UK ministers are planning to use cancellation of a theoretical debt to help meet their overseas aid target.
The Department for International Development (DFID) have admitted that if the UK writes off a debt owed by Sudan, the money concerned will be counted as aid. But critics point out that Sudan has made no repayments for 27 years and that nobody realistically expects them to do so.
DFID made the admission in an email to Jubilee Debt Campaign. The NGO calculates that cancellation of Sudan's debt could account for around seven per cent of the UK's aid budget.
The organisation described the debt owed by Sudan as “made-up money”, because it is based on apparently arbitrary interest rates and was not expected to be repaid. Cancelling the debt will not cost the UK government anything, nor will it result in any more money or resources being available in Sudan.
Sudan's current debt to the UK of £678m ($1 billion) is based on interest rates of 10 - 12 per cent every year since the country defaulted on its debt in 1984. The debt was then only £173 million.
The publicity over the admission is likely to come as an embarrassment to the Conservative-led coalition, who have placed great emphasis on their “compassionate” credentials by committing themselves to spending 0.7 per cent of GDP on overseas aid.
“Any debt cancellation for Sudan is not aid,” insisted Tim Jones, senior policy officer at the Jubilee Debt Campaign, “The debt comes from loans to win business for Britain in the Cold War. Most of the debt is made-up money based on ridiculously high interest rates.”
Jones insisted, “The debt should be cancelled because it is unjust and unpayable, not used to meet targets and massage figures”.
Sudan is expected to enter the international debt relief scheme in the next two years. If, for example, Sudan’s debt were cancelled in 2014, it would stand at £740 million, totalling seven per cent of the aid budget.
The money is owed to UK Export Finance (formerly ECGD), a unit of Vince Cable’s Department for Business. UK Export Finance has been nicknamed “the Department for Dodgy Deals” due to its secrecy and traditional support for arms sales and fossil fuels.
The department say that they do not know what exports the original loans in the 1970s and 1980s were for.
Tim Jones added, “Vince Cable needs to come clean and audit all the debt claimed by UK Export Finance, to find out who loans really did and did not benefit.”
Questioned on the issue by the Financial Times, DFID insisted that previous governments also counted debt cancellation as aid. Critics point out that while it was regarded as aid, it was not counted towards aid targets.
Sudan owes Western governments $12 billion in total. Other countries are charging similarly high interest rates as the UK. Jubilee Debt Campaign say that if all western countries plan in the same way as the UK to use any debt cancellation to meet aid targets, this could knock $12 billion off aid spending in one year: around 12 per cent of official aid.