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Assessments of Africa’s financing needs and prospects for debt relief need to be put in the wider context of financing for development. The paper argues that debt relief is an important source of finance for African countries but on its own will be woefully insufficient to allow African countries to finance the Millennium Development Goals (MDGs) and achieve long-term debt sustainability. The paper also examines the rationale for further debt relief and the ways in which debt relief can be financed.

The paper finds that debt relief should be financed as a) it has more political resonance and is more efficient than new aid, and b) it reduces the burden of managing aid and acts like budget support by increasing recipient ownership. This paper reviews several proposals for scaling up financing of Africa’s development including debt relief.

The paper proposes that in order to finance development consistent with MDGs the international community should take the following 5 steps:

• increase grant flows to allow HIPCs to borrow less to fund the MDGs
• ensure a more equitable balance of country grant/aid allocations
• increase grant flows where the country has higher domestic debt burdens
• allow countries to borrow more (on concessional terms) if grants cannot be mobilised to fund the MDGs
• provide adequate grant contingency financing to protect against (or compensatory financing to respond to) shocks, to avoid new borrowing

In addition, the paper proposes:

• utilisation of IMF resources for funding debt relief, through either gold reinvestment or sales, or using SDR allocations to create additional global reserves for reallocation to debt relief
• increasing multilateral development bank charges for middle-income countries to provide additional funding for debt relief for low-income members
• reviving and restructuring a debt reduction facility expanding on the existing multalteral financial and technical assistance for debt buy-backs

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