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

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Annexes
2.1 Cancellation, rescheduling and conversion of ODA debt
First of all, consider debt reorganisations granted on ODA debt. The basic principle here is
that, because the original loan was already accounted for as ODA, double-counting has to
be avoided, so only interest cancelled, rescheduled or converted is considered as new
ODA, not principal. However, actual accounting takes the form of several joint entries,
distinguishing between the gross and net nature of it.
First take the example of a cancellation of ODA debt: both principal and interest cancelled
are registered as a new ODA grant, entering as a ‘debt forgiveness grant’, but in order to
avoid double-counting of the amortization part of the debt relief, and to comply with the
‘net’ concept of aid accounting, ‘offsetting entries’ for the amortization part of debt relief,
called ‘offsetting entries for debt relief’, are added in negative under the loan part of the
aid statistics, to derive the net ODA effect. As a consequence, ODA debt relief related to
the amortization part of the debt relief enters the net aid statistics in a disguised way, under
the form of the negative entries from the amortization of principal in future years that do
no longer take place (provided again, of course, that the loan would have been repaid in
the absence of the debt reorganisation intervention) 89 .
Analogously, a rescheduling operation of ODA debt do not entail new ODA, and do not
give rise to new entries, unless it includes the capitalization of interest, which is recorded
as a new loan extended, and registered as ‘rescheduled debt’ under the loan section of
ODA statistics. However, a disguised principal effect over time is again at play. Note also
that these operations do not include an element of debt relief, strictly speaking.
Conversion of ODA debt basically follows the same logic. Again, following the net flow
logic, only converted interest due and in arrears is recorded. Both the interest and principal
part are registered in gross terms, as ‘debt conversion’ under the separate entry line ‘other
debt relief’. In case the creditor grants the debtor a discount, reporting has two components:
the discount part is registered separately as a ‘debt forgiveness grant’, with the
remainder being registered as debt conversion. To account for the net aid nature, the
principal part is offset under loans as ‘offsetting entries for debt relief’.
2.2 Cancellation, rescheduling and conversion of non-ODA debt
The larger part of debt reorganisation and relief figures in ODA relate to non-ODA debt,
both OOF and private debt. The basic principle used in the DAC-rules is that such a
non-ODA debt reorganisation is treated as new ODA.
Regarding cancellation of debt, the full (outstanding) amount of cancelled principal,
89 Regarding the treatment of cancellations, accounting rules are even more complex than discussed here, as
donors have the choice between two options for reporting the cancellation: one is to report disbursement
in a lump sum in the year the cancellation has been agreed; the alternative option is to report the
disbursements as ODA an a year-by-year basis, i.e. in the year in which payments would have fallen due.
Once a donor has switched to option 1, he can not revert to the annual option. Most donors have opted
for lump sum reporting.
Table 1 Current treatment of actions related to debt relief in DAC statistics
Net ODA registration principle Gross accounting entries in ODA DAC table
CRS
Coming to Terms with Reality
Interest and principal registered as ‘debt forgiveness grant’; principal registered DAC 1,2a
under loans as ‘offsetting entries for debt relief’
Capitalized interest recorded as new loan extended, under ‘rescheduled debt’. DAC 1,2a
1. ODA debt
a. Cancellation Only forgiven interest due and in arrears. Disguised effect
in future years as principal does not enter as negative.
Only capitalized interest, if applicable, as new loan. Also
disguised principal effect.
b. Rescheduling (Paris
Club or not)
DAC 1, 2a
Only converted interest due and in arrears. Interest and principal registered, as ‘debt conversion’ under line ‘other debt relief’. In
case creditor grants debtor a discount, reporting has two components: the discount
part is registered separately as a ‘debt forgiveness grant’. Principal registered under
loans as ‘offsetting entries for debt relief’
c. (Direct) conversions of
ODA debt
2. Non-ODA debt
a. Cancellation Forgiven principal and interest. Interest and principal registered as ‘debt forgiveness grant’ DAC 1,2a
b. Paris Club rescheduling Only the debt relief part (measured in NPV); the
Report debt relief part as ‘debt forgiveness grant’ DAC 1,2a
- Concessional
remaining rescheduling part is registered as OOF)
- Non-concessional No entries (only in OOF) No entries (only in OOF)
DAC 1,2a
Rescheduled principal and capitalized interest recorded as new loan extended,
under ‘rescheduled debt’
Rescheduled principal and capitalized interest as new
loan
c. Rescheduling of OOF as
ODA (outside Paris
Club)
DAC 1
Converted principal and interest. Interest and principal registered, as ‘debt conversion’ under line ‘other debt relief’. In
case creditor grants debtor a discount, reporting has two components: the discount
part is registered separately as a ‘debt forgiveness grant’.
d. conversion of non-ODA
debt
3. Other action on debt
a. Service payments to Debt service paid by donor to third party creditor on Recorded as a grant, not added to ‘debt forgiveness grant’, but recorded separately DAC 1
third parties
behalf of the debtor country is accountable as ODA as ‘Service payments to third parties’.
b. Debt buybacks Record donor’s outlay (instead of amount bought back). Recorded as a grant, not added to ‘debt forgiveness grant’, but recorded separately DAC 1
as ‘Debt buybacks’
c . IDA DRF contribution Idem as debt buyback when recipient country is known; if Record (as memo item) under ‘IDA Debt reduction Facility’ DAC 1
not, added to ODA as contribution to multilaterals (IDA).
4.HIPC Trust Fund
Contribution added as bilateral grant when earmarked for If earmarked, recorded on line ‘Other action on debt: Other’; if not earmarked, DAC 1
contribution
specific recipient country. If not, added as contribution to added as contribution to multilaterals. In both cases, also added as (memo item)
multilaterals.
‘HIPC Initiative’
No identifiable separate registration? -
Comes under contribution to multilaterals, but no
identifiable registration.
5. MDRI compensation to
multilaterals
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