Coming to Terms with Reality. Evaluation of the Belgian Debt Relief ...

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International debt relief initiatives and their effects
The disaggregated information provides us with a clearer picture of the importance of the
different sub-components of ODA in the evolutions outlined above. The increase of ODA
between 1970 and the early 1990s is mainly the result of an increase in grants,
complemented with debt relief operations in 1990 and 1991. We see that, over time, grants
have replaced loans, with net loans (loans minus repayments) even becoming negative in
some of the more recent years. Although loans might have specific beneficial effects
compared to grants, they have an inherent risk of building up an unsustainable debt burden
in the future. The replacement of debt by grants can therefore been seen as a positive trend.
The ODA recovery after 1998 can be partly attributed to debt relief, although an increase
of the grant-component has also been important, certainly between 2003 and 2006. Finally
the graph indicates that the 2005 peak can be largely attributed to debt relief, mainly to two
non-HIPCs, Iraq (15.8 billion US$) and Nigeria (6.6 billion US$). This has shown not to
be sustainable over the consecutive years. As the most recent peak of 2008 has been
largely achieved by an increase of the grant component, high ODA levels are more likely
to persist in the following years, under the condition of course that the recent financial and
economic crisis does not cut too hard in donors’ aid expenditures.
Figure 2.4 and Figure 2.5 show us the importance of the different sub-components for the
subset of HIPCs and low-income countries (LICs), respectively. It immediately becomes
clear that for these two sub-groups net debt relief constitutes a more important part of total
net ODA. While for all recipients together net debt relief accounted for about 7% of ODA
(between 1988 and 2008), this was about 16% for HIPCs and 15% for LICs.
Figure 2.4 Evolution of ODA and its components for HIPCs (in constant 2008 mio US$)
25000
20000
15000
10000
5000
0
-5000
1970
1972
1974
1976
75.6
1978
1980
1982
1984
20.2
1986
1988
1990
Source: Authors’ own elaboration on basis of CRS database
1992
20.2
31.5
1994
Net DR Grants without DR Loans without DR
1996
1998
2000
16.9
2002
2004
2006
2008
Coming to Terms with Reality
Figure 2.5 Evolution of ODA and its components for LICs (in constant 2008 mio US$)
40000
35000
30000
25000
20000
15000
10000
5000
0
-5000 1970
1972
1974
1976
1978
1980
1982
1984
1986
Net DR Grants without DR Loans without DR
Source: Authors’ own elaboration on basis of CRS database
2.4.2 Looking at ODA debt relief from an economic value of debt perspective
In this section we use a framework of alternative approaches to measuring aid to assess the
current ODA rules and the debt relief component of realised ODA. The framework is
presented as table 2.11. It presents five different approaches to measuring aid, from left to
right, in increasing order of sophistication. From a conceptual point of view, the more we
move to the right in the table, the better the measures become. Unfortunately, the more we
move to the right, the more difficult calculations also become. A brief overview of the
measures is presented in what follows, starting from the left of the table. For the donor,
development aid obviously involves some costs. We distinguish three ways of expressing
these costs to the donor. First and most simply, one may look at gross budgetary outlays,
presented in column 1. A more complete picture is presented in column 2, according to
which aid is calculated as the net budgetary cost. The justification is that aid gives rise to
reverse financial flows, in particular debt service paid by beneficiaries on previous
concessional loans, which constitutes budgetary income to the public sector of the donor
economy. As these return flows are triggered off by previous loans, it seems logical to
subtract them. Nevertheless there is something to be said for also looking at gross
budgetary spending. Debt service receipts can be expected to flow to the Treasury and not
to be transferred to the budget of the Aid Ministry as a matter of course. For this reason the
reverse financial resources that flow back to the donor economy do not augment the
budgetary means available for development aid, and therefore do not alleviate the aid
efforts by the aid department. Although this perspective is not without relevance, it narrows
down the view to a single ministerial department and its Minister. All in all, the net
budgetary cost approach is preferable over a gross budgetary cost approach.
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
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