Ross Thuotte

Sudan’s Bumpy Debt Road Will Run Through Where? Vienna?

By Ben Leo, Research Fellow at the Center for Global Development

This is a joint post with Ross Thuotte.

Sudan’s crippling debt burden can be compared to an enormous onion – the story gets more and more complex as you begin peeling back the various layers.  Yesterday, we wrote about Sudan’s two largest creditors – Kuwait and Saudi Arabia.  But, there are countless other surprises beneath the surface.  Here are three more: Austria, Denmark, and Belgium.  These are not countries that one would automatically associate with Sudan.  But, they are some of its largest creditors – collectively holding roughly $4.5 billion in claims.

Despite having a smaller GDP than almost every other Paris Club country (only Ireland is smaller), Austria’s debt exposure to Sudan exceeds $2 billion.  That makes it the largest Paris Club creditor and third largest creditor overall (after Kuwait and Saudi Arabia).  Denmark and Belgium aren’t far behind.  Together, these three European countries account for almost 40 percent of total Paris Club exposure – exceeding the amount held by the trio of the United States, UK, and France.

Why would these three countries lend billions to the Sudanese government?  The truth is: they didn’t.  The overwhelming majority of claims result from interest penalties accrued over the years.  Loan principal only accounts for $540 million – or less than 20 percent of the total.  As with Kuwait, these relatively modest claims exploded once Sudan stopped repaying its loans.  And, they continue to grow every year.

Are these countries unique or is this a widespread phenomenon with Sudan?  While they may be more punitive than others, they are not outliers by any means.  At this point, almost all of Sudan’s creditors are inflicting heavy penalties regardless of their political relationships or historical ties.  Overall, loan principal only accounts for about $16 billion of Sudan’s $35 billion in total external debt obligations – or a little more than 40 percent.

Source: Bank of Sudan

What kind of insights does this provide for solving Sudan’s broader debt problem?  For one, it emphasizes the need for cooperation among a multitude of diverse actors – both within and across the various creditor groups.  Regardless of geo-political clout – the myriad of diverse creditors must ultimately approve any resulting debt agreements.  And in this case, the demands of three small economies may become incredibly important.  Like Kuwait and Saudi Arabia, they will have outsized seats at the debt workout table.  Second and more broadly, the composition of Sudan’s total debt burden reveals another layer of complication.  How will the final debt package deal with interest arrears and penalties (along with principal)?  At the moment, debt discussions (such as the recent World Bank/IMF/AfDB workshop) have only begun to scratch the surface.

(This is a repost from the Center for Global Development’s “Views from the Center” blog)

Who are Sudan’s Two Biggest Creditors? And Why is it Something to Worry About?

By Ben Leo

This is a joint post with Ross Thuotte.

Two countries alone hold over 25 percent of Sudan’s crippling $35 billion debt burden.  I’ll give you three guesses at who they might be.  China?  United States?  France?  All would be reasonable choices.  But, they also would be wrong.  In fact, Sudan’s two largest creditors are Kuwait and Saudi Arabia.  Sudan owes the Kuwaiti government roughly $6 billion and the Saudi Government over $3 billion.  Despite a flurry of recent loans, China is only number five on the list.  These rankings represent more than monetary values owed - rather, they illustrate who will have the most important voices around the debt workout table when the time comes.

Over the years, Kuwait and Saudi Arabia provided Sudan with nearly sixty individual loans.  Almost all of them during the 1970s and 1980s.  Many of these loans financed large-scale infrastructure projects, such as roads, ports, and dams.  However, the Kuwaitis and Saudis also extended well over $1 billion in unrestricted cash loans.  When the Sudanese government fell behind on its payments, these loans exploded due to the accrual of interest and steep penalties.  By illustration, Sudan now owes $2.8 billion on a single $130 million Kuwaiti loan from the late 1970s.  This situation is very common in poor countries.  Often, the largest debt obligations are tied to longstanding unpaid claims that grow exponentially over time (more on that in my next post).

Between 2010 and 2014, the Sudanese government is on the hook to pay the Kuwaiti and Saudi governments about $780 million.  While large in absolute terms, this represents only about one-eighth of Sudan’s total debt service obligations.  This is because most of the respective loans are old and entirely in arrears (i.e., the scheduled debt service have already come and gone without payment).  According to the Bank of Sudan, the government has roughly $2.2 billion in debt payments coming due to China over the same period.  In contrast to Kuwait and Saudi Arabia, all of China’s existing loans have been provided in the last fifteen years.  And, Sudan largely has kept current on its Chinese loans as a way of ensuring that the funding spigot is kept open.  As such, Kuwait and Saudi Arabia are the most important creditors in terms of overall exposure; but less so in terms of near-term liquidity constraints on the Sudanese government.

Why does all of this matter?  Because creditors like Kuwait and Saudi Arabia will play a critical role in dealing with Sudan’s crippling debt burden - both in terms of dividing its obligations between Khartoum and Juba as well as providing debt relief down the road.  (See my new CGD working paper for detailed analysis and scenarios).  Unfortunately, Kuwait and Saudi Arabia have an unreliable track record on this front.  Under the HIPC Initiative, both countries have delivered only a modest portion of committed debt relief.  Put differently, Paris Club, multilateral agencies, and other creditors collectively agreed to deliver a specific level of relief to poor countries.  And, Kuwait and Saudi Arabia (and many other creditors) have not followed through.  In the case of Sudan, Paris Club creditors likely will be unwilling to cancel their debts if other creditors fail to step forward.  Therefore, potential Kuwaiti and Saudi intransigence could jeopardize an entire debt relief package.

Given this - and the massive size of their claims - the Sudanese authorities and other stakeholders should begin consultations with the Kuwaiti and Saudi governments now to gauge their appetite for creative solutions.  If they are not ready and willing, then the road ahead will likely become even more complicated, painful, and uncertain.

(This is a repost from the Center for Global Development’s “Views from the Center blog, also published on the Huffington Post)

What can Miss America learn from Miss West Africa?

This week, West Africa’s most prominent regional body, ECOWAS, crowned a new Miss West Africa.  Looks can be deceiving however - the contest was more than just a beauty pageant.  In fact, the ‘ECOWAS Peace Pageant’ was explicitly intended to award a ‘peace delegate’ and a future leader for the African sub-region - a person who could make strides to stabilize the turbulent area.

We should use this opportunity to examine our own Miss America, and how she compares to her newly-coronated counterpart.

So, how do the two pageant winners stack up?

Miss America:

• Education: B.A. Broadcast Communications, Virginia Commonwealth University
• Scholastic Ambition: Obtain and M.A. in Communications
• Career Ambition: Become an anchor for a TV news station

Miss West Africa:

• Education: Medical Student, Nkrumah University, Accra, Ghana
• Scholastic Ambition: Graduate with an M.D. in Optometry
• Career Ambition: Unclear - but according to the Economist, she has won “a year of ambassadorial work spreading peace across the sub-region.”

Clearly, the two competitors’ values and aspirations reflect the environments and the needs of their home countries.  But perhaps we should expect the same of our American pageant winners as does ECOWAS of theirs.  From a regional integration perspective - events like these can foster relationships within the region, which in turn, can be a force for positive growth toward the end-goal of a unified West Africa.  Who says less traditional methods of regional integration can’t be effective?

And congratulations to Shirley Nwangere of Ghana, the new Peace Ambassador of ECOWAS!

How much should a college education cost?

In regards to post-secondary education costs, there have been quite a few provocative news items over the past few weeks.  Here are a few tidbits:

Last week, at least 51 people were arrested in London for protesting a (planned) significant hike in tuition fees.  Proposed tuition caps are $14,500, nearly 3 times their current value of $4,800.  With most UK undergraduate programs lasting three years, the new plan would put total fees at around 45K.

Meanwhile, in the United States, the “50K Club” has grown steadily year after year.  Even public universities (represented by UC Berkeley) have made their debut on this list of schools with $50,000 in fees per year.  This indicates that student debt levels will rise even further than they already have.

Furthermore, proposed spending cuts by the US Fiscal Commission could mean the elimination of subsidized federal loans, meaning faster accumulation of debt for students, even those deemed eligible for federal aid.  

So what do you think?  If you went (or still go) to university in the US or UK, do you feel like you’re reaping returns to your investment? 

On a broader level, what does this mean for the already-existing inequalities in education?  If I had to take a stab, I’d say they’re only going to widen.

The Charles Taylor trial is complete…25 years late.

On Friday, the defense wrapped up its case in the Charles Taylor trial, ahead of closing arguments and a verdict in February 2011.  Mr. Taylor, the former President of Liberia, has been charged with numerous war crimes.

Rewind 25 years:  for those of you who don’t remember (or, like myself, were not even born yet), Mr. Taylor was incarcerated in the fair state of Massachusetts in 1985.  Taylor reportedly tied sheets together and climbed out a window from a detention facility in Plymouth, before escaping in a getaway car to Staten Island.

He then returned to Liberia (via Libya), where he took power and conducted a 15-year reign of terror.  Whether or not his escape was aided by corrupt US officials (as has been alleged) - the point remains: all of his subsequent acts could have been stifled at the start.

For bit more background and a very interesting testimony from Taylor’s son (Charles Philip Taylor a.k.a. Bentman), see this video.  For Boston sports fans - this is definitely worth watching.  Check it out and you’ll see why.

(Video courtesy of VBS.tv, found by Mike Younis)

How many EU observers does it take to register 8 million S. Sudanese voters?

Voter registration for the referendum in Southern Sudan is scheduled to start in 3 days. (See background info here.)  

On the eve of a lengthy, arduous, and certainly chaotic venture, the European Union has come to the rescue. 

“Have no fear”, says the EU, which has sent a team of 16 observers to make sure that everything goes smoothly.  

Keep in mind: Southern Sudan has a population of over 8 million (about 4 million who are eligible voters) and an area of 620,000 sq. kilometers - roughly the size of France.  Not to mention, getting from district to district won’t be an easy task - Southern Sudan’s infrastructure is among the worst on the planet.    

Sure, EU.  Sixteen observers should be plenty.

(image courtesy of AFP)