From Ed Cropley at Reuters Africa Blog–“Donors’ aid squeeze to up Africa’s debts”
In 2005, donors at the G8 summit in Gleneagles, Scotland promised to double aid by up to $50 billion in five years — an ambitious promise that has not been matched by reality.
Furthermore, a trend since then towards more aid delivered via grants risks going into reverse as cash-strapped rich-country finance ministers seek out cunning ways to make their development budgets go further.
For instance, by most definitions a bilateral loan qualifies as “aid” if a quarter of it is a grant, meaning donors can cut today’s cost of their aid bill by 75 percent, and then swallow the cost of a low lending rate over the duration of the loan.
“In 2009, France’s proportions of aid going in loans just rocketed,” Coppard said. “This theoretically will need to be paid back.”
The implications of such a switch by other donors would be dire, burying many African states under the same mountain of obligations that triggered the 2005 Heavily Indebted Poor Countries (HIPC) debt forgiveness initiative.
For example, if all its overseas grants became loans tomorrow, Tanzania would be running a budget deficit of a staggering 25 percent of GDP — a ratio that would leave its plans for a $500 million Eurobond dead in the water.
Debt may be appropriate for specific projects that generate government revenues to service the debt, but if borrowed funds are sunk into more general budget substitution, experimentation, projects that reflect donor priorities that may not have local buy-in or results, it seems a stretch to equate a loan to a grant or gift.
Worth noting that Kenya specifically has a had a big run up of domestic debt recently.