£1 billion of debt cancellation to count as aid

The UK Government has admitted it will count £1 billion of debt cancellation as aid over the next four years.

UK Secretary of State for International Development Andrew Mitchell has said debt cancellation, primarily by the UK’s Export Credit Guarantees Department, will be counted as aid over the next four years. This is expected to inflate the amount of aid the government says it gives by £1 billion.

The Export Credit Guarantees Department, or the Department for Dodgy Deals, accounts for 95 per cent of debt owed by developing countries to the UK. If and when any of these debts are cancelled it is all counted as ‘aid’. Of this 'aid', the Dodgy Deals Department normally writes-off about 90 per cent of the claimed debt, but 10 per cent of real money is also given to them out of the UK aid budget. Over recent years, the Department for Dodgy Deals has been given £100 million from the UK’s Department for International Development.

In a parliamentary answer, Andrew Mitchell has said he expects 2.5 per cent of UK aid over the next four years to come from debt relief; £250 million a year. Around half of this will be money given to international institutions such as the IMF and World Bank to pay them for cancelling debts, whilst the other half will be debt written-off directly by the UK government.

Over the last five years £4.2 billion of debt cancellation by the UK government has counted as aid. Much of this debt was interest on original loans.

However, developing countries not included in debt cancellation schemes, such as Kenya, Indonesia and Pakistan have paid an average of £700 million a year over recent years to the Department for Dodgy Deals. For example, the people of Indonesia have given the department £500 million in the last four years, much of which was repaying loans given to the former dictator General Suharto to buy arms which were used against his own people.