The HIPC Initiative:The HIPC Initiative:Issues for Consideration Issues for Consideration

April, 2006April, 2006

22

OutlineOutline

What is the HIPC Initiative?What is the HIPC Initiative?

The Sunset ClauseThe Sunset Clause

The HIPC Process from Decision to Completion The HIPC Process from Decision to Completion

PointPoint

MDRIMDRI

Impact on Public FinancesImpact on Public Finances

Main ConsiderationsMain Considerations

33

What is the HIPC Initiative?What is the HIPC Initiative?

The HIPC Initiative is a debt relief initiative (DRI) The HIPC Initiative is a debt relief initiative (DRI)

established jointly by the IMF and the World Bank established jointly by the IMF and the World Bank

in 1996 and enhanced in 1999.in 1996 and enhanced in 1999. It is the first DRI that includes debt relief from It is the first DRI that includes debt relief from

multilateral creditors.multilateral creditors. Goal: to ensure swift and deep debt relief thereby Goal: to ensure swift and deep debt relief thereby

contributing to poverty reduction.contributing to poverty reduction. So far, 28 countries are benefiting under the HIPC So far, 28 countries are benefiting under the HIPC

Initiative and 18 have graduated from it.Initiative and 18 have graduated from it.

44

HIPC Implementation to DateHIPC Implementation to Date

Zambia

Post-HIPCPost-HIPC

Uganda

Tanzania

Senegal

Rwanda

Niger

Nicaragua

Mauritania

Madagascar

Guyana

Ethiopia

Bolivia

Mozambique

Mali

Honduras

Ghana

Burkina Faso

Benin18

Interim-HIPCInterim-HIPC

Sierra Leone

Sao Tome & Principe

Malawi

Guinea-Bissau

Guinea

The Gambia

Chad

Congo DRC

Cameroon10

Pre-HIPCPre-HIPC

Togo

Sudan

Somalia

Myanmar

Liberia

Lao PDR

Congo, Republic of

Comoros

Cote d’Ivoire

Central African Rep.10Burundi

38 Participating Countries38 Participating Countries

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The HIPC Sunset ClauseThe HIPC Sunset Clause

A “sunset clause” was included to prevent HIPC A “sunset clause” was included to prevent HIPC

from becoming a permanent facility.from becoming a permanent facility.

In September 2004, the Boards of the World In September 2004, the Boards of the World

Bank and IMF decided to extend the sunset Bank and IMF decided to extend the sunset

clause to end-2006 and to limit (“ring-fence”) its clause to end-2006 and to limit (“ring-fence”) its

application to countries fulfilling the income and application to countries fulfilling the income and

indebtedness criteria as of end-2004.indebtedness criteria as of end-2004.

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Status of the AssessmentStatus of the Assessment

Four countries appear Four countries appear

likely to be likely to be newlynewly eligible eligible

Work continues on these Work continues on these

four plus five other four plus five other

possible casespossible cases

The final list is due by April The final list is due by April

20062006

Governments choose Governments choose

whether to enter the whether to enter the

InitiativeInitiative

NPV/XNPV/X NPV/RNPV/R

EritreaEritrea 362362

NepalNepal 201201

HaitiHaiti 190190

KyrgyzKyrgyz 345345

BangladeshBangladesh 158158 195195

MyanmarMyanmar 150150 748748

BhutanBhutan 148148 204204

TongaTonga 126126 9696

Sri LankaSri Lanka 111111 238238

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The HIPC ProcessThe HIPC Process

88

The HIPC ProcessThe HIPC Process

IrrevocableDebt ReliefDecision

Point

6 months on track with

reform program and

PRSP or I-PRSP in placeCalculation of relief dueAgreement on

country-specific completion point triggers

Country meetsHIPC eligibilitycriteria

CompletionPoint

InterimPeriod

Satisfactory performance of reform program

One year of execution of PRSP

Meet completion point triggers

PreliminaryDocument

Interimrelief

99

US million

Total Stock of debt (NPV) 1,192Multilateral 906

IDA 327IMF 174AsDB 331

Bilateral 286

NPV/X ratio 134o/w multilateral debt 102

NPV/R ratio 345o/w multilateral debt 262

Common reduction factor 28%

Approximate HIPC Assistance (NPV) 323Multilateral 246

IDA 90IMF 48AsDB 91

Bilateral 77

Memorandum items

Estimated HIPC assistance - Nominal 490IDA 137IMF 61AsDB 139

Estimated cost MDRI for IDA and IMFNominal 519

Kyrgyz Republic: Debt Indicators

Where does Kyrgyz Stand?Where does Kyrgyz Stand?

1010

The Multilateral Debt The Multilateral Debt Relief InitiativeRelief Initiative

(MDRI)(MDRI)

1111

The MDRIThe MDRI

The MDRI on IDA and IMF claims occurs at the The MDRI on IDA and IMF claims occurs at the HIPC Completion Point:HIPC Completion Point: A country must reach the HIPC Completion Point.A country must reach the HIPC Completion Point.

100% cancellation of outstanding debt to the 100% cancellation of outstanding debt to the IDA (as of end-2003) and the IMF (as of end-IDA (as of end-2003) and the IMF (as of end-2004).2004).

For the Kyrgyz Republic, initial figures suggest a For the Kyrgyz Republic, initial figures suggest a debt write-off of roughly USD 520 million debt write-off of roughly USD 520 million (assuming completion point in Dec-2007).(assuming completion point in Dec-2007).

Caveat: All figures are “back of the envelope” and intended for illustrative Caveat: All figures are “back of the envelope” and intended for illustrative purposes onlypurposes only

1212

Likely Impact on Public Likely Impact on Public FinancesFinances

In 2007, HIPC debt service relief (interim assistance) In 2007, HIPC debt service relief (interim assistance)

will be roughly USD 30 million.will be roughly USD 30 million.

Once Completion Point is reached, annual debt Once Completion Point is reached, annual debt

service relief, including the MDRI, will be reduced by service relief, including the MDRI, will be reduced by

an average USD 42 million over 2007-2025.an average USD 42 million over 2007-2025.

Amount of debt service reduction will remain Amount of debt service reduction will remain

substantial, though it will generally decline substantial, though it will generally decline

thereafter.thereafter.

1313

Estimated Debt Service Estimated Debt Service ReliefRelief

Includes HIPC and MDRI relief. Red numbers are averages for the years concerned.

15

30

52 53

44 39 41

10

-

10

20

30

40

50

60

2006 2007 2008 2009 2010-15 2016-20 2021-25 2026-43

Estimated Debt Service ReliefUSD millions

Assumed CP

1414

Main ConsiderationsMain Considerations

BenefitsBenefits

• Direct, irrevocable debt Direct, irrevocable debt service relief from service relief from multilateral, bilateral, multilateral, bilateral, and commercial and commercial creditorscreditors

• MDRI: 100% debt MDRI: 100% debt cancellation from IDA cancellation from IDA and IMFand IMF

• Debt relief creates fiscal Debt relief creates fiscal space for social space for social spendingspending

• Policy signaling Policy signaling Strong commitment Strong commitment

to stabilizationto stabilization Credit worthinessCredit worthiness

ConsiderationsConsiderations

• Additional conditionality Additional conditionality but most envisioned by but most envisioned by the NPRSthe NPRS

• Some bilateral creditors Some bilateral creditors may scale back new may scale back new assistance for a few assistance for a few years after they grant years after they grant debt reliefdebt relief

1515

Additional ConsiderationsAdditional Considerations

Concerns that becoming a HIPC Concerns that becoming a HIPC would adversely affect FDI inflows would adversely affect FDI inflows into Kyrgyz Republic are unfounded:into Kyrgyz Republic are unfounded:• Current or prospective FDI are primarily Current or prospective FDI are primarily

in traditional sectors;in traditional sectors;• Large share of FDI comes from the CIS Large share of FDI comes from the CIS

or neighbor countries and would not be or neighbor countries and would not be deterred by the HIPC status;deterred by the HIPC status;

• On the contrary, better debt solvency On the contrary, better debt solvency indicators and structural reforms would indicators and structural reforms would send a strong signal to potential send a strong signal to potential investors.investors.

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Special case – Special case – MDRI by the IMFMDRI by the IMF

Non-HIPC countries are eligible to receive Non-HIPC countries are eligible to receive

the MDRI on IMF claims if their per capita the MDRI on IMF claims if their per capita

income is below USD 380.income is below USD 380.

Under this window, the IMF cancelled USD Under this window, the IMF cancelled USD

99 million in debt owed by Tajikistan.99 million in debt owed by Tajikistan.

1717

Thank YouThank You

http://www.worldbank.org/debthttp://www.worldbank.org/debthttp://imf.org/external/np/exr/facts/mdri.htmhttp://imf.org/external/np/exr/facts/mdri.htm

http://www.imf.org/external/np/exr/facts/hipc.htmhttp://www.imf.org/external/np/exr/facts/hipc.htm