The Group of Eight rich nations (Britain, Canada, France, Germany, Italy, Japan, Russia and the US) has agreed to write off 100% of debt owed by eighteen of the world’s poorest nations, with a further nine nations set to benefit from the deal soon. The money is owed chiefly to the International Monetary Fund (IMF), the World Bank and the African Development Bank. It is made up of loans, some of which are not due to be mature for up to forty years. The deal will free up resources for these poor countries, many of which have had to devote more than a third of their annual budgets to debt-service costs.

18 nations (listed in the table below) reached the completion point of the IMF and World Bank initiative for Highly Indebted Poor Countries (HIPC) and have had US$40 billion debt written off.


Country Long Term Debt as % of GDP
Mauritania 67.9
Senegal 30.9
Mali N/A
Niger N/A
Burkina Faso 23.8
Ghana 75.7
Benin 33.4
Ethiopia 81.9
Uganda 45.3
Rwanda 51.4
Tanzania N/A
Madagascar 52.2
Mozambique 88.0
Zambia 90.1
Honduras 49.2
Nicaragua 113.1
Bolivia 38.4
World Total: US$40 billion

Source: World Bank

Nine more countries (tabled below) are to become eligible for 100% debt relief, involving US$11 billion, when they reach HIPC completion within 12 to 18 months


Country Long Term Debt as % of GDP
Guinea Bissau 131.9
Sierra Leone 86.9
Guinea N/A
Dem. Rep. Congo N/A
Chad 31.9
Cameroon 21.2
Malawi 106.8
Gambia 82.0
Sao Tome and Principe 300.4
Total: US$11 billion
Grand Total: US$51 billion

A further eleven countries (still to be decided) could see US$4 billion of their debt being scrapped, bringing the amount of debt relief to US$55 billion. In order for the countries’ debt to be scrapped, they need to meet the World Bank definition of a low-income country. For example, Nigeria is Africa’s most populous nation and most heavily indebted country, owing US$35 billion, but as the world’s seventh-largest oil exporter, does not meet the World Bank definition of a low-income country.

The G8 plan carries an option of expanding debt relief to twenty other countries, including Nigeria, if they are able to meet the HIPC conditions. Nigeria, the most indebted of West African countries, does not qualify for immediate debt relief because it has not fulfilled the strict anti-corruption and economic liberalization conditions of the World Bank’s Heavily Indebted Poor Country initiative.

Observers from a variety of countries, including Germany, Japan and France, have said that debt repayment alone could do little more than set some African nations back on a track to dependency and isolation. The conditions that created the debt crisis are often still in place in Africa, and the lack of proper economic infrastructure or export markets could simply lead to further debt. African observers have pointed out that the political corruption that caused the debt crisis was itself a product of the extreme forms of capitalism and socialism imposed on Africa during the 1970s as part of the deals that guaranteed the loans. Germany, France and Japan have voiced concerns that a write-off would leave the World Bank short of cash in the future because it would miss out on interest payments. However, ministers were committed to meeting the full costs of the write-off to the IMF, World Bank and the African Development Bank. Ministers came to a last-minute compromise after Germany and Japan – under pressure from Gordon Brown, chancellor, who chaired the London meeting – watered down the conditions they wanted to be attached to debt relief.

Development campaigners have said that while the deal was a step in the right direction, much higher additional funds were necessary to lift Africa out of poverty. The Commission for Africa has recommended extra aid flows of US$25 billion a year.

One area of uncertainty left by the debt cancellation deal was over what controls donor nations would retain to ensure that cash released was not misspent on arms deals or to enrich corrupt officials. The World Bank is expected to draw up new rules on transparency to ensure the money goes where it was intended.

Further Facts & Figures

Africa’s total external debt is US$300 billion. African nations currently spend up to 40% of their budgets on debt repayments, more than on health or education, according to DATA, a Washington-based advocacy group.

Zambia expects to receive US$2.5 billion in debt forgiveness. This means Zambia will end up owing about US$1 billion or US$1.5 billion to the west. Zambian officials have said that they are drawing a five-year national development plan and the money saved from debt repayments will be spent on improving the road network and other infrastructure, agriculture, tourism and some other development projects at district level. Close to 64% of Zambia’s 10 million people live on less than a dollar a day. In April, the IMF approved Zambia’s US$4 billion debt relief package after the country met conditions for sustained good economic management under the initiative for highly indebted poor countries (HIPC).

Mozambique is expected to save around US$55 million a year as a direct result of the G8 decision.

Uganda’s debt cancellation amounts to US$3.81 billion. The nation’s total debt stock, which had escalated over several decades, stood at $4.76 billion by the reading of the 2005/06 Budget, 80% of that, about $3.81 billion, owed to its principal multilateral creditors (the World Bank, International Monetary Fund and the African Development Bank). With the cancellation, Uganda will be saving about 80% of Shs 220 billion (Shs 176 billion), which is the amount that would be spent this year in multilateral debt servicing including both principal (Shs 162 billion) and interest (Shs 58 billion). Uganda’s budget is 40% aid-dependent.

Ghana’s cancelled external debt of about US$4.1 billion represents about 80% of its stock. Ghana’s budget is 50% aid-dependent.

Tanzania will save 12% of its annual budget, up until now spent on servicing its debts.

Nigeria’s total external debt was US$35,944.66 million, as at December 31, 2004. This figure represents about US$2,824.32 million owed multilateral institutions including the World Bank group and the African Development Bank Group. It also includes US$30,847.81 million representing 85.82 per cent of total debt stock and by far the largest chunk of Nigeria’s debt stock, owed to the Paris Club while about US$1,441.79 million and US$783 million was owed to the London Club and Promissory Notes creditors which are the refinanced uninsured trade arrears. On debts owed to Multilateral Agencies, the largest part is being owed two institutions of the World Bank Group, that is, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) which Nigeria owes US$935.57 million and US$868.14 million respectively. The country also owes US$26.39 million to the International Fund for Agricultural Development (IFAD). The African Development Bank Group comprising the African Development Bank and the African Development Fund (ADF) is being owed US$720.03 million and US$127.93 million respectively while the country owes the Ecowas Fund US$1.16 million. Also being owed are the European Investment Bank (EIB and the European Development Fund (EDF) the sum of US$11.87 million and US$133.23 million respectively.

The highest stock of Nigeria’s external debt is actually being owed to the Paris Club of Creditors. The 19 Paris Club permanent members are governments with large claims on various other governments throughout the world (the claims may be held directly by the government or through its appropriate institutions). They have constantly applied the terms defined in the Paris Club Agreed Minutes on their claims in the past (this means principally having cancelled claims for countries benefiting from debt reduction and restructured claims over periods of comparable maturity) and have settled any bilateral disputes or arrears with Paris Club countries, if any. Nigeria only owes 14 of them.

Of the 14 which Nigeria owes US$30.848 billion as at December 31, 2004, the United Kingdom is being owed the largest stock of US$8 billion and France is next which Nigeria owes US$6.25 billion. Others are Germany US$5.29 billion, Japan US$4.45 billion, Italy US$1.98 billion, Netherlands US$1.71 billion, the United States of America US$984.5 million. The rest are Austria US$521.38 million, Belgium US$608.2 million, Denmark US$571.75 million, Finland US$3.99 million, Spain US$249.5 million, Switzerland US$201 million and the Russian Federation US$36.97 million. Nigeria also owes some non-Paris Club creditors. This includes commercial debts which stood at US$45.24 million and Official Development Assistance (ODA) US$2.26 million. The London Club of Creditors is being owed US$1.44 billion while US$783.23 million is being owed to Promissory Note Creditors, which are the refinanced uninsured trade arrears.

There are 38 countries that are categorised as heavily indebted. These countries face an unsustainable debt burden, beyond available debt-relief mechanisms. Collectively they owe approximately US$240 billion. On average, the debt of each country is 4 times their annual export earnings. African HIPC’s include: Benin, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoros, Congo, Democratic Republic Congo, Cote d’Ivoire, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Rwanda, Sierra Leone, Sao Tome & Principe, Senegal, Somalia, Sudan, Tanzania, Togo, Uganda, Zambia.

The so-called ‘Marshall Plan for Africa’ foresees a sharp increase in development aid up to 0.7% of GDP of the industrialized nations. Today, that share hovers at around 0.4% among European states. The agreement, covering US$40 billion (£22 billion) of debts of 18 heavily indebted poor countries (HIPC) with the World Bank, the International Monetary Fund and the African Development Bank, will cost rich countries US$1.2 billion a year for the next three years.

Rich countries will assume the debt-payment costs for as long as 50 years into the future. This will cost Canada between US$150 million and US$200 million over the next five years. Those funds were already included in the most recent federal budget. Canada’s foreign-aid spending, at less than 0.3% of its GDP, falls far below the target of 0.7% set by former prime minister Lester Pearson in the 1960s. And about half of that aid is “tied,” that is, it must be spent by the recipient countries on Canadian goods and services.

Britain’s share of the package is likely to cost the exchequer US$700 million to US$900 million over the next 10 years. Some of the US contributions are understood to involve newly pledged funds. It is not known how many of the other G8 nations are making additional payments or merely rejuggling the financing of their aid programmes

Germany will be expected to shell out up to €150 million in the next three years and up to €950 million in the next ten. A third of Germany’s development budget goes to Africa.

The US has agreed to pay between US$700 million and US$960 million more to the World Bank over the next three years. The US’s share of the contributions to the IDA fell from 20% to around 13% over the last three years – it is impossible to know if the funds for debt relief will be additional to the amount the IDA would have received anyway after 2008.

Japan has pledged to double its aid to Africa, which currently makes up 8% of its total aid budget.

Russia has promised the U.N. General Assembly it would make good on its pledge to forgive US$2.2 billion

The IMF will be expected to fund its share of debt relief from its own resources. The G8 has dropped all its plans for the IMF to sell some of its gold reserves to fund the relief.

Shaun Bakamoso

Greetings. I'm Shaun Bakamoso, and I'm thrilled to be your guide through the dynamic world of business news in South Africa here at mbendi.co.za. With a passion for staying informed and a keen interest in the ever-evolving landscape of business, I've dedicated myself to providing you with timely, insightful, and comprehensive coverage of the latest developments impacting the South African economy. bakamoso@gmail.com / Instagram