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 11 for Heavily Indebted Poor Countries (HIPCs) Glossary and the Paris Club’s Note 12 Evian Approach. Note 13 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 order to address the impact of the COVID-19 pandemic on low-income countries, the G20 and Paris Club launched the “Debt Service Suspension Initiative (DSSI)” Glossary in April 2020 and implemented measures that temporarily allow these countries to suspend official debt service payments. It is estimated that at least 12.9 billion US dollars of total debt service was deferred under the DSSI between May 2020 and December 2021, thereafter benefiting 48 countries. Note 14 Although the DSSI expired at the end of December 2021, debt restructuring will be more swiftly implemented under the “Common Framework for Debt Treatments beyond the DSSI,” Glossary agreed on in November 2020.

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. Loans without consideration of debt sustainability are criticized as a “debt trap” by the international community.

The “G20 Principles for Quality Infrastructure Investment” Note 15 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.

● 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. Most of the recipient countries do repay their loans. However, 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, Note16 cancellation, and reduction only when they are absolutely necessary. As of the end of 2022, Japan has cancelled ODA debts worth a total of approximately 1.129 trillion yen toward 33 countries since FY2003. However, in 2022, as well as in 2021, no debt cancellation measures have been taken.

At TICAD 8, Japan announced financial cooperation of up to 5 billion US dollars under the fifth phase of the “Enhanced Private Sector Assistance for Africa” Glossary (EPSA5) covering the period from 2023 to 2025. This includes a new special window of up to 1 billion US dollars to support countries that are engaging in reforms for enhancing debt transparency and sustainability and thereby making steady and significant progress in their debt situations.

From the perspective of ensuring debt sustainability, an important element of the “G20 Principles for Quality Infrastructure Investment,” Japan is working on the improvement of 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, in FY2021, Japan conducted a training program on contingent liability risk management in cooperation with the World Bank for 40 government officials from 20 countries, including Ghana and Zambia. Japan also made new financial contributions to the respective trust funds of the IMF and World Bank, supporting the capacity building of indebted countries.

1. Note 11: An initiative agreed at the Cologne Summit (Germany) in 1999.
2. Note 12: 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 13: A new Paris Club approach to debt restructuring (the Evian Approach). Debt relief measures 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 14: See World Bank website (https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiative)
5. Note 15: See the glossary “Quality Infrastructure.”
6. Note 16: 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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