This is a joint post with Ross Thuotte.
Two countries alone hold over 25 percent of Sudan's crippling $35 billion debt burden. I'll give you three guesses at who they might be. China? United States? France? All would be reasonable choices. But, they also would be wrong. In fact, Sudan's two largest creditors are Kuwait and Saudi Arabia. Sudan owes the Kuwaiti government roughly $6 billion and the Saudi Government over $3 billion. Despite a flurry of recent loans, China is only number five on the list. These rankings represent more than monetary values owed - rather, they illustrate who will have the most important voices around the debt workout table when the time comes.
Over the years, Kuwait and Saudi Arabia provided Sudan with nearly sixty individual loans. Almost all of them during the 1970s and 1980s. Many of these loans financed large-scale infrastructure projects, such as roads, ports, and dams. However, the Kuwaitis and Saudis also extended well over $1 billion in unrestricted cash loans. When the Sudanese government fell behind on its payments, these loans exploded due to the accrual of interest and steep penalties. By illustration, Sudan now owes $2.8 billion on a single $130 million Kuwaiti loan from the late 1970s. This situation is very common in poor countries. Often, the largest debt obligations are tied to longstanding unpaid claims that grow exponentially over time (more on that in my next post).
Between 2010 and 2014, the Sudanese government is on the hook to pay the Kuwaiti and Saudi governments about $780 million. While large in absolute terms, this represents only about one-eighth of Sudan's total debt service obligations. This is because most of the respective loans are old and entirely in arrears (i.e., the scheduled debt service have already come and gone without payment). According to the Bank of Sudan, the government has roughly $2.2 billion in debt payments coming due to China over the same period. In contrast to Kuwait and Saudi Arabia, all of China's existing loans have been provided in the last fifteen years. And, Sudan largely has kept current on its Chinese loans as a way of ensuring that the funding spigot is kept open. As such, Kuwait and Saudi Arabia are the most important creditors in terms of overall exposure; but less so in terms of near-term liquidity constraints on the Sudanese government.
Why does all of this matter? Because creditors like Kuwait and Saudi Arabia will play a critical role in dealing with Sudan's crippling debt burden - both in terms of dividing its obligations between Khartoum and Juba as well as providing debt relief down the road. (See my new CGD working paper for detailed analysis and scenarios). Unfortunately, Kuwait and Saudi Arabia have an unreliable track record on this front. Under the HIPC Initiative, both countries have delivered only a modest portion of committed debt relief. Put differently, Paris Club, multilateral agencies, and other creditors collectively agreed to deliver a specific level of relief to poor countries. And, Kuwait and Saudi Arabia (and many other creditors) have not followed through. In the case of Sudan, Paris Club creditors likely will be unwilling to cancel their debts if other creditors fail to step forward. Therefore, potential Kuwaiti and Saudi intransigence could jeopardize an entire debt relief package.
Given this - and the massive size of their claims - the Sudanese authorities and other stakeholders should begin consultations with the Kuwaiti and Saudi governments now to gauge their appetite for creative solutions. If they are not ready and willing, then the road ahead will likely become even more complicated, painful, and uncertain.