The UK government is considering giving aid money directly as loans, either through creating a new loan giving institution or a lending window within the Department for International Development (DfID). An announcement is currently expected in September.
A substantial amount of UK development aid is already given as loans through contributions to multilateral institutions, primarily the World Bank, but also regional development banks and funds.
Jubilee Debt Campaign calculated that in 2010, $1.26 billion of UK aid money was given to multilateral institutions to then be used as loans. This was the second highest amount of any OECD country, after Japan ($2.23 billion).
Jubilee Debt Campaign has produced a paper arguing why the UK should not turn even more aid into loans. This points out that:
- There is already a boom in lending to developing countries (see stories in this update on Ghana and Senegal). A representative of Agence Française de Développement told a meeting of European NGOs in June 2013 that there is currently a glut of cheap loans that the agency is hard pressed to find projects to fund as they are effectively competing with the Germans and the European Investment Bank to find viable projects.
- There is no mechanism for resolving a debt crisis when it arises, and the UK government has continually opposed the creation of any fair and transparent debt arbitration process.
- The IMF and World Bank Debt Sustainability Framework does not prevent debt crises from arising; it pays no attention to the impact of debt burdens on poverty and inequality, it is biased because the Fund and Bank are major lenders and creditors, it fails to take sufficient account of the impact of economic shocks, it pays too little attention to debts owed by the private sector, and it does not assess what lending is used for.
- The UK government already ignores the Debt Sustainability Framework anyway; this includes climate loans to Grenada, despite the island being at high risk of debt distress (and now in default), and non-concessional loans to the Gambia, despite the West African country being at moderate risk of debt distress.