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

| 90 |
Debt relief policy and practice by Belgium
relief, until 2003, HIPC Trust Fund were also administered by MINFIN and put on its budget;
from 2004 on however, they were switched to the DGD budget.
All the remaining debt relief interventions are operations that directly originate from DGD
initiatives, and/or are on its budget (except for the induced debt swaps, to which we return
later). Overall, as can be seen from table 3.1., DGD accounts for 10% of debt relief (inclusive
of the debt relief from the induced swaps, in execution of the 1991 compensation agreement).
As shown in table 3.1, Belgium did not yet engage in financing IDA Debt Reduction Facility
operations 65 . Furthermore, Belgium engaged in a series of further earmarked HIPC Trust Fund
operations, regarding the IADB, the European Development Fund (EDF), the PRGF window of
IMF, the West-African Development Bank, next to unearmarked operations, in total for about 55
million EUR. Topping up contributions to IDA and AfDF in the context of the MDRI has
amounted to about 20 million EUR so far. Belgium also engaged in one bridge loan operation for
Burundi in 2004 (for about 5.6 million EUR) to help clear arrears towards multilateral creditors.
Eventually, DGD pioneered with swaps very early on, doing 4 autonomous swaps operations with
4 countries (Guatemala, Bolivia, Ecuador and Côte d’Ivoire) in the beginning of the period.
This last practice led to the inclusion into the 1991 ONDD compensation agreement of the swap
window. Although this was a series of ‘induced’ operations, they did result in additional debt relief
to the recipient countries. Annex 3.3 (first column) provides an overview of all the induced swap
operations, executed by DGD with ONDD under the 1991 compensation agreement, including also
the budgetary cost for DGD 66 . Overall, the induced swaps led to 189 million EUR of nominal debt
relief, or about 6.75% of total, at an overall budgetary cost of 60.8 million EUR (see Annex 3.3),
which amounts to an average discount of 68% 67 .
Regarding the distribution of total nominal debt relief over recipient countries, table 3.2 shows that
about 70% of total debt relief (1.97 billion EUR) targets HIPC countries, of which about 1.8 billion
EUR is targeted towards the HIPC/MDRI initiative (when summing debt relief for HIPCs over the
1996-2009 period, including HIPC/MDRI earmarked multilateral interventions); however, of that
total, about 1 billion EUR is granted to DRC. Furthermore, about 732 million EUR is for debt
relief outside the HIPC framework, mainly for operations with Iraq (268 million EUR) and Nigeria
(269 million EUR), for ONDD claims only. Finally, debt relief granted to partner countries mounts
to about 55% of the total Belgian nominal debt relief effort.
3.2.2 Further implications of the compensations for inter-agency burden sharing
So far, we have only discussed the impact on debt relief of the swap window of the 1991
compensation agreement, as it provided additional debt relief. Table 3.3 provides an
overview of the consequences on the distribution of total debt relief over the three agencies
(ONDD, MINFIN and DGD), when we account for all the other compensations that DGD
has paid over the years. More particularly, this refers to the second window of the 1991
agreement, in which DGD (partly) compensates ONDD for debt relief granted in the Paris
65 Despite its favourable overall evaluation (see chapter 1).
66 Due to the discounts, the budgetary cost is much lower than the nominal amount of debt relieved.
67 See also Biron (2001) for a detailed overview of the operations, for the period up to 2000.
Coming to Terms with Reality
Club, plus the compensation payments of DGD vis-à-vis both MINFIN (on bilateral loans)
and ONDD (on its claims) within the context of the 2001 and 2005 agreements, for claims
cancelled on HIPCs (only) when they reach completion point.
The table shows that these other compensations amount to about 198 million EUR. About 22
million EUR refers to compensations of cancellation of bilateral loans (MINFIN) already
paid 68 . The rest refers to compensations of ONDD, both through the 1991 agreement (about
165 million EUR), as well as through the 2001-2005 HIPC agreement, for which, up to now,
DGD paid compensations to ONDD on 4 countries: Bolivia (2002, 6.055 million EUR),
Ghana (2006, about 0.87 million EUR), Senegal (2006, about 0.3 million EUR) and Tanzania
(2002, 3.043 million EUR) 69 . All in all, these compensations increase the share of DGD in
total debt relief from 10.4 to 17.4%, without of course increasing total Belgian debt relief.
3.2.3 Implications of debt relief for Belgian ODA
An overview of the consequences of Belgian debt relief on Belgian ODA is presented in table
3.4; the distribution over recipient countries is added in table 3.5. Data come from the ODA
database of DGD. Overall, we can state that almost all of Belgian debt relief can be
accounted for as ODA, for a total of 2.6 billion EUR. Differences between debt relief and
ODA are almost exclusively with respect to the bilateral loans component. This is obvious: as
these loans were already accounted for as ODA at the beginning, cancelling them only
increases ODA as to the interest component of it. All other interventions can be accounted for
as ODA at either nominal or present value debt relief values; with respect to ONDD claims.
Small changes exist between the debt relief figures obtained from ONDD (used in tables
3.1-3.3) and the figures imputed into the ODA database.
It is important to note here that the presentation of table 3.4 should be interpreted correctly:
as the Paris Club compensation payments of DGD do not generate additional ODA, the
compensations are added to the ODA figures of the agency that originally generated the
ODA, i.e. either ONDD or MINFIN (the concrete figures are added as a separate item).
However, in the DGD database, the ODA that is generated is split up between the two parties
when a compensation is paid 70 .
68 Future compensations on bilateral loans cancellation from HIPCs in the pipeline are currently estimated at
about 132 million EUR. Moreover, in principle, compensations on bilateral loan cancellation of HIPCs that
already reached completion point (Bolivia, Cameroon, Ethiopia, Ghana and Sao Tomé) could further increase
the compensation bill by about 46 million EUR, to be spread between now and up to 2050, according to the
original debt service schedule of the loans cancelled.
69 Compensation claims for other HIPCs currently amount to Cameroon (70.63 million EUR, see section 4.2) and
Sierra Leone (0.22 million EUR). Furthermore, future claims from HIPCs currently in the pipeline (Congo-
Brazzaville, DRC, Guinée-Bissau, Côte d’Ivoire, and potentially also Sudan and Togo) are estimated at around
225 million EUR.
70 The standard format used to present the Belgian ODA statistics (ODA per channel) added to the confusion,
as the compensations were included in this presentation, as a separate budget line in the DGD part of the
ODA presentation, while ONDD debt relief was presented net of compensations. When looking at this table,
this reads indeed as if the ODA was generated due to the compensations. The presentation has been
changed now, and compensations do no longer appear in the ODA table, while the ONDD debt relief line in
the ODA table reflects everything (including the compensations). The compensation payments are only
visible from the DGD budget.
| 91 |