Official loan assistance is intended to be utilized to promote economic growth in developing countries. However, when developing countries face difficulties in repaying their debts due to failures in economic and fiscal policies, changes in the international economic environment, or other reasons, their debts may put a strain on essential fiscal spending in areas such as health, education, and the environment, thus hindering sustainable growth. While debtor countries must resolve this issue themselves through various efforts, including economic and fiscal reforms, the international community needs to respond when excessive debt stands in the way of the debtor countries’ sustainability and development.

In regard to international efforts to address debt issues, debt relief measures have been implemented including through the Enhanced HIPC InitiativeNote 34 for Heavily Indebted Poor Countries (HIPC)Glossary and the Paris Club’sNote 35 Evian Approach.Note 36 However, in recent years, despite receiving such debt relief, some low-income countries have accumulated private debt in addition to public debt, thus raising renewed concerns about their worsening debt sustainability. This situation can be attributed, on the debtors’ side, to a lack of capacity to collect and disclose their own debt data and to manage debt appropriately. On the creditors’ side, it has been pointed out that the funding providers have diversified the proportion of loans increasingly coming from emerging donor countries and private creditors, including the provision of unconventional and non-concessional loans such as collateralized loans, while the proportion of loans by Paris Club creditors has been decreasing. Furthermore, in the last few years, policy rate hikes in Western countries have led to higher financing costs for developing countries, raising concerns about liquidity constraints in these economies. The international community needs to work together to address the debt problems of developing countries, which could also affect the economies of lenders.

The COVID-19 pandemic has had a serious impact on the debt issues of low-income countries. In response, the G20 and the Paris Club launched the “Debt Service Suspension Initiative (DSSI)”Glossary in April 2020 and implemented measures to temporarily suspend repayment of public debt for low-income countries. After the expiration of the DSSI at the end of December 2021, G20 and Paris Club creditor countries work together to provide debt treatments under the “Common Framework for Debt Treatments beyond the DSSI,”Glossary which was agreed on in November 2020. Having requested the application of the Common Framework, Zambia reached a debt restructuring agreement with all creditor countries in April 2024.

One of the factors that can significantly affect debt sustainability of borrowing countries, including low-income countries, is infrastructure investment. Infrastructure projects such as ports and railroads require large investments, and debt repayments can become a significant burden for the borrowing countries. When financing infrastructure projects, it is necessary for both the debtors and creditors to fully take into account debt sustainability. Loans without consideration of debt sustainability are criticized by the international community as a “debt trap.”

The “G20 Principles for Quality Infrastructure Investment”Note 37 incorporated the importance of considering 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. At the G20 Development Ministerial Meeting in July 2024, ministers agreed that the “G20 Principles for Quality Infrastructure Investment” should be taken into account, particularly in the areas of drinking-water and sanitation services for households, workplaces, schools, and healthcare facilities to those in vulnerable situations, especially in rural and/or peri-urban areas.

●Japan’s Efforts

In providing ODA loans, Japan makes its decisions based on the careful consideration of the cooperation structure, debt service repayment ability, operational capacity, credit protection measures, etc. of the recipient countries. Most of the recipient countries make repayments as scheduled. However, there are exceptional cases in which they face serious difficulties in their repayment due to events that could not be foreseen when Japan provided ODA loans. In such cases, based on international agreements such as the aforementioned Enhanced HIPC Initiative and the Paris Club’s agreements with debtor countries, Japan provides debt relief in a limited form through debt rescheduling,Note 38 cancellation, and reduction. As an example of debt relief efforts in 2024, in November, Japan concluded a bilateral agreement with Somalia concerning a debt relief measure (debt cancellation). As of the end of 2024, Japan has cancelled ODA debts worth a total of approximately 1.1437 trillion yen for 34 countries since FY2003. In addition, Japan, as a co-chair of the Official Creditor Committee (OCC) for Sri Lanka’s debt restructuring, led the negotiation on debt restructuring, and in July, the signing of the Memorandum of Understanding on debt restructuring between the members of the OCC and Sri Lanka was completed. Following the confirmation of the Sri Lankan government’s intention to swiftly conclude a bilateral agreement with Japan, the Government of Japan decided to resume the disbursement of yen loans and other operations related to the ongoing projects in Sri Lanka.

At TICAD 8 held in August 2022, Japan announced and is currently working on financial cooperation of up to $5 billion 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 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 FY2023, Japan provided support for capacity building in debtor countries, including through training in collaboration with the World Bank for 30 administrative officers from 26 countries, including Kenya and Ethiopia, on contingent liabilities risk management, as well as through new financial contributions to the respective trust funds of the International Monetary Fund (IMF) and the World Bank.

1. Note 34: An initiative agreed at the Cologne Summit (Germany) in 1999.
2. Note 35: An informal group of creditor countries that convenes to discuss the treatment 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 debtor countries.
3. Note 36: 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 debtor countries other than HIPC, and take case-by-case measures corresponding with the circumstances of each debtor country.
4. Note 37: See the glossary “Quality Infrastructure”.
5. Note 38: 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 debtor country.

Main Text | Reference Statistics | Stories from the Field | Master Techniques from Japan to the World | ODA Topics