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) DC2006-0016 September 7, 2006 HEAVILY INDEBTED POOR COUNTRIES (HIPC) INITIATIVE AND MULTILATERAL DEBT RELIEF INITIATIVE (MDRI) STATUS OF IMPLEMENTATION Attached for the September 18, 2006 Development Committee Meeting is a report entitled "Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) - Status of Implementation." This report is provided as background information relevant to the Committee's work. * * * 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 August 21, 2006 Contents Page Executive Summary................................................................................................................... i I. Introduction ............................................................................................................................1 II. Review of Implementation....................................................................................................1 A. Brief Summary of the HIPC Initiative and the MDRI..............................................1 B. Country Progress in Qualifying for Debt Relief Under the Enhanced HIPC Initiative and MDRI..................................................................................................2 C. Impact of HIPC Initiative and MDRI Debt Relief on Debt Stocks, Debt Service, and Poverty-Reducing Expenditures.........................................................................8 III. Debt Relief Costs and Creditor Participation.....................................................................17 A. Estimated Costs of HIPC Initiative Debt Relief .....................................................17 B. Participation of Multilateral Creditors in the HIPC Initiative and the MDRI.........18 C. Participation of Paris Club Official Bilateral Creditors in the HIPC Initiative.......21 D. Participation of non–Paris Club Official Bilateral Creditors in the HIPC Initiative..................................................................................................................22 E. Participation of Commercial Creditors in the HIPC Initiative and Commercial Creditor Litigation against HIPCs ...........................................................................26 IV. Conclusions........................................................................................................................31 Tables Table 1. Main Characteristics of the HIPC Initiative and the MDRI ........................................3 Table 2. List of Countries That Have Qualified for, are Eligible or Potentially Eligible and May Wish to Receive HIPC Initiative Assistance (as of end-July 2006)....................5 Table 3. Contributions to the Unanticipated Increase in the Net Present Value (NPV) of Debt-to-Export Ratios in HIPCs During the Interim Period .....................................11 Table 4. HIPC Initiative: Breakdown of Estimated Costs by Main Creditors.........................19 Table 5. MDRI: Breakdown of Estimated Costs by Creditor and Country Group..................21 Table 6. Non–Paris Club Creditors that Have Delivered Debt Relief to HIPCs, and amounts of Assistance Provided ................................................................................26 Table 7. Enhanced HIPC Initiative: Commercial Creditor Participation and Lawsuits by Country ......................................................................................................................29 Figures Figure 1. Number of Countries Reaching Enhanced HIPC Initiative........................................4 Figure 2. Length of Interim Periods of Post-Completion Point HIPCs .....................................5 Figure 3. NPV of Debt After HIPC Initiative, Additional Bilateral Debt Relief and MDRI ....9 Figure 4. Debt Service for the 29 Decision-Point HIPCs ........................................................10 Figure 5. Projected Debt Service to Exports Ratio after HIPC and MDRI .............................12 Figure 6. HIPCs: Average Debt Service and Poverty Reducing Expenditure.........................13 Figure 7. Distribution of Potential Costs under the HIPC Initiative by Creditors...................17 Figure 8. HIPC Initiative Costs of Post-Decision-Point Countries..........................................18 Figure 9. Non–Paris Club Creditor Cost is Heavily Concentrated on a Few Creditors...........23 Figure 10. Non–Paris Club Creditor Debt Relief is Concentrated on Four Debtors ...............23 Boxes Box 1. Evolution of Debt Ratios from Decision to Completion Points...................................11 Box 2. Strengthening Public Financial Management in HIPCs...............................................15 Box 3. The Impact of Debt Relief after Ten Years of Implementation ...................................16 Box 4. Nicaragua--Obtaining HIPC Debt Relief from Non–Paris Club Official Creditors ....25 Box 5. The Debt Reduction Facility (DRF) for IDA-Only Countries .....................................28 Annexes Annex I. Country Coverage, Data Sources, and Assumptions for HIPC Initiative and MDRI Costing Exercises .........................................................................................32 Annex II. Enhanced HIPC Initiative: Progress in Implementation in Countries that Have been Assessed to Meet the Income and Indebtedness Criteria as of End-2004 and Might Avail Themselves of the HIPC Initiative (Pre-decision-point countries) .....34 Annex III. Enhanced HIPC Initiative: Implementation Status of HIPCs in the Interim Period .......................................................................................................................41 Annex IV. Enhanced HIPC Initiative: Post-Completion-Point HIPCs....................................48 Annex V. Use of MDRI Resources in 2006 ............................................................................64 Appendix Tables 1. Summary of Debt Service and Poverty Reducing Expenditures .......................................65 2. Debt Service of the 29 HIPCs that have Reached the Decision Point, by Country, 1998-2009. ...................................................................................................................66 3. Poverty-Reducing Expenditure of the 29 HIPCs that Have Reached the Decision Point, by Country, 1999-2006 ................................................................................................69 4. HIPC Initiative and MDRI: Committed Debt Relief and Outlook ....................................71 5. HIPC Initiative: Estimates of Costs to Multilateral Creditors and Status of Their Commitments...............................................................................................................72 6A. Status of Delivery of HIPC Initiative and MDRI Assistance by the World Bank............73 6B. Estimated Delivery of HIPC Initiative and MDRI Assistance by the World Bank, 2000-10 ........................................................................................................................74 7A. Implementation of the HIPC Initiative and MDRI by the IMF ........................................76 7B. IMF Debt Service after HIPC Initiative and MDRI Debt Relief, 1999-2010...................77 8A. Status of Delivery of HIPC Initiative and MDRI Assistance by the African Development Bank (AfDB) .........................................................................................79 8B. Estimated Delivery of HIPC Initiative and MDRI Debt Relief by the African Development Bank Group, 2000-10............................................................................80 9. Status of Bilateral Donor Pledges to the HIPC Trust Fund ...............................................82 10. Debt Relief Committed and Delivered by the Paris Club to the 29 HIPCs .......................83 11. Paris Club Creditors’ Delivery of Debt Relief Under Bilateral Initiatives Beyond the HIPC Initiative .......................................................................................................84 12. Costs and Delivery of HIPC Initiative Debt Relief by Non–Paris Club Creditors............85 13. Commercial Creditors Lawsuits Against HIPCs.......................................................... .....86 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank AfDF African Development Fund AFESD Arab Fund for Social and Economic Development AMF Arab Monetary Fund 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) BOAD West African Development Bank CABEI Central American Bank for Economic Integration CAF Corporación Andina de Fomento CAS County Assistance Strategy CDB Caribbean Development Bank CIRR Commercial Interest Reference Rate CMCF Caricom Multilateral Clearing Facility DRC Democratic Republic of the Congo DSA Debt Sustainability