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

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Annexes
Annex 2.2: A note on the DAC rules on the
treatment of donor interventions on debt
reorganisation in ODA statistics
This note provides a short overview on the DAC-rules regarding treatment of debt
reorganisation and debt relief interventions by (bilateral) donors in the ODA statistics.
Under specific circumstances, debt reorganisation operations, including debt relief, on both
ODA as well as non-ODA loans can be accounted for as (additional) ODA. Within the overall
framework of rules and guidelines to account for aid transactions, DAC donors have also
agreed on a taxonomy of debt reorganisation interventions, and a set of rules and guidelines to
account for these operations. The basic reference to the current practice is the ‘Handbook for
Reporting Debt Reorganisation on the DAC Questionnaire’ (DCD/DAC(2000)16). On the basis
of these accounting guidelines, and the resulting entries in the DAC reporting system, statistics
regarding the use of Debt reorganisation in total aid are compiled by the DAC secretariat, and
detailed entries regarding these interventions are available in the on-line CRS system. In this
treatment, we will restrict our discussion to the treatment of disbursements.
This reporting in principle entails several entries for each operation, requiring detailed
information according to three basic criteria:
• the type of reorganisation (referring to a taxonomy of possible types);
• the nature of the debt prior to reorganisation (in DAC jargon, the ‘sector’), indicating
whether the old loan was originally accounted for as ODA (because of its concessional
nature and its development purpose), or not (non-ODA). More precisely, DAC accounting
distinguishes between three sectors: ODA, OOF (other official finance), or Private;
• the breakdown of the amount of debt reorganisation into principal and interest.
Note again that conventional DAC aid accounting relies on the ‘net’ (flow) principle. For
loans that meet the criteria to be included as ODA, loan disbursements are added to ODA,
while loan principal repayments are accounted for as negative entries, making a loan entry
sum to zero over the entire lifetime of the loan (provided, of course, it is fully repaid).
1.A taxonomy of debt reorganisation interventions
considered by DAC rules
The DAC Handbook of Debt Reorganisation (DCD/DAC(2000)16) distinguishes between
at least six types of interventions:
• Debt cancellation. Debt cancellation refers to an agreement between the debtor and the
creditor that an outstanding debt no longer needs to be repaid. It can refer to both ODA
debt as well as non-ODA debt, with differences in treatment between the two cases.
• Debt Rescheduling. In very general terms, it refers to any action which results in a new
schedule of maturities of either principal or interest, or both, for outstanding debt. Also
interest due and in arrears may be rescheduled in the form of a new loan, with the old
Coming to Terms with Reality
loan to run in parallel. Such a rescheduling may be concessional (i.e. incorporating an
element of debt relief), or non-concessional. Most operations refer to a rescheduling within
the Paris Club framework, but also operations occurring outside a Paris Club agreement are
eligible, albeit according to different rules. It can refer to both ODA debt, as well as
non-ODA debt 87 . These different possibilities are treated according to different guidelines,
with potentially differential ODA-effects.
• Debt conversion. These operations, also labelled debt swaps, refer to an exchange of debt for
equity, or counterpart domestic currency funds to be used to finance particular projects or
policies. Such a conversion may or may not be executed at a (sometimes substantial) discount.
• Service payments to third parties. This occurs when a donor pays debt service to a third party
creditor, usually a multilateral or private sector body, on behalf of the debtor country.
• Debt buybacks. This refers to actions whereby a donor provides a grant to fund the recipient
country’s repurchase of all or part of its external debt from a third party (or buys back the
debt directly on behalf of the recipient), usually at a discount 88 .
• Contributions to the HIPC Initiative (Trust Fund). Refers to grants paid by the donor into the
IDA-managed Heavily Indebted Poor Countries (HIPC) Initiative Trust Fund, to finance the share
in total HIPC debt relief of creditors that are unable to finance this out of their own resources.
Note that most, but not necessarily all, of these donor actions classified under the debt
reorganisation heading include an element of debt relief (as measured in NPV) for the
recipient country. To give one counterexample, a non-concessional rescheduling, e.g.
capitalising interest at market rates, does not entail an element of debt relief.
So far, the DAC rules are fairly comprehensive in treating all possible donor interventions
related to debt relief and other debt reorganisations, except for the recently decision to
compensate multilaterals such as IDA, or the African Development Fund, for the debt relief
which they granted within the framework of the recent Multilateral Debt Relief Initiative
(MDRI), through additional contributions to these multilaterals (tbc).
2.A detailed overview of accounting entries on debt
reorganisation covering both gross and net ODA
Table 1 provides an overview of the respective current treatment in DAC-statistics of these
different types of interventions, as guided basically by DCD/DAC(2000)16). This overview uses
a slightly different structure, taking into account the basic difference between operations on
ODA and non-ODA debt. Finally, the overview deals with some additional operations, such as
buybacks, or (debt) service payments and other contributions to third parties.
87 Such as the Paris Club Debt Service Reduction (DSR), Debt Reduction (DR) or Capitalisation of Moratorium
Interest (CMI) rescheduling options for non-ODA debt.
88 Such as in the case of grants paid into the IDA Debt Reduction Facility, to finance the buyback by recipient
countries of their private debt.
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