The Center for Global Development has just put out a hugely useful report laying out the various options for dealing with debt in a post-referendum Sudan. Sudan Debt Dynamics: Status Quo, Southern Secession, Debt Division, and Oil—A Financial Framework for the Future is the best one-stop overview I’ve seen so far for anyone interested in how the allocation of Sudan’s whopping $34.7B debt might be dealt with in the pre- and post-referendum negotiations.
The report provides an overview of Sudan’s debt history and its fall into unsustainable arrears. There’s a great graph on p. 6 for anyone wanting a visual for the cost of war on the economy, and an unsurprising list of the creditors Sudan turned to (primarily Arab Fund, China, India) after traditional creditors stopped providing new loans (the debt owed here though is small compared to what is owed to traditional creditors). The report also provides case studies on how debt was dealt with following Bangladeshi independence from Pakistan and after the dissolution of the former Yugoslavia.
In conversations with southern Sudanese government officials, I have often heard debt referenced as a bargaining chip that can work in their favor. They know the north needs to reduce its debt and hope that if they offer to take a significant share of that debt, Khartoum will respond by reducing the size of its demand for post-secession oil revenues. Then post-referendum, so the theory goes, the international community will look favorably on the new southern nation and help it reduce its debt. In other words the assumption of significant debt could be a high-value but ultimately low-cost offer for the south to make the north. But of course Khartoum understands this as well. And a point made clearly in the CGD report is that even if international creditors are open to providing a debt relief package, it will take several years for that offer to be transformed into reality (the report explains that the fastest debt clearance through the HIPC Initiative – and it’s not certain southern Sudan would even be eligible for it – – has been Liberia, and that took two-and-a-half years.)
Other southerners argue that a new southern nation should not take on any of Sudan’s debt since that would be like offering to pay off the loans that financed the war against them. (Interestingly, the CDG report tries to do an estimate of what of debt southern Sudan would acquire if debt allocation were proportioned on a “final beneficiary” analysis of where the borrowed money went and concludes that on the documentation available only 2% can be clearly apportioned to the south – a figure that will no doubt be pounced upon by those wanting to keep as much debt off the shoulders of a new south as possible).
I’m posting the one-line summaries of the report’s conclusions below, but don’t let this stand in lieu of reading the whole thing for yourself:
(1) Traditional debt relief will have a dramatic impact on debt sustainability prospects. Bilateral and commercial creditors account for nearly 90 percent of Sudan‘s external debt obligations.
(2) Heavily Indebted Poor Country (HIPC) Initiative debt relief is not a foregone conclusion.
(3) Despite being a potential security flashpoint, the disputed region of Abyei will have almost no impact on external debt dynamics under a Southern secession scenario.
(4) Different external indebtedness indicators present contradictory pictures about debt sustainability prospects under a Southern secession scenario.
(5) Income per capita levels potentially could present complications under a Southern secession scenario.
(6) Sudanese authorities should expect a long and difficult path to clearing unsustainable debt obligations.
P.S. If you don’t have a background in debt relief issues, there’s a bit of heavy lifting to do on the terminology front but you can find everything you need within the report (“Naples terms” under which Paris Club members deal with debt obligations for the poorest countries are laid out on p. 38; eligibility requirements for Heavily Indebted Poor Country (HIPC) status are laid out on p. 26).
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