Since the early 1980s it has become increasingly clear that the external debt situation of the countries of Sub-Saharan Africa is one of the more severe of the many obstacles to growth and development in the region. Since the mid-1980s a variety of measures have been introduced - or at least proposed - with the purpose of reducing the debt burden and improving access to external financing, mostly in the context of economic reform programmes.
One of the options that have long been available to countries that experience acute balance-of-payments problems is to request a rescheduling of external debt obligations. The process of rescheduling of claims held by bilateral official creditors takes place in the Paris Club, where a large number of countries in Sub-Saharan Africa have reached agreements with their creditors since the late 1970s. At least initially, these reschedulings were carried out under the assumption that the debtors would be able to restore balance-of-payments viability in the medium term. In the long term they were expected to be able to fulfil all their debt obligations. The main component of a rescheduling agreement was therefore a decision to postpone a proportion of the repayment of principal that would fall due during a given time period, usually twelve to eighteen months. The purpose of this postponement was to ease temporarily the strain on the debtor’s balance of payments while necessary adjustment measures were being implemented. Principal falling due was only postponed, and was subject to market interest. Hence, debtors received no debt reduction in present value terms.
However, it soon became apparent that such temporary relief in many cases was insufficient. Debtors often faced new crises not long after a rescheduling exercise was concluded. Creditors have come to accept that, in many cases, it is unlikely that their claims will be honoured in full. Nevertheless, there is less than full agreement between creditors about the best way of translating this insight into specific policy toward countries with a large overhang of external debt.