania, Uganda) and 2 are CFA countries (Burkina Faso and Niger). According to the distribution of net aids by members of the Development Aid Commission released by the World Development Indicators 1999, of the world's 6 biggest donors in 1997(Japan, America, France, Germany, the Netherlands, Britain), only France, Britain and the Netherlands took the Sub-Saharan Africa as their major aid destinations. The only major recipient country for Dutch aids in the Sub-Saharan Africa was Tanzania, which accounted for 2% of all Dutch overseas development aid (52.4 million US dollars). Main receivers of British aid in the region were Zambia, Uganda and Mozambique, accounting for 4% (93.7 millions US dollars), 3% (78.2 million) and 3% (72.5 million) respectively of all British overseas aid. Major receivers of French aid in the region are Madagascar, Congo and Cameroon, accounting for 7% (311 million US dollars), 5% (242.4 million) and 4% (199.8 million) respectively of all French overseas aid.

Such an aid pattern clearly reflects the traditional spheres of influence of Britain and France in Africa, and some commonwealth nations and CFA countries are major recipients of British and French aid in Africa respectively. In 1996, the total debt burden of commonwealth and CFA countries in Africa was 157.214 billion (56.437 billion US dollars for CFA countries and 100.777 billion US dollars for commonwealth countries), accounting for 76.4% of all the Sub-Saharan African debts (except Comoros, Botswana, Namibia and Gambia because their debt figures were not available).Under the enhanced HIPC program, bilateral donor agencies have pledged fund injection to the HIPC, and Britain ranked the second in terms of pledged money.[22]

To conclude, progress achieved in debt relief in Africa under the HIPC program is closely related to capital input by the international community. At the same time, debt-ridden countries should also actively adjust their policies to promote economic growth and attract aids from international financial institutions, which will be vital for sustained development in Africa.