IDA Executive Board Discusses The List Of Ring-Fenced Countries Potentially Eligible Under The Enhanced HIPC Initiative

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Christian Hofer (202) 458 0936

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WASHINGTON, April 14, 2006 –Yesterday the Executive Board of the World Bank’s International Development Association (IDA) approved the paper “Heavily Indebted Poor Countries (HIPC) Initiative — List of Ring-Fenced Countries that Meet the Income and Indebtedness Criteria at end-2004” prepared jointly by the staffs of the IMF and the World Bank. The Executive Directors endorsed the results presented in the document as well as staff’s recommendations.

The document identifies 11 countries that meet the HIPC Initiative income and indebtedness criteria using end-2004 data and might wish to be considered for debt relief under the Initiative. These include seven countries identified previously as potential HIPCs (Central African Republic, Comoros, Côte d’Ivoire, Liberia, Somalia, Sudan, and Togo) and four additional countries (Eritrea, Haiti, the Kyrgyz Republic, and Nepal). The cost of HIPC Initiative debt relief for the 11 countries is estimated at US$21 billion in 2004 NPV terms[1], roughly half of the cost of providing debt relief to the 29 HIPCs that have already reached their decision points.

To become eligible for debt relief under the HIPC Initiative, the 11 identified countries must have begun a reform program supported by the IMF and IDA between October 1, 1996 and December 31, 2006, the date of the HIPC Initiative sunset clause. To qualify for debt relief, eligible countries need to demonstrate the capacity to use the expected assistance prudently by establishing a satisfactory track record under IMF- and IDA-supported programs and by having put in place a poverty reduction strategy.

Background

In 1996, the World Bank and IMF launched the HIPC Initiative to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world’s poorest and most heavily indebted countries, and thereby reduce the constraints on economic growth and poverty reduction imposed by the debt-service burdens in these countries.

The Initiative was modified in 1999 to provide three key enhancements:

Deeper and Broader Relief. External debt thresholds were lowered from the original framework. As a result, more countries have become eligible for debt relief and some countries have become eligible for greater relief;

Faster Relief. A number of creditors began to provide interim debt relief immediately at the “decision point.” Also, the new framework permitted countries to reach the “completion point” faster; and

Stronger Link Between Debt Relief and Poverty Reduction.  Freed resources were to be used to support poverty reduction strategies developed by national governments through a broad consultative process.

To date, 29 HIPC countries have reached their decision points, of which 18 have reached completion point.

[1] The Net Present Value (NPV) of debt is the discounted sum of all future debt service obligations (interest and principal). It is a measure that takes into account the borrowing terms of a country’s debt stock. Whenever the interest rate on a loan is lower than the prevailing market rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element. Nominal terms means the actual dollar value of debt service forgiven over a period of time.