The HIPC Initiative and the MDRI: Status of Implementation

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The HIPC Initiative and the MDRI Status of
Implementation

• Briefing to the Multilateral Development Banks
• Gallina Vincelette
• PRMED, The World Bank
• July 9, 2008

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Outline

• I. Progress in Implementation
• II. Costing Update
• III. Creditor Participation

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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

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The HIPC Initiative Country List
Note Countries that have reached decision or
completion point since last MDBs Meeting in July
2007
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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-poi
  nt HIPCs reduce debt burdens, but some of the
  remaining HIPCs face difficulties entering and/or
  completing the HIPC process

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

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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?

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Duration of Interim Period in 33 Post-DP HIPCs
(years)
?
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Implementation Progress Pre-Decision-Point
Countries

• Of the 8 Pre-Decision-Point HIPCs
• Cote dIvoire, 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

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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

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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 (US35 bln,
  end-2007 NPV terms)
• Debt relief to 10 interim HIPCs is about ¼
  (US16bln, end-2007 NPV terms) of total est.
  costs
• Estimated cost to 8 pre-decision-point HIPCs is
  US20bln, end-2007 NPV terms

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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

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III. Creditor Participation -Multilateral
Creditors

• Multilateral financial institutions account for
  about 46 of total estimated cost of HIPC
  Initiative debt relief (or US32.5 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

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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 US7bln

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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

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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)

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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

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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