DFID Department for International Development

Progress on Debt Relief

G8 Finance Ministers deal

In July 2005, Gordon Brown and the other G8 Finance Ministers agreed a historic deal to cancel up to $55 billion of debts owed by poor countries to the World Bank and the African Development Bank. To put this amount of money in perspective, between 1984 and 1992 Live Aid raised just under $150 million. The debt deal is worth over 366 times that amount!

The countries to benefit the most are those who have met all the criteria of the HIPC (Highly Indebted Poor Countries) Initiative. HIPC already gives debt relief to countries with a proven track record of sound financial management and who use money to reduce poverty. When approved, 18 countries will benefit immediately from $40 billion of debt relif, a further 9 should benefit over the next few years, with yet more to follow.

All of this debt still has to be paid for. The G8 have agreed to pay these debts owed to the World Bank and the African Development Bank in full, allowing them to operate as normal. The UK will pay an additional £70-80 million a year over the next 10-years. Other money will come from things like the sale of some IMF gold in 1999, which has not yet been spent.

What happened at Gleneagles?

At Gleneagles the Heads of State formally endorsed the agreement made by their Finance Ministers, including Gordon Brown, a month before. With debt relief, as with all of the agreements made, what is important now is that we deliver.

What will countries do with the money?

Debt relief will go to countries that are committed to using money to reduce poverty. There have already been amazing examples of what can happen when we cancel a country's debt. Debt cancellation has allowed the Zambian Government to spend money on priority sectors such as health and education. Last year, the Zambian Government made healthcare free in rural areas for millions of people thanks to debt cancellation. Other examples include Tanzania, where debt relief has helped increase the number of children in primary schools by over 50%, build almost 2,500 new primary schools and recruit 28,000 extra teachers. If this rate of progress continues, Tanzania will meet the goal for universal primary education significantly ahead of the 2015 target date. In Uganda debt relief has seen spending on reducing poverty rise by 75% since 2000, and access to health services and immunisation rates have almost doubled.

What about other countries?

Although this deal is best for the HIPC countries, others will benefit from it too. The additional money that countries like the UK will give to the World Bank and the African Development Bank will be given out according to performance and need. This means that even poor countries not getting debt relief will benefit from the extra money.
Also, the UK will continue to pay it's share of the money owed to the World Bank and the AfDB by all poor countries with good public expenditure management that don't qualify for debt relief under the new deal.

Nigeria’s Debt Deal

Nigeria is the giant of Africa, with a fifth of Africa's population, some 130 million people, and its second largest economy. You cannot make poverty history in Africa without doing so in Nigeria. As Nigeria is not a HIPC country a separate deal to write off over $17 billion of Nigeria's debt was agreed in June. The Nigerian government has committed to ring fence the debt savings and use them to tackle poverty. They will invite local and international monitoring of all the spending, including by Oxfam and Action Aid. The deal will enable three and a half million children to go to school within three years.

Nigeria has recently taken dramatic steps to tackle corruption. In the past three years, three Ministers have been sacked for corruption, three judges sacked and one suspended, the Senate President has been forced to resign and the Inspector-General of Police arrested on corruption charges.

Why is having debt a problem?

All countries have debt. The UK has debt - it's normal. When countries put the money borrowed to good use - for example to pay for things like new hospitals or roads - they benefit from faster economic growth and increased spending on things like health and education.
The problem comes when, because of misfortune, bad spending decisions, interest rate hikes, corruption or unwise lending or borrowing, countries find themselves in a position where the amount of debt they owe is too high for them to repay.

What the Commission for Africa Report says about debt

The Commission for Africa Report says that, for Africa to pull itself out of poverty, Africans must be free of their crippling debt. According to the Jubilee Campaign, for every £1 we give Africa in aid they pay us £2.30 in debt repayments!

The Commission recommends that - as long as the money is used for helping to meet the Millennium Development Goals through things like economic growth, reducing poverty and fighting corruption - then all poor countries in Africa should have all of their debts cancelled as soon as possible.

Who do they owe?

African countries owe organisations like the World Bank, the International Monetary Fund (IMF) and the African Development Bank. But they also owe money to other countries and to private banks.

Next we will see the importance of trade to Africa's development.

Last updated 9 October 2008