The HIPC Initiative:Issues for Consideration April, 2006
Outline • What is the HIPC Initiative? • The Sunset Clause • The HIPC Process from Decision to Completion Point • MDRI • Impact on Public Finances • Main Considerations
What is the HIPC Initiative? • The HIPC Initiative is a debt relief initiative (DRI) established jointly by the IMF and the World Bank in 1996 and enhanced in 1999. • It is the first DRI that includes debt relief from multilateral creditors. • Goal: to ensure swift and deep debt relief thereby contributing to poverty reduction. • So far, 28 countries are benefiting under the HIPC Initiative and 18 have graduated from it.
18 Benin Bolivia Burkina Faso Ethiopia Ghana Guyana Honduras Madagascar Mali 10 10 Burundi Comoros Mauritania Cameroon Central African Rep. Mozambique Chad Congo, Republic of Nicaragua Congo DRC Cote d’Ivoire Niger The Gambia Lao PDR Rwanda Guinea Liberia Senegal Guinea-Bissau Myanmar Tanzania Malawi Somalia Uganda Sao Tome & Principe Sudan Zambia Sierra Leone Togo Post-HIPC Interim-HIPC Pre-HIPC HIPC Implementation to Date 38 Participating Countries
The HIPC Sunset Clause • A “sunset clause” was included to prevent HIPC from becoming a permanent facility. • In September 2004, the Boards of the World Bank and IMF decided to extend the sunset clause to end-2006 and to limit (“ring-fence”) its application to countries fulfilling the income and indebtedness criteria as of end-2004.
Status of the Assessment • Four countries appear likely to be newly eligible • Work continues on these four plus five other possible cases • The final list is due by April 2006 • Governments choose whether to enter the Initiative
Interimrelief The HIPC Process Preliminary Document InterimPeriod • Country meetsHIPC eligibilitycriteria IrrevocableDebt Relief Completion Point DecisionPoint • Satisfactory performance of reform program • One year of execution of PRSP • Meet completion point triggers • 6 months on track with reform program and PRSP or I-PRSP in place • Calculation of relief due • Agreement oncountry-specific completion point triggers
The MDRI • The MDRI on IDA and IMF claims occurs at the HIPC Completion Point: • A country must reach the HIPC Completion Point. • 100% cancellation of outstanding debt to the IDA (as of end-2003) and the IMF (as of end-2004). • For the Kyrgyz Republic, initial figures suggest a debt write-off of roughly USD 520 million (assuming completion point in Dec-2007). Caveat: All figures are “back of the envelope” and intended for illustrative purposes only
Likely Impact on Public Finances • In 2007, HIPC debt service relief (interim assistance) will be roughly USD 30 million. • Once Completion Point is reached, annual debt service relief, including the MDRI, will be reduced by an average USD 42 million over 2007-2025. • Amount of debt service reduction will remain substantial, though it will generally decline thereafter.
Estimated Debt Service Relief Includes HIPC and MDRI relief. Red numbers are averages for the years concerned.
Benefits Direct, irrevocable debt service relief from multilateral, bilateral, and commercial creditors MDRI: 100% debt cancellation from IDA and IMF Debt relief creates fiscal space for social spending Policy signaling Strong commitment to stabilization Credit worthiness Considerations Additional conditionality but most envisioned by the NPRS Some bilateral creditors may scale back new assistance for a few years after they grant debt relief Main Considerations
Additional Considerations • Concerns that becoming a HIPC would adversely affect FDI inflows into Kyrgyz Republic are unfounded: • Current or prospective FDI are primarily in traditional sectors; • Large share of FDI comes from the CIS or neighbor countries and would not be deterred by the HIPC status; • On the contrary, better debt solvency indicators and structural reforms would send a strong signal to potential investors.
Special case – MDRI by the IMF • Non-HIPC countries are eligible to receive the MDRI on IMF claims if their per capita income is below USD 380. • Under this window, the IMF cancelled USD 99 million in debt owed by Tajikistan.
Thank You http://www.worldbank.org/debt http://imf.org/external/np/exr/facts/mdri.htm http://www.imf.org/external/np/exr/facts/hipc.htm