IMF, World Bank To Improve Debt Analysis Tools

The International Monetary Fund and World Bank have recommended improving the way they gauge the debt sustainability of poor countries as a new group of lending nations, such as China and India, emerges.

A new report by the IMF and World Bank "¦ shows China is by far the largest of the six new creditor nations it has identified. Kuwait, Brazil, India, South Korea and Saudi Arabia are the others. The institutions regularly evaluate the so-called Debt Sustainability Framework, which is used to assess whether borrowing countries are amassing a troublesome level of debt.

However, this year's review comes amid concerns by the US and other developed countries that African nations whose debts have been written off by the international community are taking on excessive new burdens. The worry has been fueled by the surge in Chinese investments in Africa, mainly in oil and natural resource businesses, and increased interests by export credit agencies and commercial banks in countries with less debt.

According to the report, China was by far the largest creditor in the group, with claims of $5 billion at the end of 2004, double the level of 10 years earlier. Kuwait, the second-large creditor in 2004, had claims of $2.5 billion. Those numbers likely have risen significantly since then, the report said, but it acknowledged the hard evidence was still lacking.

The report also acknowledged that the terms on the loans extended by the new group of emerging creditors to poor countries is not well known. 'Many have nontraditional financial structures, including implicit or explicit collateralization, foreign exchange clauses, and variable fees, that hamper the assessment of their impact on debt sustainability,' the report added. 'Given the size of these loans, more extensive information from creditors on their modalities and the terms of their lending to (low-income countries) would enhance the quality' of assessing the debt, the report added. The IMF and World Bank have called on these emerging lenders to share the terms of their agreements with the rest of the donor community. "¦" [Reuters/Factiva]

By World Bank