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17th April, 2019
Consultancy project by OCAC on behalf of Development Reimagined
China: Debt Cancellation
2
| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
Over the period 2000 to 2018, China has written off c$9.8bn of debt to other countries; this has been highly variable year-on-yearAnnual Debt Cancellations, 2000-18$USmn1
337
5
20152003 201820162004
77
2000 2001 2002 2005 2006
16
20092007 2008 2010 20112 20120
2013 2014 2017
577
435
222
18 48
838
514
0
267212
0 0
90 95
Number Cancellat
ions1 820 7 9 1 3 25 0 6 6 1 - - - 1 3 23
Significant spikes in debt forgiveness volumes in 2001 and 2007 drive high
debt write off value
Low volumes and values of debt forgiveness post-2012
Total:
$6bn Cuba cancellation
c.$9.8bn
96Cancellat
ions
1. Constant Currency terms (2018 US$)2. Includes $6bn cancellation to Cuba – although an outlier to group, and is generally excluded from analysis of general trends below
Verified debt cancellations only (including debt waiver agreements,
restructuring, and rescheduling)
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
Chinese debt cancellation sits within a history of debt cancellation by a range of other countries and multilateral institutions as well as it’s own foreign aid policy
1997 2000 2005 2010-2014 2015 2018
The ASEAN member nations and China, South Korea and Japan agreed to hold yearly talks to further strengthen
regional cooperation.
Timeline: Contextualising Chinese Debt Cancellation Policy
First Forum on China
Africa Cooperation
(FOCAC)
China’s 1st foreign aid White Paper released in 2011. 2nd
version (2014) states that between 2010-2012, China on average gave approx.
$4.4bn billion in grants and loans worldwide – of which
52% went to LDCs
OECD reports that Global Official Development
Assistance (ODA) reached $163bn in 2017 – incl.
$30bn from US, $11bn from UK & $3.8bn from UAE
Three multilateral institutions—the IMF, the International Development Association (IDA) of the
World Bank, and the African Development Fund (AfDF)— begin to cancel debt for countries that fall
under the Heavily Indebted Poor Countries Initiative (HIPC) and later the Multilateral Debt
Relief Initiative (MDRI)
FOCAC 2018 Summit $60bn new
commitments, implies further debt reductions possible
– in line with increasing Sino-
African Cooperation
NB: All numbers in $US
17 UN Sustainable Development Goals
agreed – China pledges $2bn South South Aid Fund + $3.1bn Climate Change Fund
8 UN Millennium
Development Goals agreed
(2015 deadline)
2017
So far, $99bn of debt for 36 countries (30 of which in Africa) from all donors/ multilaterals incl. China
has been cancelled under HIPC/ MDRI.
G8 countries agree to write of 100% of
debt for 18 countries, in total
worth $55bn
1996
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
The geographical distribution of Chinese debt cancellation shows a significant skew towards African countries
1 incidence
No debt relief
2 incidences
3+ incidences
Geographic Distribution of Debt Cancellation, By Frequency
Evident focus on Africa, with Central, West, and Eastern Africa mostly seeing debt cancellations during 2007-
2011 period. Southern Africa, by contrast, sees a focus shift post 2012.
No diplomatic relationship to China
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
Comparison of bilateral debt relief provided to HIPCs shows China to be in line with the USA & Germany, but behind the biggest cancellers
848
1,728
2,189 2,328
3,984
5,192
GermanyU.K. JapanChina U.S.A. France NB: Figures exclude debt relief by multilateral organisations – e.g. IMF
Total, Debt Cancellation to HIPCs, By Selected Paris Club Countries, 1998-2015$USm
1. Constant Currency terms (2018 US$), analysis excludes Cuba $6bn 2011 restructuring
Cancellations to HIPCs accounting for c.40-50% of China’s total debt
cancellations (excl. Cuba)
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
The vast majority of Chinese debt cancellation has been to APAC and Africa, within which Eastern Africa has received the largest amount (c.$1bn)
1. Constant Currency terms (2018 US$), analysis excludes Cuba $6bn 2011 restructuring
27
Total
1,291
15373
Arab State Latin America and
the Caribbean
Africa
Europe
2,208
Asia and Pacific (APAC)
3,752
3,499
308
167
1,034
Northern Africa205
Southern Africa
556
Eastern Africa
Central Africa
Western Africa
Africa Total Debt Cancellations, By Region, 2000-18$USm1
Total Debt Cancellations, By Region, 2000-18$USm1
Cancellations by Region
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
In value terms, medium HDI ranked countries are the largest proportion (c.56%); in volume terms, low HDI countries makes up the greatest share of cancellations
1.6(41%)
3.8
High0.1
(4%)
Low
Medium2.2(56%)
2017
Medium
7(7%)
33(34%)
2017
56(58%)
High
Low
95
Cancellations by HDI Rating
Number of Cancellations, By HDI Rating, 2000-2018#
Total Cancellation Value, By HDI Rating, 2000-18,$USbn1
1. Constant Currency terms (2018 US$) analysis excludes Cuba $6bn 2011 restructuring
Low HDI: <0.55Medium HDI: 0.55 to 0.7
High HDI: >0.7
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
HIPC countries represent approximately half of China’s total debt cancellations 2000-18 in both value and volume terms
2017
Non-HIPC
1.6(43%)
2.1(57%)
HIPC
3.8
HIPC48(51%)
47(49%) Non-HIPC
2017
95
Cancellations by HPIC Status
Total Cancellation Value, By HIPC Status, 2000-18,$USbn1
1. Constant Currency terms (2018 US$), analysis excludes Cuba $6bn 2011 restructuring
Number of Cancellations, By HPIC Status, 2000-2018#
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
Over the period 2000 to 2018, the majority countries (31 out of 54) have received only a single cancellationFrequency of Debt Cancellation
c.57% of countries have debt cancelled a single time…
…the number of cancellations does not have a single directional impact
on cancellation value……but multiple cancellations are more likely for countries with a lower HDI
31 (57%) One
Two
Three
10 (18%)
More than Three
11 (21%)
2 (4%)
Cancellation Country HDI Value2, By Number of Cancellations, 2000-18$USm1
Average Cancellation Value, By Number of Cancellations, 2000-18,$USm1
Number of Discrete Cancellations, 2000-18#
40
46
22
53
1. Constant Currency terms (2018 US$), analysis excludes Cuba $6bn 2011 restructuring 2. High: >0.7, Medium: 0.55 to 0.7, Low: <0.55
58%
60%
45%
100%
26%
30%
55%
16%
10%
HighMediumLow
Indicative – Low N
10
| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
Countries that have received three or more cancellations are almost all in Africa, with the highest proportion in the Eastern Africa Geographical Distribution of Debt Cancellation Frequency, 2000-2018,% of Number of Cancellations
65%
13%
13%
6%
3%
Arab States
Europe
Africa
South / LatinAmerica
APAC
50%
40%
10%
92%
8%
Three or More CancellationsTwo CancellationsSingle Cancellation
Indicative – Low N
N of Countries 31 10 13
33%
25%
25%
8%
8%
Western Africa
Southern Africa
Eastern Africa
Northern Africa
Central Africa
African Distribution of 3+ Cancellations
Analysis excludes Cuba $6bn 2011 restructuring
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
Most cancellations are for values <$100m; usually for interest-free government loans maturing at end of year
75
Sene
gal
Cam
bodi
a
Gha
na
Cub
a
Keny
a
Moz
ambi
que
Paki
stan
Cam
eroo
n
Zanz
ibar
Cen
tral/S
outh
Zam
bia
5
Gui
nea
Con
go
Buru
ndi
Suda
nR
wan
daZi
mba
bwe
205
Geo
rgia
Ethi
opia
Sier
ra L
eone
Mya
nmar
[Bur
ma]
Tanz
ania
Bang
lade
sh
Yem
enEq
uato
rial G
uine
a
Tanz
ania
/Zam
bia
Libe
ria
Serb
ia a
nd M
onte
negr
oU
gand
a
Vanu
atu
Iraq
Ango
la
102
Con
go R
ep
Ivor
y C
oast
Mau
ritan
ia246
Togo
Mal
i
3
50
Som
alia
Laos
Seyc
helle
s
Nig
er
3
Afgh
anis
tan
Cub
a
Cha
d
500
Mad
agas
car
Con
go D
R
Guy
ana
Sam
oa
Leso
tho
Cen
tral A
frica
n R
epub
licBo
tsw
ana
Eritr
ea
Kyrg
yzst
an
Gui
nea-
Biss
au
Nig
eria
490
Com
oros
29
6000
70
259
176155
141
93 92 88 84 75 75 67 64 61 53 49 4519
44 38 3330
25 22 20 19 19 15 14 12 12 12 11 7 7 7 7 6 6 6 5 3 1
Total Value of Debt Cancellation, By Country, 2000-18$USmn1
1. Constant Currency terms (2018 US$)
Outlier Cuban debt write-down part of more
complex geopolitical statement
HIPCs (Heavily Indebted Poor Countries)
Non-HIPCs (note Eritrea, Somalia & Sudan still under consideration for inclusion in HIPC)
Cuba Restructuring
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
Debt cancellation is not systematically higher for the countries with the greatest indebted difficulty (as defined by IMF)
5
40
0
35
25
101520
30
455055
75
606570
808590
In Debt Distress (7)
Low (15)
Moderate (26)
High (23)
Average Value of Debt Cancellation, By IMF Level of Debt Distress Risk2, 2000-18$USm1
Of countries receiving Chinese debt forgiveness, those with the lowest level of debt distress risk were likely to receive the largest
cancellations
Ball Size = 10 Countries
• Implies that China not making debt cancellation decisions based upon IMF categories of default risk / level of indebtedness
• Points towards other factors that drive debt cancellation decisions
Source: IMF Level of Debt Relief Data
1. Constant Currency terms (2018 US$, analysis excludes Cuba $6bn 2011 restructuring 2. (low risk = generally when all the debt burden indicators are below the thresholds in both baseline and stress tests, moderate risk = generally when debt burden indicators are below the thresholds in the baseline scenario, but stress
tests indicate that thresholds could be breached if there are external shocks or abrupt changes in macroeconomic policies, high risk = generally when one or more thresholds are breached under the baseline scenario, but the country does not currently face any repayment difficulties, in debt distress = when the country is already experiencing difficulties in servicing its debt, as evidenced, for example, by the existence of arrears, ongoing or impending debt restructuring, or indications of a high probability of a future debt distress event (e.g., debt and debt service indicators show large near-term breaches or significant or sustained breach of thresholds).
Average Cancellation
Value, $USm
Increasing Level of Debt Distress Risk
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Development Reimagined & Oxford China Africa Consultancy, April 2019
12%
48% 49%
3% 4% 1% 2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0.0
3.0
2.5
4.5
0.5
1.0
3.5
1.5
2.0
4.0
5.0
5.5
2014 20162004 2005 2006 2007 20092008 2010 2011 2012 2013 2015 2017
Debt Cancellation
Share of FDI (%)
Total FDI($USbn)
Pre-2008 significantly lower Chinese FDI resulting in higher
debt cancellation share of FDI…
…2007-08 short term anomalous
boom……then creeping increases in resulting in insignificant debt
cancellation share of FDI
For African Countries, there appears to be an inverse relationship between cancellations and FDI – i.e. the more that FDI increases, the less debt cancellation is needed
Low FDI, High Debt Cancellation
Rising FDI, Debt Cancellation Insignificant
Source: SIAS CARI
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
There is little correlation between trade balance with China and the number / frequency of debt cancellation
0
1
2
3
4
5
6
4-10 -8 -6 76-4-12 -2 0 2 8 10-9 -7 -5 -3 -1 1 3 5 9-13 -11
AfricaAsia and PacificSouth/Latin AmericaArab StatesEurope
Trade Balance with China$USbn
Number of Debt Cancellations,
2000-18
Exports to China larger than imports from China
Imports from China larger than exports to China
Correlation = -0.135
Correlation between Trade Balance with China & Debt Cancellation Frequency (excl. Cuba 2011)# Cancellations, $USbn
Low correlation implying that increasing trading
relationship not motivating debt cancellations
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| © OC&C Strategy Consultants 2019
Development Reimagined & Oxford China Africa Consultancy, April 2019
Case Studies: Sudan and Zimbabwe have been two non-HIPC recipients of frequent debt cancellations by China, but China is not their largest creditor
ZimbabweSudan� Background:
– In July 2011 Sudan had no domestic or foreign debt. Since then, two key factors changed.
� Shutdown of oil production between Jan 2012 and April 2013 , and sharp drop in oil prices mid 2014.
� Conflict emerging in December 2013
– Debt to China at the end of 2016 is estimated to be $3.2bn, 6% of total external public debt.
� Rationale for Debt Cancellation:
– As part of recent cooperation agreements signed between the two countries, China agreed to cancel $88m of debts in 2018.
– Sudanese President Omer Hassan al-Bashir “implored upon Xi Jinping to direct financial institutions dealing with Sudan to take into account the country’s dire financial position by cancelling some of the outstanding debt”
– IMF described Sudan in 2017 as “continuing to be in debt distress”.
� Background:
– The debt to China at the end of 2016 was $1.2bn, 15% of external public debt
– Zimbabwe also has been experiencing political and economic issues which placed it in a precarious situation with respect to paying off debts (incl. inflation, political violence etc).
� Rationale for Debt Cancellation:
– Announced during diplomatic meetings between state leaders:
� “President Mnangagwa is on a 5-day state visit to China where he has had meetings with his Chinese counterpart and has reportedly signed billion dollar deals including one of $1bn for upgrading a thermal power station”
� Note - Zimbabwe was just not paying. E.g. It failed to repay a $60m loan to China Export and Credit Insurance Corporation (Sinosure).
� IMF described Zimbabwe in 2017 as being “in debt distress, and its total public and external debt is unsustainable”
Frequent Cancellation Deep-Dive
$40 m $70m $1.4m $6m $88m
2001 2007 2010 2018
$42m $40m$454m$18m
2003 2010 2017
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Development Reimagined & Oxford China Africa Consultancy, April 2019
Case Study: Cuban cancellation of $6bn was the result of unique political & economic circumstances & within a broader package from others
Context
� Cuba saw uncharacteristically high debt cancellations from many sources, not just the $6bn from China in 2011.
� From 2008 to 2015, investment in Cuba fell 17 percent and exports by 5 percent. It 2017, it has a fiscal deficit of 12 percent and a significant trade deficit (Brookings, 2017).
� ‘”Cash-strapped Cuba ha[d] been feverishly trying to restructure its debt to jump start its economy and attract investment. Three years ago it restructured $6 billion it owes to China, and in 2012 Japan forgave about $1.4 billion” (RT.com)
� In 2015, Cuba actively renegotiated major proportion of its debt, resulting in a high percentage of debt forgiveness from many countries, including China, Mexico, and Russia
� Thinking of debt cancellation as a ‘loan’, between 2009-2014, the $6bn of debt forgiven amounted to China’s 5th highest ‘loan.
Cuban Debt Cancellation Deep-Dive
Total Cuban Debt Forgiven, 2011-14$USbn
Description
32.0
6.0
1.4 MexicoJapanChina
Russia
0.5
Total Debt Cancellation:
c.$40bn
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References (1)
� Africa’s growing debt crisis: Who is the debt owed to? (2018). Jubilee Debt Campaign. URL: https://jubileedebt.org.uk/wp/wp-content/uploads/2018/09/Briefing_09.18.pdf
� Bloomberg (2011) ‘China Gives Almost Half of Foreign Aid to African Countries’. URL: https://www.bloomberg.com/news/articles/2011-04-21/china-gives-almost-half-of-foreign-aid-to-african-countries
� Davis, C. and Piccone, T. (2017) ‘Sustainable development: the path to economic growth in Cuba: executive summary’. Brookings. URL: https://www.brookings.edu/research/sustainable-development-the-path-to-economic-growth-in-cuba/
� ‘China cancels Sudan’s pre-2016 debt: envoy’. (2018) Sudan Tribune. URL: http://www.sudantribune.com/spip.php?article66243
� China’s Global Official Finance Dataset, 2000-2014. Database. AidData Research Lab, William & Mary, http://aiddata.org/data/chinese-global-official-finance-dataset .
� OECD (2001) Debt Forgiveness Definition. URL: https://stats.oecd.org/glossary/detail.asp?ID=556
� Dreher, A., Fuchs, A., Parks, B., Strange, A, M., and Tierney, M, J. (2017) ‘Aid, China, and Growth: Evidence from a New Global Development Finance Dataset’. Paper for presentation at the Workshop “Tracking International Aid and Investment from Developing and Emerging Economies. URL: https://www.aiddata.org/publications/aid-china-and-growth-evidence-from-a-new-global-development-finance-dataset
� FOCAC 2018 Action Plan. (2018) URL: https://www.focac.org/eng/zywx_1/zywj/t1594297.htm
� Hurley, J., Morris, S. and Portelance, G. (2018) ‘Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective’. CGD Policy Paper 121.
� IMF (2017) ‘Republic of South Sudan Staff Report for 2016 Article IV Consultation – Debt Sustainability Analysis’. URL: https://www.imf.org/external/pubs/ft/dsa/pdf/2017/dsacr1773.pdf
� IMF (2017) ‘Sudan: staff report for the 2017 article IV consultation – debt sustainability analysis’. https://www.imf.org/external/pubs/ft/dsa/pdf/2017/dsacr17364.pdf
� IMF (2017) ‘Zimbabwe: staff report for the 2017 article IV consultation – debt sustainability analysis’. https://www.imf.org/external/pubs/ft/dsa/pdf/2017/dsacr17196.pdf
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References (2)
� Kuyedzwa, C. (2018) ‘China writes off Zim's debt’. Fin24 Article. URL: https://www.fin24.com/Economy/china-writes-off-zims-debt-report-20180405
� Russia writes off 90% of Cuba's debt ahead of Putin's 'big tour' to L. America. (2014) URL: https://www.rt.com/business/172020-russia-cuba-debt-writeoff/
� SIAS-CARI (2019) ‘Data: Chinese Investment in Africa’. URL: http://www.sais-cari.org/chinese-investment-in-africa
� SÖZE, K. (2017) ‘Cuba belatedly opens-up for trade after sanctions are lifted’. Web Archive. URL: https://web.archive.org/web/20170326140201/http://leakofnations.com/cuba-belatedly-opens-up-for-trade-after-sanctions-are-lifted-wnd-cuba-trade-sanctions-fidel-castro/
� Stanton, E, A. (2007). ’The Human Development Index: A History’. PERI Working Papers: 14–15.
� ‘The ‘Big 4’ – How oil revenues are connected to Khartoum’. (2008) Amnesty International USA. URL: https://web.archive.org/web/20081003091005/http:/www.amnestyusa.org/Business_and_Human_Rights/The_Big_4/page.do?id=1081006&n1=3&n2=26
� UNCTAD (2017) ‘Bilateral FDI Statistics’. URL: https://unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics-Bilateral.aspx
� World Bank and IMF (2017) ‘Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) - Statistical Update’. URL: http://pubdocs.worldbank.org/en/175131505738008789/WB-HIPC-stat-update-2017.pdf
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Appendix: Definitions
� Regions: (of those listed in the data set)– Africa (see image, according to UN Geoscheme for Africa)
– Asia
� South
– Pakistan
– Bangladesh
� South East
– Cambodia
– Laos
– Myanmar
� Central
– Afghanistan
– Kyrgyzstan
– South America
� Guyana
– Pacific Islands
� Samoa
� Vanuatu
Debt Forgiveness
Debt forgiveness occurs when a government creditor entity in one economy formally agrees -via a contractual arrangement - with a debtor entity in another to forgive (extinguish) all, or part, of the obligation of the debtor entity to the creditor, the amount forgiven is treated as a capital transfer from the creditor to the debtor. That is, the balance of payments reflects a reduction of the liability offset by the transfer. Similar treatment is applicable when a government entity’s debt is forgiven by agreement with a creditor entity in another economy. (OECD, 2001)
Human Development Index (HDI)
The Human Development Index (HDI) is a statistic composite index of lifeexpectancy, education, and per capitaincome indicators, which are used to rank countries into four tiers of human development. A country scores a higher HDI when the lifespan is higher, the education level is higher, and the GNI (PPP) per capita is higher. (Stanton, 2007)
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Development Reimagined & Oxford China Africa Consultancy, April 2019
Appendix: Data tables
Total Value (US$)
Number of Cancellations
Average Cancellation Value (US$)
2000 5,000,000 1 5,000,0002001 576,585,881 20 30,346,6252002 434,738,978 7 72,456,4962003 221,654,261 9 27,706,7832004 18,000,000 1 18,000,0002005 48,000,500 3 24,000,2502006 337,386,983 8 48,198,1402007 838,240,397 25 36,445,2352008 514,200,000 3 171,400,00020092010 267,434,586 6 53,486,9172011 212,066,233 5 53,016,5582012 16,061,830 1 16,061,8302013201420152016 90,000,000 1 90,000,0002017 77,430,000 3 25,810,0002018 95,475,840 2 47,737,920
Number of Cancellations Total Value (US$)
Average Cancellation Value (US$)
Asia and Pacific 15 1,291,197,405 86,079,827Africa 72 2,208,048,084 30,667,335Arab States 4 153,230,000 38,307,500South/Latin America 3 27,200,000 9,066,667Europe 2 72,600,000 36,300,000
Number of Cancellations
Total Value (US$)
Average Cancellation Value (US$)
Pacific Islands 3 16,500,000 5,500,000Central Africa 14 308,214,004 22,015,286Eastern Africa 26 1,034,315,974 39,781,384Western Africa 22 555,802,878 25,263,767Southern Africa 6 166,706,043 27,784,341Northern Africa 6 205,439,185 34,239,864Central Asia 4 44,739,216 11,184,804South East Asia 6 637,099,938 106,183,323Arab States 2 90,800,000 45,400,000South America 1 20,000,000 20,000,000Eastern Europe 2 72,600,000 36,300,000Pacific Islands 3 16,500,000 5,500,000Caribbean 2 7,200,000 3,600,000South Asia 2 592,858,251 296,429,126
Cancellations By Year
Cancellations By Region
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