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The HIPC Initiative and the MDRI: Status of Implementation

The HIPC Initiative and the MDRI: Status of Implementation. Briefing to the Multilateral Development Banks Gallina Vincelette PRMED, The World Bank July 9, 2008. Outline . I. Progress in Implementation II. Costing Update III. Creditor Participation.

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The HIPC Initiative and the MDRI: Status of Implementation

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  1. The HIPC Initiative and the MDRI: Status of Implementation Briefing to the Multilateral Development Banks Gallina Vincelette PRMED, The World Bank July 9, 2008

  2. Outline I. Progress in Implementation II. Costing Update III. Creditor Participation

  3. I. The HIPC Initiative: Progress in Implementation Developments since last MDB Meeting (July 2007) • More than ½ of eligible HIPCs (23) have reached the completion point • More than ¾ of eligible countries (33) are past the decision point • The Central African Republic and Liberia reached decision point of the HIPC Initiative in September 2007 and March 2008, respectively • The Gambia reached completion point in Dec. 2007

  4. The HIPC Initiative: Country List Note: * Countries that have reached decision or completion point since last MDBs Meeting in July 2007

  5. The HIPC Initiative: Country Status • To date: • 33 post-decision-point HIPCs have benefited or continue to benefit from HIPC Initiative assistance • 23 post-completion-point HIPCs have received debt relief under the MDRI from the 4 participating multilateral creditors • The HIPC Initiative has helped post-completion-point HIPCs reduce debt burdens, but some of the remaining HIPCs face difficulties entering and/or completing the HIPC process

  6. The HIPC Initiative Process and Country Status Remaining HIPCs are not a homogenous group RECEIVE IRREVOCABLE HIPC&MDRIDEBT RELIEF ESTABLISH ELIGIBILITY ESTABLISH QUALIFICATION RECEIVE INTERIM ASSISTANCE Pre-decision Point Decision Point Completion Point Progressing Progressing 23 post-completion-point HIPCs 8 pre-decision-point HIPCs 10 interim HIPCs

  7. HIPC Implementation Progress & Challenges– Interim Countries Of the 10 Interim countries: • DRC, Rep. Congo, Chad are not advancing to completion point at this time • The remaining 7 are making progress to reaching completion point • Poverty reducing strategies (PRS) in place in all 7 advancing Interim HIPCs, but progress on establishing the one-year PRS implementation record has been uneven • Difficulties meeting CP triggers mainly in: • governance and transparency • public administration and capacity

  8. Main implications of not reaching the CP?The Interim HIPCs • Prolonged interim periods could lead to (Chart): (i) Creditors’ interim relief dry-out (ii) Difficulties servicing external debt obligations (iii) Further weakening of reform efforts (iii) Non-concessional borrowing?

  9. Duration of Interim Period in 33 Post-DP HIPCs(years)

  10. Implementation Progress – Pre-Decision-Point Countries Of the 8 Pre-Decision-Point HIPCs: • Cote d’Ivoire, Togo, and Comoros re-engaging with IFIs and making progress to DP • Absence of progress in the remaining pre-decision-point HIPCs mainly due to political choices: • Kyrgyz and Nepal not availed themselves of the Initiative • Somalia and Sudan in protracted arrears to IFIs • Eritrea limited engagement with IFIs

  11. Main implications of delaying DP?The Pre-Decision-Poin HIPCs • Inability to meet eligibility criteria to benefit from debt relief • Possibly Kyrgyz, Nepal, Sudan may fall below the indicative thresholds • Continued arrears accumulation to external creditors to ensure debt levels remain high for qualification (expectation of debt forgiveness) • Potential for engaging in non-concessional borrowing

  12. II. Preliminary Costing UpdateCost of HIPC Initiative Debt Relief Total cost for 41 potentially eligible HIPCs is estimated at $71 bln (end-2007 NPV terms) Debt relief to the 23 post-completion-point HIPCs is nearly ½ of total est. cost (US$35 bln, end-2007 NPV terms) Debt relief to 10 interim HIPCs is about ¼ (US$16bln, end-2007 NPV terms) of total est. costs Estimated cost to 8pre-decision-point HIPCs is US$20bln, end-2007 NPV terms

  13. II. Preliminary Costing UpdateCost of MDRI (preliminary) Total cost of MDRI debt relief for all potentially qualifying HIPCs is estimated at $33 bln end-2007 NPV terms Debt relief to qualifying post-completion-point HIPCs is nearly 2/3 of total estimated costs

  14. III. Creditor Participation -Multilateral Creditors Multilateral financial institutions account for about 46% of total estimated cost of HIPC Initiative debt relief (or US$32.5 billion, in end-2007 NPV terms) IDA accounts for 20%, IMF for 9%, and AfDB for 7% of total estimated HIPC Initiative cost, respectively Continue to provide debt relief in line with HIPC Initiative commitments Continue to provide interim relief to interim HIPCs

  15. III. Creditor Participation -Paris Club Creditors Paris Club creditors account for about 35% of total estimated cost of HIPC Initiative debt relief Continue to provide interim relief to interim HIPCs, and stock-of-debt reductions to post-CP HIPCs Estimated cost of additional debt relief beyond HIPC Initiative to post-CP countries over US$7bln

  16. III. Creditor Participation –Non-Paris Club Creditors Non-Paris Club (NPC) creditors account for about 13% of total estimated cost of HIPC Initiative debt relief Survey sent out to major NPC creditors & post-CP HIPCs Estimated delivery by NPC creditors of expected HIPC relief to post-CP HIPCs around 40% Large variation in NPC creditors HIPC relief delivery: • only 7creditors providing full debt relief to HIPCs, 22 creditors partial, and 21 creditors none Estimated delivery of NPC Creditors published on WB and IMF web (Scorecard) in Nov. 2007 and updated in April 2008

  17. III. Creditor Participation –Commercial Creditors • Commercial creditors account for about 4% of total est. cost of HIPC Initiative • Traditionally, low rate of participation in the Initiative • However, significant progress made in the past year thanks to: • Two DRF operations (Nicaragua and Mozambique) • One London Club debt restructuring agreement (Rep. of Congo)

  18. III. Creditor Participation –Commercial Creditors’ Litigation against HIPCs • Some non-participating commercial creditors resort to litigation for debt recovery • Annual HIPCs authorities Survey on Commercial Creditor Litigation sent out in May 2008 and results are being analyzed • Preliminary results of the Survey show most litigation cases in Liberia, Rep. of Congo, Uganda, Sierra Leone • Range of instruments to support HIPCs in litigation has increased: • Active and cooperative negotiations • CW Secretariat Legal Clinic to provide legal advice to HIPCs • African Legal Support Facility at the AfDB

  19. Summary • HIPC Initiative and MDRI: significant progress over the last few years advancing Finance for Development agenda • Since mid-2007, 1 HIPC reached CP and 2 reached DP • 3 pre-DP HIPCs are advancing to qualification and 7 Interim HIPCs making progress to completion point • Delivery of debt relief significant, mainly due to efforts by multilateral, Paris-Club, some commercial & bilateral creditors • The situation of the remaining few potential HIPC beneficiaries poses special challenges and requires continuous commitment from governments and creditors in restoring and maintaining sustainable levels of debt

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