VOL. XLVI

No 15

14-April-2003

IRAQ

Iraqi External Debt Stands At $104-129Bn, Says Report

Iraq’s external debt stands at $103.5-129.4bn, according to a recent report compiled by Richard Segal of Exotix, a London-based specialist emerging market debt trading firm. Iraq’s uncertain debt obligations are just one of the many problems which will face the country as it tries to rebuild following the fall of Saddam Husain’s regime. Iraq borrowed heavily during the 1980s to help finance its war with Iran, and although there are no widely-accepted figures for the country’s external debt, data presented to the UN in 1990 put the figure at $42.1bn (not including bilateral advances from Saudi Arabia and Kuwait MEES, 13 May 1991). The report notes that the current figures for external debt have been compiled by summing individual creditor claims gathered from conventional news and data sources, but that these numbers are quite close to the UN data if total principal and accrued interest are decompounded. The level of total external debt also depends on the treatment of selected advances from Saudi Arabia and Kuwait, which these countries consider loans and Iraq considers grants.

The Exotix figure is in line with estimates of Iraq’s external debt reported by the US Center for Strategic and International Studies (CSIS) which ranged from $62bn to $130bn (MEES, 10 March). The US Department of Energy in 2001 put the figure at $62.2bn, while the World Bank/Bank for International Settlements estimate was $127.7bn, including $47bn for accrued interest. However, individual figures for debt to creditor countries differ between the CSIS and Exotix reports (see table). This may in part be due to the use of estimates from different years in the CSIS report, and it illustrates the difficulty in coming up with definitive figures for Iraqi debt, a problem noted by Mr Segal.

Iraq’s Current External Indebtedness

($Bn)

Source: Iraq: Just the Debt, Exotix Ltd, April 2003 and A Wiser Peace: An Action Strategy for A Post-Conflict Iraq: Background Information on Iraq’s Financial Obligations, CSIS, 23 January 2003.

1 Compiled from published articles, creditor statistical reports and from interviews with experts.

2 Issued in the name of state-owned commercial bank Rafidain Bank, guaranteed by the central bank and acting on behalf of the government.

3 Derived from multiple sources.

4 Dates in brackets indicate year of stated debt accumulation.

5 According to CSIS, there are known to be creditors in Egypt, although the exact amount of this debt is unknown.

The debt calculation by Exotix also intentionally excludes compensation/reparations claims which are processed by the UN Compensation Commission (UNCC). The UNCC has so far awarded $43.8bn for claims of $150.2bn, of which $16.7bn has been paid out, leaving a liability of some $27.1bn. Unresolved claims for compensation stand at $197.4bn (see MEES, 10 March for full breakdown of UNCC claims, awards and payouts). Mr Segal notes that “This is an added complication for debt holders, because these claims are higher in the priority scale (if verified, the claims are processed against payment-account receipt of hard currency at little or no discount).” He adds that there is a school of thought which holds that many of the claims against Iraq fall into the category of “odious debt” and should be disqualified on these grounds. In practice though, he says, all commercial claims which have been legally contracted are likely to remain officially acknowledged.

The list of creditors compiled by Exotix is fairly comprehensive, says the report, but it adds that published data may represent significant undercounts. Discrepancies between published figures reflect lack of distinction between original principal, overdue interest and reparations claims (both verified and unverified), as well as “citations of rumors, hearsay and educated guesses”. Many of the reported liabilities also involve “debts in kind” rather than cash claims, while others are in dispute by authorities, either because the accuracy is unverified or because of disputes about the form of capital advance. The assessment by Exotix concludes that the net result is an undercounting of 20%-30%. This leaves a ratio of overdue principal and interest on contracted loans at roughly 400% of GDP (assuming PPP-based GDP at approximately $30bn, or about $1,150 per capita), says the report.

Legal Considerations

Finally, the Exotix report says that the company expects to see “a surprising number of claims in which the Statute of Limitations has lapsed.” This may give the regime that replaces Saddam Husain an “innovative means to eradicate a good portion of its debt by only acknowledging strong legal claims and the claims of creditors who may provide ongoing commercial benefits to the economy. This might obviate the need for aggressive debt forgiveness across all London Club debt.”