Development assistance through public financing is utilized to promote economic growth in developing countries. However, if it becomes difficult for those countries to repay the funds received due to the deterioration of their macroeconomic environment or other reasons, they may become overburdened with excessive debt, which can inhibit their sustainable growth. Such issues must essentially be resolved by the indebted countries themselves by putting forward reforms and other efforts. However, should their excessive debt stand in the way of their development path, the international community needs to respond.

In regard to international efforts to address debt issues, debt relief measures have been implemented through efforts such as the Enhanced HIPC Initiative Note 7 for Heavily Indebted Poor Countries (HIPCs)* and the Paris Club’s Note 8 Evian Approach. Note 9 However, in recent years, there are some cases among low-income countries in which they accumulate official debt again, despite having received debt relief. Thus, there are concerns in regards to their debt sustainability. The reason behind this situation on the countries’ side is pointed out as being that indebted countries lack the capabilities to gather and disclose their own debt data and appropriately manage their debt. The reasons on the creditors’ side are pointed out as being that the funding providers are diversified and loans from emerging donor countries and private creditors, including the provision of untraditional and non-concessional loans such as secured loans, have increased, while the proportion of Paris Club loans is decreasing.

In April 2020, in order to respond to the impact of the spread of COVID-19 on low-income countries, the G20 and Paris Club agreed on the “Debt Service Suspension Initiative (DSSI),” which temporarily allowed these countries to suspend official debt service payments. Furthermore, in November 2020, the G20 and Paris Club agreed on the “Common Framework for Debt Treatments beyond the DSSI (Common Framework).” Note 10 In the G20 Rome Leaders’ Declaration issued at the G20 Rome Summit in October 2021, it was stated that preliminary estimates point out at least $12.7 billion of total debt service was deferred, under the DSSI, between May 2020 and December 2021, benefiting 50 countries. Since the DSSI expired at the end of December 2021, debt measures under the “Common Framework” need to be quickly implemented going forward (see also “A. Economic and Financial Support to Respond to the Crisis” for Japan’s response in relation to this).

One of the factors that can significantly affect debt sustainability of countries, including low-income countries, is infrastructure investment. Infrastructure projects such as ports and railroads come at a large cost, and debt repayments can become a significant burden for the borrowing countries. When financing infrastructure projects, it is necessary for both the borrowers and lenders to fully consider debt sustainability, and loans without consideration of debt sustainability are criticized as a “debt trap” by the international community.

The “G20 Principles for Quality Infrastructure Investment” Note 11 incorporated the importance of considering macro (country)-level debt sustainability as well as project-level financial sustainability. They also include the principles of openness, transparency, and economic efficiency in view of life-cycle cost. Each G20 country is required to implement these principles as an international standard in their infrastructure investments and to work to ensure that these principles are implemented in the countries receiving loans.

Kyrgyz Republic

Project on Improvement of Human Resources Development System of the State Tax Service under the Government of the Kyrgyz Republic
Technical Cooperation Project (July 2017 – November 2020)

Since the Kyrgyz Republic joined the Eurasian Economic Union in 2015, the country’s domestic tax system has considerably changed. Developing the capacity of staff members involved in taxation has become essential for improving their understanding of the tax system. There are around 2,200 staff members of the State Tax Service Head Office and 62 branch offices around the Kyrgyz Republic*1 and its land of which 98% is mountainous, divided from north to south and from east to west by 4,000 meter-class mountain ranges. Therefore, there have been cases in which some regional staff have had difficulty participating in training in the capital city Bishkek. Moreover, the training systems in the capital were themselves not adequately developed.

Japan has therefore supported human resources development utilizing a distance learning (e-learning) system with the aim of improving the capacity of the regional staff.

Japanese experts worked with the State Tax Service under the Government of the Kyrgyz Republic (STS) to formulate a human resources development plan and develop digital teaching materials that were adapted for the Kyrgyz language for three courses for new staff, middle staff, and staff in charge of educating taxpayers. They developed a system taking into account local realities, such as the introduction of smartphone applications for staff unable to learn via computer, and continued project activities after the COVID-19 pandemic. As a result, 585 staff members participated in training, greatly above the original target of 300 participants, with over 90% of course participants expressing satisfaction.

Furthermore, during the project period, STS itself proactively strengthened their organizational capacity to roll out training, including the development of two training courses with its own initiatives and the addition of two more staff members in charge of training. Based on the outcomes of this project, it is expected that STS will implement continuous human resources development going forward whereby tax administration in the Kyrgyz Republic is improved.

A tax officer in Bishkek participating in taxation training for new staff, using the distance learning system

Members of STS Working Group and JICA experts working together to develop training materials (Photo: Kinzai Institute for Financial Affairs, Inc.)

*1 As of October 2020 (Project Completion Report).

●Japan’s Efforts

In providing ODA loans, Japan makes its decisions based on the careful consideration of the cooperation structure, debt repayment ability, operational capacity, credit protection measures, etc. of the recipient countries. In most cases, the recipient countries do repay their loans, but there are also exceptional cases in which they face serious difficulties in their repayment due to events that could not be foreseen when they received ODA loans. In such cases, based on international agreements such as the aforementioned Enhanced HIPC Initiative and Paris Club agreements, Japan takes debt relief measures such as debt rescheduling, Note 12 cancellation, and reduction only when they are absolutely necessary. As of the end of 2020, Japan has cancelled ODA debts worth a total of approximately ¥1.129 trillion toward 33 countries since FY2003. However, in 2021, as well as in 2020, no debt cancellation measures have been taken.

From the perspective of ensuring debt sustainability, an important element of the “G20 Principles for Quality Infrastructure Investment,” Japan is engaged in improving the capabilities related to public debt and risk management among management personnel at the finance ministries of developing countries through contributions to international organizations, as well as through training and the dispatch of experts by JICA. For example, Japan has provided a training program on contingent liability risk management in cooperation with the World Bank for 41 government officials from 21 countries, including Ghana and Zambia, and made new contributions to the trust funds of the IMF and World Bank, supporting the capacity building of indebted countries.

1. Note 7: An initiative agreed at the Cologne Summit (Germany) in 1999.
2. Note 8: An informal group of creditor countries to discuss rescheduling of public debts. The name of the Paris Club derives from the fact that France has chaired meetings and invited creditor countries to Paris upon requests from indebted countries.
3. Note 9: A new Paris Club approach to debt restructuring (the Evian Approach). Debt relief measures which focus more on the debt sustainability of recipient countries, especially low-income and middle-income indebted countries other than HIPCs, and take case-by-case measures corresponding with the circumstances of each indebted country.
   
4. Note 10: The “Common Framework” is the first agreement to jointly determine the terms of debt measures in a manner that involves emerging donor countries and other non-Paris Club countries. See also the glossary.
5. Note 11: See the glossary “Quality Infrastructure.”
6. Note 12: Debt rescheduling is one form of debt relief, wherein payment is postponed for a certain period of time in order to reduce the burden of debt payment on the indebted country.

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