Debt Reduction Facility

The Debt Reduction Facility (DRF) for IDA-Only Countries was established by the Boards of IBRD and IDA in July 1989.  It provides grant funding to eligible Governments to buy back -- at a deep discount -- the debts owed to external, commercial creditors.  Since its inception, the DRF has played a significant role in extinguishing commercial external debt from the books of the public sector of low-income countries. It has supported 22 completed buy-back operations in 21 IDA-only countries, extinguishing about US$4.5 billion of external commercial debt principal and more than US$3.5 billion of associated interest arrears and penalties. Since 1989, the DRF has supported operations and provided technical assistance to 18 Heavily Indebted Poor Countries (HIPC). By reducing sovereign debt burdens, the DRF facilitates the improvement of creditor burden sharing under the HIPC Initiative.  It also helps reduce the risk of non-concessional creditors taking advantage of debt relief provided by IDA and other Multilateral Development Banks under the Multilateral Debt Relief Initiative (MDRI). In March 2006, responsibility for managing the DRF was transferred to the Economic Policy and Debt Department.