Support 100 years of independent journalism.

  1. Business
  2. Economics
30 December 2011

How cancelling ’made-up’ debt could help the UK meet aid targets

Treating debt relief for Sudan as charity will allow aid targets to be met at no cost.

By Tim Jones

“The UK will not balance its books on the backs of the poorest,” David Cameron told the G8 summit in May, reiterating his pledge to spend 0.7 per cent of national income on international aid by 2013. The International Development Secretary Andrew Mitchell has echoed this sentiment, saying it is “absolutely clear that we stand by this commitment”. That may be — but some political sleight of hand could help to meet this target.

Back in the 1970s, the UK government backed loans to Sudan to buy British exports. These commercial loans were given by the little known department UK Export Finance (formerly ECGD) winning business for Britain, and keeping Sudan on side during the Cold War.

However, floods and droughts in the 1980s, along with rising US interest rates, led to the country defaulting on its repayments to the western world. The bill outstanding to the UK was £173 million.

Over 25 years later, the claimed debt has now risen to £678 million, and is increasing by £20 million a year. This huge increase is due to notional interest rates of 10-12 per cent being charged every year on the original debt.

Select and enter your email address Quick and essential guide to domestic and global politics from the New Statesman's politics team. A weekly newsletter helping you fit together the pieces of the global economic slowdown. The New Statesman’s global affairs newsletter, every Monday and Friday. The best of the New Statesman, delivered to your inbox every weekday morning. The New Statesman’s weekly environment email on the politics, business and culture of the climate and nature crises - in your inbox every Thursday. Our weekly culture newsletter – from books and art to pop culture and memes – sent every Friday. A weekly round-up of some of the best articles featured in the most recent issue of the New Statesman, sent each Saturday. A newsletter showcasing the finest writing from the ideas section and the NS archive, covering political ideas, philosophy, criticism and intellectual history - sent every Wednesday. Sign up to receive information regarding NS events, subscription offers & product updates.
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
I consent to New Statesman Media Group collecting my details provided via this form in accordance with the Privacy Policy

The debt claimed from Sudan is effectively made-up money. Yet it could help the UK meet aid targets in the years ahead.

In June, South Sudan gained its independence. The north of Sudan has agreed to keep all the debt, so long as it is allowed to enter an international debt relief scheme within two years.

If and when Sudan achieves debt relief, the UK will “cancel” the debt. Given no repayments have been received for a quarter-of-a-century, this will cost nothing. The government then intends to treat this cancelled debt as aid, and count £678 million — or whatever figure has been reached by then — as a contribution to meeting the target to spend 0.7 per cent of national income on aid.

Counting debt relief as aid is nothing new. In the years following the invasion of Iraq, the UK cancelled 80 per cent of the debt inherited by Iraqi people from Saddam Hussain. The cancellation was counted as aid even though the UK loans had included money for Saddam to buy weapons and parts for a chemical weapons factory.

However, the reduction in Iraq’s debt, as well as that of Nigeria, did not count towards meeting aid targets. Under current plans, any debt reduction for Sudan will too.

The UK’s approach reinforces a narrative that all debts have to be paid, and it is an act of great charity and benevolence on the part of creditors to cancel them. But questions need to be asked about the origin of loans, and responsibilities of lenders as well as borrowers.

In Sudan’s case, the UK government says it does not even know what the original loans to dictator Gaafar Nimeiry were for. The government could learn the lessons of past failed lending by implementing Liberal Democrat policy to audit all debts, something Vince Cable, the minister responsible, has so far not been minded to do.

But in Sudan’s case, we know the loans from UK Export Finance were driven by Britain’s own commercial interest to win contracts and strategic interest in the Cold War. The repayments then became too high because of drought, flood and global economic crisis. The debt was too big in the 1980s and as with all debts that are too big, needed to be repudiated, cancelled or reduced. Instead the debt was kept on the books and inflated by ridiculous interest rates.

In total, Sudan is said to owe $12 billion to western governments. Mostly due to the same high interest rates charged by the UK. If and when this is formally cancelled, if it is all used to meet aid targets, it could knock 12 per cent off official aid for one year.

Treating debt relief as charity will allow aid targets to be met at no cost. It will also sweep under the carpet a history of bad lending, allowing the same mistakes to be made again.

Tim Jones is policy officer at the Jubilee Debt Campaign