THE BLOG

Sudan's Bumpy Debt Road Will Run Through Where? Vienna?

This is a joint post with Ross Thuotte.

Sudan's crippling debt burden can be compared to an enormous onion -- the story gets more and more complex as you begin peeling back the various layers.  Yesterday, we wrote about Sudan's two largest creditors -- Kuwait and Saudi Arabia.  But, there are countless other surprises beneath the surface.  Here are three more: Austria, Denmark, and Belgium.  These are not countries that one would automatically associate with Sudan.  But, they are some of its largest creditors -- collectively holding roughly $4.5 billion in claims.

Despite having a smaller GDP than almost every other Paris Club country (only Ireland is smaller), Austria's debt exposure to Sudan exceeds $2 billion.  That makes it the largest Paris Club creditor and third largest creditor overall (after Kuwait and Saudi Arabia).  Denmark and Belgium aren't far behind.  Together, these three European countries account for almost 40 percent of total Paris Club exposure -- exceeding the amount held by the trio of the United States, UK, and France.

Why would these three countries lend billions to the Sudanese government?  The truth is: they didn't.  The overwhelming majority of claims result from interest penalties accrued over the years.  Loan principal only accounts for $540 million -- or less than 20 percent of the total.  As with Kuwait, these relatively modest claims exploded once Sudan stopped repaying its loans.  And, they continue to grow every year.

Are these countries unique or is this a widespread phenomenon with Sudan?  While they may be more punitive than others, they are not outliers by any means.  At this point, almost all of Sudan's creditors are inflicting heavy penalties regardless of their political relationships or historical ties.  Overall, loan principal only accounts for about $16 billion of Sudan's $35 billion in total external debt obligations -- or a little more than 40 percent.


Source: Bank of Sudan

What kind of insights does this provide for solving Sudan's broader debt problem?  For one, it emphasizes the need for cooperation among a multitude of diverse actors -- both within and across the various creditor groups.  Regardless of geo-political clout -- the myriad of diverse creditors must ultimately approve any resulting debt agreements.  And in this case, the demands of three small economies may become incredibly important.  Like Kuwait and Saudi Arabia, they will have outsized seats at the debt workout table.  Second and more broadly, the composition of Sudan's total debt burden reveals another layer of complication.  How will the final debt package deal with interest arrears and penalties (along with principal)?  At the moment, debt discussions (such as the recent World Bank/IMF/AfDB workshop) have only begun to scratch the surface.