WASHINGTON, December 7, 2011 - A joint World Bank-IMF report released today shows significant progress in reducing the debt burdens of some of the world’s poorest countries.
The report, Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) –Status of Implementation and Proposals for the Future of the HIPC Initiative, shows that 36 out of 40 HIPCs have reached the debt relief decision point, the stage in which they qualify for debt relief, and 32 of them have reached the completion point, where debt is irrevocably cancelled, and also benefited from debt relief under the MDRI.
“These initiatives have been successful --there’s been a lot of progress on debt relief for very poor countries,” said Jeffrey D. Lewis, World Bank Director for Economic Policy and Debt. “Debt burdens have been lowered and more resources made available to fight poverty.”
The report, which was discussed by Board of Executive Directors of the World Bank and the Board of the IMF last week, notes that debt relief under the initiatives to the 36 post-decision point countries represents almost 35 percent of their 2010 GDP. Together with debt relief under traditional mechanisms and additional relief from Paris Club creditors, this assistance is estimated to reduce the debt burden for these countries by about 90 percent relative to pre-decision point levels. In addition, poverty reducing spending increased by more than three percentage points of GDP, on average, between 2001 and 2010, while debt service payments declined.
Nevertheless, some challenges remain. Progress toward the Millennium Development Goals (MDGs) has been uneven -- only a quarter of completion point HIPC countries are on track to meeting the MDG1 to eradicate extreme poverty and hunger. Other challenges include providing debt relief to countries that are still at the pre-decision point stage, encouraging full participation of all creditors, ensuring the full financing of both HIPC and the MDRI, and addressing the issue of commercial creditor litigation.
In addition, the report recommends streamlining future reporting on debt relief and modifying the requirements for eligibility by adding end-2010 income and indebtedness criteria. With this modification, endorsed by the Board, countries like Eritrea, Somalia and Sudan would be able to access debt relief on a timetable suitable to their individual circumstances, while others like Bhutan, the Kyrgyz Republic, and Lao PDR would no longer be eligible, reflecting their improved debt outlook and decision not to pursue HIPC debt relief options.
The total cost of already committed HIPC Initiative debt relief to creditors is estimated at US$76 billion in end-2010 present value (PV) terms, while the total cost of the MDRI for the four participating multilateral creditors is estimated at US$33.8 billion in end-2010 PV terms.
The HIPC Initiative was launched by the World Bank and IMF in 1996 as a comprehensive effort to help the world's poorest, most heavily-indebted countries. It was enhanced in the fall of 1999 to provide for faster, deeper, and broader debt relief. The MDRI followed in 2005 to further reduce the debts of qualifying low-income countries and provide them with additional resources to help meet the Millennium Developments Goals (MDGs). Under the MDRI, four multilateral institutions, including the IMF and the World Bank, provide 100 percent debt relief on eligible claims of countries that reach the completion point under the enhanced HIPC Initiative.
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