Grants and debt forgiveness in Africa : a descriptive analysis

Abstract

The authors analyze the effects of bilateral debt forgiveness on 32 low-income countries in Africa (1984-93). Asking whether it makes a difference for recipient countries to receive pure grants rather that official development assistance (ODA) debt relief, they focus on how one form of aid or the other affects the countries'import capacity. They conclude that: a) grants allowed recipient countries to significantly expand their import capacity for 1984-93 as grants and import capacity have been increasing since 1984. But the increasing share of concessional lending and debt relief in recent years has not allowed these countries to reduce total indebtedness nor solve debt overhang. b) the biggest recipients of debt relief also received the lion's share of the pure grants increase. Debt forgiveness and pure grants were allocated not entirely consistent with standard economic hierarchies. c) bilateral ODA debt forgiveness appears to be neutral in the sense of not having any significant impact on import capacity. During 1989-93, multilateral lending replaced the bilateral lending decrease caused by an increase in grants. d) private creditors have typically withdrawn money as grants increased. And debt relief has had a crowding-out effect on new lending. Bilateral donors are switching their development finance to Africa from concessional and non-concessional lending to a combination of pure grants and ODA relief.Payment Systems&Infrastructure,Banks&Banking Reform,Public Sector Economics&Finance,Municipal Financial Management,Public&Municipal Finance,Urban Economics,Municipal Financial Management,Banks&Banking Reform,Public Sector Economics&Finance,Public&Municipal Finance