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

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Annexes
including forgiven interest due and into arrears is included as new ODA, more particularly
again as a debt forgiveness grant 90 . As formerly the loan was not ODA, no offsetting
entries are made for the principal part of the cancellation.
Rescheduling of non-ODA debt may take several forms. 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 91 .
The most important part refers to Paris Club concessional rescheduling, for which the Paris
Club agreed to common terms from 1988 on. Current rescheduling options include either a
rescheduling involving cancellation of part of the eligible debt, and rescheduling at market
rates of the remainder (the so-called debt reduction option), a rescheduling at concessional
interest rates of the totality of eligible debt, leading to a given amount of debt relief in
NPV terms (the debt service reduction option), or a combination of the two, referred to as
the Capitalisation of Moratorium Interest (CMI) option: here, interest rates are reduced less
that under the debt service reduction option, with the remainder of NPV debt relief is
obtained by means of a very long grace period (hence also maturity), including capitalisation
of some moratorium interest. Treatment in DAC guidelines of these concessional
rescheduling require a split into the debt relief part (either debt reduction or debt relief in
NPV terms) and the remaining part, which is treated as new rescheduled debt at market
terms. The debt reduction option is treated completely analogous to debt cancellation:
principal reduced is registered as a debt forgiveness grant, the rescheduled debt part is not
registered as ODA, but enters as a OOF flow. With respect to the DSR and CMI options, an
amount equivalent to the debt relief embedded (in NPV terms) is added as a ‘debt
forgiveness grant’; the remaining rescheduling part is registered as OOF.
Two other types of rescheduling are explicitly considered: one is a non-concessional
rescheduling, which does not lead to entries in ODA, only in OOF; secondly, reference is
also made to the rescheduling of OOF debt as ODA (outside the Paris Club), an alternative
seldomly used. Here, rescheduled principal and capitalized interest can be recorded as a
new loan extended, under the entry ‘rescheduled debt’.
In the case of the conversion of non-ODA, both interest and principal converted can be
registered, as ‘debt conversion’ under the line ‘other debt relief’. Again, in case the
creditor grants the debtor a discount, reporting has two components: the discount part is
registered separately as a ‘debt forgiveness grant’.
2.3 Other action on debt
A separate type of donor actions on debt reorganisation refer to the funding of buybacks,
debt service payments to third parties or other third party contributions. Typically, DAC
rules allow for the registration as additional ODA of the outlay or contribution of the
90 Again, as for ODA debt cancellation, donors can choose between lump sum or annual reporting in ODA
disbursement statistics.
91 Staged rescheduling agreements (such as in the Paris Club, referring to multi-year agreements) should be
reported as each stage comes into force, usually year-by-year.
Coming to Terms with Reality
donor. This is straightforward in the case of debt service payments to third parties, but the
same principle also applies to buybacks. Again here, registration is restricted to the amount
of the contribution, not the amount of debt bought back. These interventions are recorded
as a grant, albeit not added to ‘debt forgiveness grants’ but recorded separately as either
‘Service payments to third parties’ or ‘debt buybacks’ respectively, and grouped together
under the overall heading ‘other action on debt’.
The DAC Handbook (DCD/DAC(2000)16) does not suggest explicit statistical directives
for reporting discounts offered in the context of a debt buyback by the debtor country itself
in a broader Paris Club debt relief agreement. This case explicitly arose for the first time in
2006 in the framework of the Nigerian Paris Club rescheduling, which included a buyback
by Nigeria of the remaining debt (after debt relief) at a market-related discount of 40%.
The question of treatment was discussed (see DCD/DAC(2006)41) but so far no consensus
was reached among DAC-members on directives. In the meantime, donors could choose
whether or not to include it in their reporting, in a transparent matter.
A special case is made for contributions to multilaterals related to specific debt relief
initiatives, such as the HIPC Trust Fund, or the IDA Debt Reduction Facility (DRF). IDA
DRF contributions are treated as a buyback when the recipient country is known; if not, it
is added to ODA as contribution to multilaterals (IDA). In both cases, it is also recorded
separately under a memo item entry to make it identifiable. The same goes for HIPC trust
Fund contributions: if earmarked for a specific recipient country, it is recorded on line
‘Other action on debt: Other’; if not earmarked, it si added as ‘contribution to multilaterals’.
In both cases, a (memo item) ‘HIPC Initiative’ registration is added.
Finally, as already highlighted in section 1, so far additional contributions to these
multilaterals within the framework of compensating multilaterals such as IDA or AfDF on
debt cancellation granted within the MDRI are added to the regular contribution to
multilaterals entries, without a separate, identifiable registration (tbc), that would account
for their ‘debt reorganisation’ nature.
2.4 The relative magnitude of different types of debt reorganisation in ODA
statistics
From the previous overview, it becomes clear that most of the debt reorganisation
interventions are summarized under the item ‘debt forgiveness grants’. It includes all debt
cancellation interventions, (covering both principal and interest), the NPV debt relief
embedded in concessional Paris Club rescheduling operations for non-ODA debt (all three
options) as well as discounts embedded in debt conversion operations (‘swaps’). In order
to derive the net ODA impact of these interventions, we have to deduct the principal
reduction embedded in operations for ODA debt, registered as negative offsetting entries in
the loan section of ODA statistics.
However, total ODA debt relief is not fully covered by this item. The entry ‘other action on
debt’ summarizes a number of additional debt relief interventions, related to either debt
conversions, debt buybacks, debt service payments to third parties or other contributions
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