Paris III provides some relief but debt situation still perilous

The exuberant Paris III conference provided $7.6 billion in concessional pledging; certainly, a positive outcome as concessional loans—loans with flexible terms for the borrower—are more favorable than market borrowing in terms of debt service cost. The donors pledged $1.3 billion in private sector loans reflecting their concern that the sector has been constrained by stringent high-cost financing. A key issue is how these pledges, when they are realized, will impact government finances. Taking away the $1.3 billion earmarked for the private sector through the voluntary intermediation of the private domestic banking sector and $750 million in grants, leaves $5.6 billion available for government financing between now and 2011. Preliminary reports indicate that out of the $5.6 billion, budgetary support (funds not requiring conditionality) is not expected to exceed $1.3 billion. Of remainder of the financing, $4.3 billion will be tied to the donors’ reform package, implying a rise in spending