(e) Debt service coverage

Level annual debt service

Debt service coverage and bond interest

To address the debt burden problem, many African countries at first resorted to repeated debt rescheduling which focused on debt service flows, resulting in steadily increasing debt stocks and related service payments.

Lower interest rates on loans are available in capital markets to borrowers who have ample debt service coverage , which is defined as total revenues available for debt service as a percentage of the required debt service.

The portion of the assessment due for plan debt service, or assessed plan debt service , would be 10 per cent of 52 million, or 5.2 million.

Construction fund earnings would be applied to the annual debt service requirement, thereby reducing the net annual debt service to be met by the set aside procedure.

Haiti Stock of arrears and projected debt service, 2000 2005

Currently its debt service status amounts to 115 million annually.

The situation is further exacerbated by the country's debt service problems.

Noting with concern the continuing debt and debt servicing problems of heavily indebted developing countries as constituting an element that adversely affects their development efforts and economic growth, and stressing the importance of alleviating once and for all, where applicable, their onerous debt and debt service burden with the aim of attaining a sustainable level of debt and debt service,

Debt reduction, either through stock of debt reduction or debt service reduction based on a concessional rescheduling, will continue to be considered only in exceptional cases.

In Lebanon, persisting high levels of public debt forced the Government to direct much of its expenditure towards debt service.

The combination of all these factors contributed to an acceleration of government debt accumulation and made debt service difficult or impossible.

In some countries Argentina, Ecuador and the Russian Federation the debt crisis led to a suspension of payments or defaults on debt service.

Of the 42 countries qualified as potentially eligible for debt relief in September 2004, 27 had received debt service relief of 32 billion.

For instance, the SADC countries have a total debt stock of 78.1 billion, with an annual total debt service amounting to 6.8 billion.

However, while the HIPC initiative has removed the debt overhang for many countries, the burden of debt service payments remains high (see table 1).

In order to achieve the ample debt service coverage and taking into account the historical pattern of assessment payments by Member States, investors would probably require 250 per cent of the normally required debt service percentage to be set aside from assessment payments early in the calendar year, thereby allowing the total annual debt service requirement to be reached more quickly every year.

There have been reductions in the ratios of debt to gross national income and debt service to export earnings since 2000, due to strenuous efforts at repayment by developing countries and some debt relief.

Against the backdrop of better growth and export prospects in developing countries in general, the recent trends revealed a smaller accumulation of debt and lower debt service burden.

Total debt service for developing countries decreased by about 38 billion (10 per cent) from 2003 to 2004.

debt service coverage reduces the financial risk to investors and translates into lower borrowing costs for the borrower.

Taxation remains the dominant source of government revenue in most developed countries. But the role of debt finance has been growing and, with it, the need to refinance old debt when total expenditure, including debt service, exceeds total revenue.

Ample debt service coverage for a United Nations bond could be created by permitting the trustee to set aside a higher than required percentage of assessment payments tendered by Member States to permit the accelerated collection by the bond trustee of the total annual debt service requirement.

The ratio of debt service to exports for these countries has declined to an average of 10 per cent.

Kenya continues to struggle with its huge debt burden, with about 30 per cent of all our revenues from the export of goods and services going to service the external debt.

Before the HIPC Initiative, eligible countries spent, on average, slightly more on debt service than on health and education combined. Now, debt in the 28 countries for which relief has been approved has declined by an average of two thirds, while their expenditures on health, education, and other social services have risen to almost four times the amount of debt service payments.

The bonds can be structured to mature (i.e., come due) over 25 years, resulting in level annual debt service requirements.

This distinction between foreign and domestic debt is particularly important in the context of the euro crisis, because eurozone countries cannot devalue to increase exports if this is required to service foreign debt. And the evidence confirms that the euro crisis is not really about sovereign debt, but about foreign debt.

(b) Debtor creditor dialogue to explore alternative market based approaches for dealing with debt service difficulties in order to avoid defaults

Reduction of debt service burdens can release domestic resources that can be allocated to slum upgrading or other urban developing activities.

This week, Greece defaulted on its payments to the IMF, rightly choosing pensions over debt service. The country s creditors should now negotiate a consensual debt reduction through some combination of lower (and fixed) interest rates, reduced face value of debt, and very long maturities.

Under the Millennium Challenge Account, attainment of performance criteria by countries receiving grants replaces the debt service of traditional bilateral loan assistance.

Guatemala's debt service as a percentage of its exports of goods and services (indicator 42) is one of the lowest in the region.

That is equivalent to about five times aid flows and budget savings from debt service relief provided by high income countries in 2002.

The increase in exports of goods and services and the decline in debt service for developing countries as a group resulted in a significant decline in the debt service to exports ratio, from 17.2 per cent in 2003 to 12.5 per cent in 2004, marking the largest decline in this ratio in the last 20 years.

Assuming the contribution was made early in the calendar year, a Member State with a 10 per cent regular budget assessment would have 250 per cent of the assessed plan debt service amount retained for plan debt service by the trustee, which in this example would amount to 13 million (250 per cent of 5.2 million 13 million).

It had been estimated that every percentage point increase in debt service in low income countries reduced public investment by about 0.2 per cent.

The conclusion is clear Greece s debt service burden is too large, and it must be reduced. This can be accomplished in two ways sharply cutting the interest rate paid by Greece, or reducing the face value of the debt.

In spite of this, the Government remains unable to pay the backlog of civil service arrears from 2003, domestic debt or salaries for January 2005.

Today, sovereigns are more often democratically elected governments, but they still borrow. And they still occasionally find themselves in situations in which their debt has become unsustainable and they need outside help to continue to meet their debt service obligations.

But, by lowering long term interest rates, central bank purchases of government debt can help contain government debt service. In this way, QE can keep solvent a government that otherwise would be insolvent a nightmare scenario for a central bank.

Given that balance sheet accounting is conducted according to a curious mix of nominal and market values, it can be opaque and easy to manipulate. If prices and thus average debt service capacity fall, the real burden of the debt increases.

But that debt costs only 1 2 of GDP to service, allowing Japan to remain solvent. Likewise, Greece can now manage its public debt burden, which stands at about 175 of GDP, thanks to the ultra low interest rates and long maturities (longer than those on Japan s debt) granted by its European partners.