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TIONAL BA A NK RN E F T O N R I DEVELOPMENT COMMITTEE WORLD BANK R (Joint Ministerial Committee E T C N O E N M S P of the T O R L U E CT EV Boards of Governors of the Bank and the Fund ION AND D On the Transfer of Real Resources to Developing Countries) DC2007-0021 September 28, 2007 HEAVILY INDEBTED POOR COUNTRIES (HIPC) INITIATIVE AND MULTILATERAL DEBT RELIEF INITIATIVE (MDRI)−STATUS OF IMPLEMENTATION Attached for the October 21, 2007, Development Committee Meeting is a background report entitled “Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI)−Status of Implementation,” prepared by the staff of the International Monetary Fund and World Bank. * * * INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL MONETARY FUND Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) —Status of Implementation Prepared by the Staffs of IDA and IMF Approved by Danny Leipziger and Mark Allen September 27, 2007 Contents Page Executive Summary................................................................................................................... i I. Introduction ...........................................................................................................................1 II. Review of the Implementation and Impact of the HIPC Initiative and the MDRI ...............2 A. Implementation of the HIPC Initiative and the MDRI .............................................2 B. Impact of the HIPC Initiative and the MDRI............................................................6 III. The HIPC Initiative and the MDRI: Cost and Creditor Participation................................12 A. Costs of the HIPC Initiative....................................................................................12 B. Participation of Multilateral Creditors ....................................................................16 C. Participation of Bilateral Creditors .........................................................................19 D. Participation of Commercial Creditors ...................................................................21 E. Commercial Creditor Litigation against HIPCs ......................................................24 IV. Issues for Discussion .........................................................................................................28 Tables Table 1. List of Heavily Indebted Poor Countries .....................................................................3 Table 2. MDRI Debt Service Savings by Creditor and Country Group ....................................8 Table 3. HIPC Initiative: Costs by Main Creditors and Country Groups................................13 Table 4. Nominal MDRI Costs by Creditor and Country Group.............................................18 Table 5. Enhanced HIPC Initiative: Commercial Creditor Participation and Lawsuits ..........25 Figures Figure 1. Interim Period in Post-Decision-Point HIPCs............................................................6 Figure 2. Median Debt Service per capita for 31 Post-Decision-Point HIPCs..........................7 Figure 3. Average Debt Service and Poverty Reducing Expenditure of Post-Decision Point HIPCs.........................................................................................................................................8 Figure 4. Post-Decision-Point HIPCs’ Debt Stock Before and After HIPC Initiative, Additional Bilateral Debt Relief and MDRI..............................................................................9 Figure 5. Debt Ratios and Risk of Debt Distress in Post-Completion-Point HIPCs ...............10 Figure 6. Distribution of Potential Costs under the HIPC Initiative by Creditors...................14 Boxes Box 1. The Inter-American Development Bank Debt Relief Initiative of 2007........................4 Box 2. Debt Relief and Debt Sustainability: The Case of Burkina Faso.................................11 Box 3. Analysis of Topping-Up Cases under the Enhanced HIPC Initiative ..........................15 Box 4. The Debt Reduction Facility for IDA-only countries ..................................................23 Box 5. Litigation Against HIPCs: Donegal Versus Zambia....................................................26 Box 6. Encouraging the Participation of Commercial Creditors in the Enhanced HIPC Initiative ...................................................................................................................................28 Annexes Annex I: Enhanced HIPC Initiative: Implementation Status by Country................................29 Annex II: Country Coverage, Data Sources, and Assumptions for the HIPC Initiative and MDRI Costing Exercise...........................................................................................................67 Appendix Tables ....................................................................................................................69 ABBREVIATIONS AND ACRONYMS AAP Assessment Action Plan ACP Africa, Caribbean, and Pacific States AfDB African Development Bank AfDF African Development Fund AFESD Arab Fund for Social and Economic Development AMF Arab Monetary Fund APR Annual Performance Review AsDB Asian Development Bank BADEA Arab Bank for Economic Development in Africa BCEAO Central Bank of West African States BDEAC Banque de Développement des États de l’Afrique Centrale (Central African States Development Bank) BDEGL Banque de Développement des Etats des Grand Lacs (Development Bank of Great Lake States) BEAC Banque des Etats de l’Afrique Centrale (Bank of Central African States) BIAPE Banco Interamericano de Ahorro y Préstamo BPEMS Budget and Public Expenditure Management System BOAD Banque Ouest Africaine de Developpement (West African Development Bank) CABEI Central American Bank for Economic Integration CAF Corporación Andina de Fomento CAFTA-DR Central America -Dominican Republic-United States Free Trade Agreement CAS Country Assistance Strategy CCS Commitment Control System CDB Caribbean Development Bank CDS Country Development Strategy CFA Country Fiduciary Assessment CIRR Commercial Interest Reference Rate CMCF Caricom Multilateral Clearing Facility DRC Democratic Republic of the Congo DSA Debt Sustainability Analysis DSF Debt Sustainability Framework EADB East African Development Bank ECOWAS Economic Community of West African States EDF European Development Fund EIB European Investment Bank EITI Extractive Industries Transparency Initiative EPCA Emergency Post-Conflict Assistance ESAF Enhanced Structural Adjustment Facility EU European Union EUR Euro FDI Foreign Direct Investment FEGECE Fonds d’Entraide et de Garantie des Emprunts du Conseil de l’Entente (Fund of Aid and of Loans Guarantee of the Agreement Council) FOCEM Fondo Centroamericano de Estabilización Monetaria FONPLATA Fund for the Financial Development of the River Plate Basin FSID Fonds de solidarité islamique pour le développement (Islamic Fund for Solidarity and Economic Development) GDF Global Development Finance GDP Gross Domestic Product GFS Government Financial Statistics GPER Gross Primary Enrollment Rate GPRS Growth and Poverty Reduction Strategy HIPC Heavily Indebted Poor Country HRMIS Human Resource Management Information System IaDB Inter-American Development Bank IBRD International Bank for Reconstruction and Development ICSID International Centre for Settlement of Investment Disputes IDA International Development Association IFAD International Fund for Agricultural Development IFMIS Integrated Financial Management and Information System IHS Integrated Household Survey IMF International Monetary Fund I-PRSP Interim Poverty Reduction Strategy Paper IsDB Islamic Development Bank JAM Joint Assessment Mission JBAR Joint Budget Aid Review JSAN Joint Staff Advisory Note LICs Low Income Countries MDAs Ministries, Departments, and Agencies MDGs Millennium Development Goals MDRI Multilateral Debt Relief Initiative MTEF Medium Term Economic Framework NDF Nordic Development Fund NGO Non-Governmental Organization NIB Nordic Investment Bank NPV Net Present Value NTF Nigerian Trust Fund ODA Official Development Assistance OPEC Organization of Petroleum Exporting Countries OFID OPEC Fund for International Development PASDEP Plan for Accelerated and Sustained Development to End Poverty PEAP Poverty Eradication Action Plan PEFA Public Expenditure and Financial Accountability PEM Public Expenditure Management PEMFAR Public Expenditure Management and Financial Accountability Review PER Public Expenditure Review PETS Public Expenditure Tracking Survey PFM Public Financial Management PHDR Poverty and Human Development reports PRGF Poverty Reduction and Growth Facility PRS Poverty Reduction Strategy PRSP Poverty Reduction Strategy Paper PSI Policy Support Instrument PTA Eastern and Southern African Trade and Development Bank SDR Special Drawing Rights SMP Staff Monitored Program UCT Upper-Credit Tranche UNCTAD United Nations Conference on Trade and Development UN United Nations WAEMU West African Economic and Monetary Union WHO World Health Organization WMS Welfare Monitoring Survey - i - EXECUTIVE SUMMARY Overview. This report provides an update on the status of implementation, impact and costs of the enhanced Heavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) since mid-2006. It also discusses the status of creditor participation in both initiatives and the issue of litigation of commercial creditors against HIPCs. Progress in the