Progress on HIPC and MDRI Implementation Preliminary data, not for quotation

1. Progress on HIPC and MDRI ImplementationPreliminary data, not for quotation Economic Policy and Debt Department World Bank MDB Meeting on Debt Issues, Washington, DC, July 8, 2009

2. HIPC/MDRI Implementation PLAN FOR PRESENTATION • 1. Recent progress and current status • 2. Flexible implementation of the HIPC initiative • 3. Remaining challenges • a) Progress towards debt relief in the remaining 14 HIPCs • b) Ensuring full creditor participation • c) Ensuring adequate financing to maintain debt sustainability • 4. Conclusions & next steps

3. 1. Recent progress and current status • Substantial Progress since last year • 3 countries reached CP • Burundi (Jan. 2009), CAR & Haiti (Jun. 2009) • 2 reached DP • Togo (Nov. 2008) & Cote d’Ivoire (Mar. 2009) • 40 eligible HIPCs willing to avail themselves of relief under the HIPC Initiative (1 less) • Nepal signaled withdrawal • Since the 1996, modalities have evolved to fit country-specific circumstances

4. Recent progress and current status • (cont.) A large majority of HIPCs have received or begun to receive debt relief 26 CP countries 9 DP countries 5 Pre-DP countries

5. Heavily Indebted Poor Countries (as of end June 2009) • Recent progress and current status • (cont.)

6. Recent progress and current status • (cont.) Debt burdens have been reduced by 80% compared to DP levels In billions of U.S. dollars, in end-2008 NPV terms

7. Recent progress and current status • (cont.) As of 2007, poverty-reducing expenditure increased in similar proportions as the debt-service reduction

8. 2. Flexible implementation Three flexibility approaches have been used to facilitate HIPCs’ receipt of debt relief: Arrears clearance Track record of policy performance Implementation of CP triggers

9. Track Record at DP Arrears Clearance 2. Flexible implementation (cont.) HIPC steps Problems faced by HIPCs Flexibility introduced in the HIPC Initiative Pre-DP HIPCs have significant arrears to MDBs and official bilateral creditors to be cleared prior to qualification • A framework to treat arrears clearance to MDBs in place since the beginning of the Initiative. The grant element of arrears clearance operations considered towards the share of HIPC debt relief. • All recent 6 HIPCs benefited from substantial arrears clearance operations from many MDBs. • Besides the original required programs, the Initiative could accept, on case-by-case, diverse programs as proof of track record (SBA, RAP, SMP or EPCA) • Côte d’Ivoire reached DP under an EPCA • Liberia reached DP under an SMP (upper-tranche conditionality) • HIPCs could build a track record while clearing the arrears Pre-DP HIPCs face difficulties in establishing or maintaining macro stability to support reforms and advance toward the MDGs • Boards applied flexibility in deciding whether the country reaches CP in spite of not fully meeting all the triggers • Of current 26 post-completion HIPCs, 16 have benefited from flexibility in triggers’ assessment at CP Implementation of CP triggers Difficulty in meeting all the floating CP triggers

10. 2. Flexible implementation (cont.) Since 2006, flexibility has helped 7 countries reach the DP and 3 reach the CP in short time

11. 3. Remaining challenges a) Progress towards debt relief in the remaining 14 HIPCs b) Ensuring full creditor participation c) Ensuring adequate financing to maintain debt sustainability

12. 3. Remaining challenges (cont.) a) Progress towards debt relief • 15 out of 16 pre-CP HIPCs are ‘fragile states ‘ (WB definition). • Several remaining pre-CP HIPCs are progressing toward DPs/CPs. • Expected missions in FY10: Decision Point Completion Point

13. 3. Remaining challenges (cont.) a) Progress towards debt relief • Main challenges facing remaining HIPCs: • Guinea Bissau and Chad: serious post-conflict economic and political challenges, unable to maintain macroeconomic stability. • DRC: Level of concessionality of new borrowing may delay progress • The main obstacles to the other 4 pre-DP countries are of a political or security nature • Kyrgyz Republic: uncertain scenarios • Somalia and Sudan: protracted arrears to MDBs • Eritrea: limited engagement with IFIs

14. 3. Remaining challenges (cont.) Distribution of expected HIPC relief by creditor group b) Ensuring full creditor participation Total estimated cost: US$ 74 billion in end-2008 NPV term • Participation by other bilateral and commercial creditors is key for the delivery of debt relief to pre-DP countries • Multilateral and bilateral creditors continue to provide debt relief in line with HIPC Initiative commitments

15. 3. Remaining challenges (cont.) Distribution of expected MDRI relief by creditor b) Ensuring full creditor participation Total estimated cost: US$ 29 billion in end-2008 NPV term • The 4 participating IFIs have delivered debt relief under MDRI as scheduled • About 85 percent of total MDRI expected costs has already been delivered to the 26 post-CP countries. *Excludes non-HIPCs

16. 3. Remaining challenges (cont.) Non-Paris Club Creditors b) Ensuring full creditor participation • Non-Paris Club (NPC) creditors account for about 13% (US$10 bill.) of total cost of HIPC Initiative debt relief • Around 40% estimated delivery by NPC creditors of expected HIPC relief to post-CP HIPCs • Large variation in NPC creditors’ delivery of HIPC relief: • As of 2008, only 8 creditors providing full debt relief to HIPCs, 22 creditors partial, and 20 creditors none • Preliminary results 2009 confirm the 2008 survey (annual survey sent to major NPC creditors & post-CP HIPCs) • Estimated delivery of NPC Creditors published on WB and IMF web (Scorecard) in Sept. 2008. To be updated in the 2009 Progress report

17. 3. Remaining challenges (cont.) Commercial Creditors b) Ensuring full creditor participation • Commercial creditors account for about 6% (US$4 billion) of total est. cost of HIPC Initiative • Last year’s progress increased creditor participation from single digit to an estimated 33%: • DRF operations: Nicaragua and Liberia • London Club restructuring: Republic of Congo • In 2009, est. costs for debt relief to post-DP countries increased from $2.3 billion to US$3.4 billion in 2008 NPV terms, mainly due to the qualification of Côte d’Ivoire.

18. 3. Remaining challenges (cont.) Commercial Creditors Litigation against HIPCs b) Ensuring full creditor participation • As of 2008 Progress Report, commercial creditors filed 54 court cases against 12 HIPCs over the past decade • Annual HIPCs authorities Survey on Commercial Creditor Litigation sent in May 2009 and results being analyzed • Significant changes may arise from information that Liberia and Cote d’Ivoire may report • Range of instruments to support HIPCs in litigation has increased: • Active and cooperative negotiations (Nicaragua, Liberia) • African Legal Support Facility at the AfDB successfully launched on June 29th , 2009. • ComSec HIPC Clinic

19. 3. Remaining challenges (cont.) Debt Reduction Facility (DRF) b) Ensuring full creditor participation • As of May 2009, DRF has supported 25 commercial debt reduction operations in 22 IDA-only countries. • Extinguished about US$10 billion of debt (principal & interest), at about US$0.75 billion cost • Debt reduction fully comparable to the HIPC Initiative • Total eligible commercial external debt of all 40 HIPCs estimated at US$10.9 – 15.4 billion. • DRF helped Liberia buy back US$1.2 billion in outstanding government debt (April 2009), at 97% discount … the steepest • DRF Preparation Grants on-going for Sierra Leone and DRC • DRF reviewing Côte d’Ivoire’s request for a second Implementation Grant

20. 3. Remaining challenges (cont.) c) Ensuring adequate financing to maintain debt sustainability • Current global crisis will impact LICs mainly through reduction in export volumes, lower commodity prices, lower FDIs and remittances • Official Aid expected to decline in 2009 compared to 2008 (GDF 2009; REO for SSA, Apr. 2009) • Domestic markets too thin to ensure adequate financing • 5 post-CP HIPCs remain at high risk of debt distress after HIPC and MDRI relief • 17 out of 26 HIPCs (including the 5 new HIPCs) are at high or moderate risk • For many HIPCs external financing at adequate terms would be necessary to maintain debt sustainability in the M-T

21. 4. Conclusions and next steps • Summary conclusions • HIPC Initiative and MDRI: significant progress over the last year • Since mid-2008, 3 HIPC reached CP and 2 reached DP • 1 pre-DP HIPC is advancing to qualification and 4 DP HIPCs making progress to CP • Delivery of debt relief significant, mainly due to efforts by MDBs, Paris-Club, some commercial & bilateral creditors and DRF resources • Current crisis has increased the proportion of CP-HIPCs that remain at moderate and high risk of debt distress. Financing on adequate terms would be necessary to maintain debt sustainability

22. 4. Conclusions and next steps (cont.) Next steps Updated status of implementation of the HIPC Initiative and MDRI: 2009 Annual Meetings Track debt relief delivered by all MDBs Analysis of the impact of the current economic and financial crisis on HIPCs

23. Thank you http://www.worldbank.org/debt