45201 rev. INTERNATIONALDEVELOPMENTASSOCIATION AND INTERNATIONALMONETARY FUND Heavily IndebtedPoor Countries (HIPC) Initiativeand MultilateralDebtRelief Initiative(MDRI)-Status ofImplementation Preparedby the Staffs of IDA and IMF Approved by Danny Leipziger andMark Allen August 26. 2008 Contents Page ExecutiveSummary .............................................................................................................. ....i I Introduction................................................................................................................. 1 . I1. A. Background.............................................................................................................. DebtReliefinHIPCs:What has BeenAchieved Since Monterrey?....................... 1 B. Recent Developmentsand Implementationofthe Consensus 1 C. Conclusions............................................................................................................. Recommendations................................................................................................... 2 9 I11 . An Update onthe Costs of the HIPC Initiativeandthe MDRI ............................. 11 IV. RemainingChallenges ............................................................................................... 13 A Taking Remaining Countriesthroughthe HIPC Initiative Process....................... 14 B Ensuringthe FullParticipationofAll Creditors .. .................................................... 20 C. Ensuring Financingof the HIPC Initiative ............................................................ 29 V. DebtOutlookinPost-Completion-PointCountries ............................................... 30 A Overview ............................................................................................................... 30 B. The Fundandthe Bank's Effortsto Foster Debt Sustainability............................ . 35 Tables Table 1. List ofHeavily IndebtedPoor Countries (as of end-July 2008)..................... 3 Table 2 HIPC Initiative: Costs by Main Creditor and Country Group...................... 11 Table 3 MDRICosts by Creditor and Country Group .............................................. .. 13 Table 4 DebtReliefto Post-Completion-Point HIPCs from NonParis Club . Bilateral Creditors ........................................................................................ 23 Table 5 HIPC Initiative: Commercial Creditor Lawsuits against HIPCs . .................. 27 Figures Figure 1.Average Debt Service and Poverty Reducing Expenditures.......................... 7 Figure 2.Distribution of Potential Costs under the HIPC Initiative andMDRIby Creditor......................................................................................................... 12 Figure 3 Policy Performance andPrevalence of Conflicts inHIPCs ......................... 14 Figure 4 Duration of the InterimPeriodunder the HIPC Initiative 16 Figure 5 Post-DecisionPoint HIPCs' Debt Stock under DifferentDebt Relief ... ............................ Stages ............................................................................................................ 30 Figure 6.Dispersion of the NPV of Debt-to-Exports Ratio and Risk of Debt Distress in Low Income Countries ............................................................... 31 Figure 7 Figure 8 Distribution of the NPV of debt-to-exports ratio inpost completion ..Riskof Debt Distress Ratings of Post-Completion-Point Countries............32 point HIPCs .................................................................................................. 33 Boxes Box 1 DebtRelief. Poverty-Reducing Expenditures(PRE). and Revenue . 8 Box 2 Liberia's Pathto the Decision Point . Mobilization ...................................................................................................... ................................................................ 19 Box 3. The IDA-DebtReduction Facility: Recent Modifications .............................. 25 Box 4. HighRisk of DebtDistress inPost-Completion-Point HIPCs........................ 34 Annexes Annex IEnhancedHIPC Initiative: ImplementationStatus by Country . ...................38 A Pre-Decision-Point Countries . .................................................................. 38 B InterimCountries..................................................................................... 44 51 Annex I1 Country Coverage, Data Sources, andAssumptions for the HIPC .C .. Post-Completion-Point Countries ............................................................ Initiative and MDRICosting Exercise...................................................... 63 Appendix Tables Table 1. Summary of Debt Service and Poverty Reducing Expenditures 1999- 2012 .............................................................................................................. 65 Table 2 Debt Service of 33 Post-Decision-Point HIPCs, 2001-2012........................ . 66 Table 3. Poverty-Reducing Expenditure of 33 Post-Decision-Point HIPCs 2001 - 2012 .............................................................................................................. Table 4 HIPC Initiative and MDRI: Committed DebtReliefand Outlook 72 Table 5 HIPC Initiative: Cost Estimatesto Multilateral Creditors and Status of .. ...............69 their Commitments to Post-Completion-Point HIPCs ................................. 73 Table 6A Status ofDelivery of HIPC Initiative andMDRIAssistance by the . World Bank ............................................................................................... 74 Table 6B World Bank Group Debt Service after HIPC Initiative and MDRI . DebtRelief, 2000-2011............................................................................. Table 7A. Implementation of the HIPC Initiative andMDRIby the IMF .................75 77 Table 7B IMFHIPC Initiative and MDRIDebt Relief, 1998-2008 . ......................... 78 Table 8A. Status of Delivery of HIPC Initiative and MDRIAssistance by the AfricanDevelopment Bank (AfDB) Group .............................................. 79 Table 8B AfDB Group Debt Service after HIPC Initiative and MDRIDebt . Relief, 2000-2011...................................................................................... 80 Table 9. Status o f Delivery o f HIPC and IaDB-07 InitiativesAssistance by the Inter-AmericanDevelopment Bank (IaDB) .................................................82 Table 10. Status o f Bilateral Donor Pledges to the HIPC Trust Fund.......................83 Table 11. HIPC Initiative: Cost Estimates to Paris Club Official Bilateral Creditors by Creditor Country.......,.,,........................................................84 Table 12. Debt Relief Committed andDeliveredby the Paris Club Official Bilateral Creditors...................................................................................... 85 Table 13. Paris Club Official Bilateral Creditors' Delivery o f Debt Reliefunder Bilateral Initiatives beyond the HIPC Initiative .......................................-86 Table 14. HIPC Initiative: Cost Estimates to Non-Paris Club Official Bilateral Creditors by Creditor Country ................................................................... 87 Table 15. Delivery o f HIPC Initiative Debt Reliefby Non-Paris Club Official Bilateral Creditors by Creditor Country .................................................... 89 Table 16. Commercial Creditor Lawsuits Against HIPCs.......... .............................90 .. ABBREVIATIONS AND ACRONYMS AfDB African Development Bank AfDF African Development Fund AFESD Arab Fundfor Social and Economic Development AFRITAC Africa Regional Technical Assistance Centers AMF Arab Monetary Fund AsDB Asian Development Bank BADEA Arab Bank for Economic Development inAfrica BCEAO Central Bank o f West African States BDEAC Banque de DCveloppement des Etats de 1'Afrique Centrale (Central African States DevelopmentBank) BDEGL Banque de DCveloppement des Etats des Grand Lacs (Development Bank o f Great Lake States) BEAC Banque des Etats de 1'Afrique Centrale (Bank o f Central African States) BIAPE Banco Interamericano de Ahorro y Prestamo BOAD Banque Ouest Africaine de Developpement (West African Development Bank) CABEI Central American Bank for Economic Integration CAF Corporacion Andina de Foment0 CDB Caribbean Development Bank CEMLA Centro de Estudios Monetarios Latinoamericanos CIRR Commercial Interest Reference Rate CMCF CARICOM Multilateral Clearing Facility CPIA Country Policy and Institutional Assessment CP Completion Point DeMPA Debt Management Performance Assessment D P Decision Point DRC Democratic Republic o f the Congo DRF Debt Reduction Facility DRI Debt ReliefInternational DSA Debt Sustainability Analysis DSF Debt Sustainability Framework EADB East African Development Bank EBID ECOWAS Bank for Investment and Development EDF European DevelopmentFund EFF Extended FundFacility EIB European Investment Bank EITI Extractive Industries Transparency Initiative EPCA Emergency Post-Conflict Assistance ESF Exogenous Shocks Facility EU European Union FEGECE Fonds d'Entraide et de Garantie des Empruntsdu Conseil de 1'Entente (Fundof Aid and of Loans Guarantee ofthe Agreement Council) FOCEM Fondo Centroamericano de Estabilizacion Monetaria FONPLATA Fundfor the FinancialDevelopmentof the River Plate Basin FSID Fonds de solidaritk islamique pour le dkveloppement (Islamic Fundfor Solidarity and Economic Development) GDP Gross Domestic Product HIPC Heavily Indebted Poor Countries IaDB Inter-AmericanDevelopment Bank IBRD International Bank for Reconstruction andDevelopment IDA International Development Association IDA15 FifteenthReplenishment o f IDA IFAD International Fundfor Agricultural Development IMF International Monetary Fund I-PRSP InterimPoverty ReductionStrategy Paper IsDB Islamic Development Bank JSAN Joint Staff Advisory Note KIA Kuwait Investment Authority LICS Low Income Countries MDB Multilateral Development Bank MDGs MillenniumDevelopment Goals MDRI Multilateral DebtReliefInitiative MEFMI Macroeconomic and Financial Management Institute for Eastern and Southern Africa MTDS Medium-Term Debt Management Strategy NDF Nordic Development Fund NIB Nordic Investment Bank N P V Net Present Value NTF Nigerian Trust Fund ODA Official Development Assistance OPEC Organization o f Petroleum Exporting Countries OFID OPEC Fundfor International Development PEFA Public Expenditureand FinancialAccountability PRE Poverty Reducing Expenditures PRGF Poverty Reduction and GrowthFacility PRSP Poverty Reduction Strategy Paper PTA Eastern and Southern African Trade and Development Bank RAP Rights Accumulation Program SAF Structural Adjustment Facility SBA Stand-By Arrangement SCA Special Contingent Account SDR Special Drawing Rights SMP StaffMonitored Program UNCTAD UnitedNations Conference on Trade andDevelopment WAEMU West African Economic and Monetary Union WAIFEM West African Institute for Financial and Economic Management i Executive Summary This report provides an update on the status o f implementation, impact and costs o fthe EnhancedHeavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).'With a view to the upcoming Financing for Development meetings inDoha, the report not only reports on recent progress since mid-2007, but also on developments since the Monterrey Consensus recommendations on external debt relief. Substantial steps have been taken since 2002 to meet these recommendations and as a result debt burdens have been reduced markedly for many HIPCs: Substantial progress has been made inthe implementation o f the HIPC Initiative. More than three quarters o f eligible countries (33 out o f 41) have passed the decision point and qualified for HIPC Initiative assistance. Ofthose, 23 countries have reached the completion point and qualified for irrevocable debt reliefunder the HIPC Initiative and MDRI, most o f them since the Monterrey conference. Further debt relief has been provided through the MDRIto accelerate progress towards the MDGs. Assistance inthe amount o f US$117billion (innominal terms) has been committed to the 33 post-decision-point HIPCs, mostly under the HIPC Initiative and through the MDRI.This represents on average about 50 percent o f these countries' 2007 GDP. After the full delivery o f debt relieftheir debt burdenis expected to be reducedby about 90 percent. While preserving the core HIPC Initiativeprinciples, flexibility has been applied inimplementing the Initiative to facilitate HIPCs' progresstowards debt relief. Despite the achievements described above, a number o f challenges remain to be addressed for a full implementation o f the Initiative: Many pre-decision and pre-completion-point HIPCs have to strengthen their policies and institutions and will require continued support from the international community to be brought to the point where they can benefit from full debt relief. Another challenge i s to ensure that HIPCs get full debt relief from all their creditors. These include smaller multilateral creditors, non-Paris Club bilateral official creditors, and private creditors, which together are expected to bear about 25 percent o f the total HIPC Initiative cost. Inthis regard, the large increase in 1Henceforthfor brevity references to the enhancedHIPC Initiative will drop the word "enhanced." .. 11 the delivery o f debt reliefby commercial creditors last year i s a welcome development which confirms the value o f a proactive and cooperative approach, includingto prevent litigation. Recent changes made to IDA'SDebt Reduction Facility are expected to catalyze further creditor participation inthe HIPC Initiative. 0 A final challengewill be to ensure that the HIPC Initiative and the MDRIare fully financed. Although HIPC Initiative and MDRIdebt reliefhave reduced substantially the debt burden o f many HIPCs, maintaining debt sustainability beyond the completion point remains a concern. Debt sustainability analyses (DSAs) confirm that post-completion- point countries are ina better debt situation than other HIPCs, and also than non-HIPCs. However, only about 40 percent o f them have a low risk o f debt distress according to the most recent DSAs and the number o f countries with a highrisk rating increased from one to four since last year. Post-completion-point countries' debt sustainability remains vulnerable to shocks, particularly those affecting exports, and is highly sensitive to the terms o f new financing. These results highlightthe need for these countries to implement sound borrowingpolicies and strengthen their capacity inpublic debt management, two areas where the Bank and the Fundhave stepped up their efforts to better assist their low-income members. I. Introduction' 1. This report reviews the implementationof the Heavily IndebtedPoor Country (HIPC) Initiativeand the MultilateralDebt ReliefInitiative(MDRI). With a view to the upcoming Financing for Development meetings inDoha, which will focus on the implementation o f the Monterrey Consensus, this year's report takes stock o f the progress made by the World Bank and IMF inimplementing the Consensus recommendations on external debt relief (Section II).3 Section I11updates the information on the estimated costs of HIPC Initiative and MDRIdebt relief. Section IV discusses the remaining challenges in implementing the HIPC Initiative, namely: (i) enteringandor completing the HIPC Initiative process for pre-completion-point HIPCs; (ii) ensuringfullparticipation o fall creditors; and (iii)mobilizing additional resources to finance debt relief under both initiatives. Section V discusses the debt sustainability outlook inpost-completion-point HIPCs. 11. DebtReliefinHIPCs: What hasBeenAchieved SinceMonterrey? A. Background 2. The internationalcommunityreacheda consensus inMarch 2002 on a global responseto address the challengesfor financingdevelopment.Mobilizingand increasing the effective use o f financial resources was seen as a crucial first step to help create the national and international conditions necessary for meeting internationally agreed development goals. 3. Key recommendationswere put forward regardingexternaldebt relief. The Monterrey Consensus noted that external debt relief could play a key role inliberating resources that could then be directed towards activities consistent with attaining sustainable growth and development. Debt reliefmeasures should, where appropriate, be pursued vigorously and expeditiously. More specifically, the Consensus: This paper was preparedby Gallina Vincelette, Luca Bandiera, Doerte Doemeland, Boris Gamarra, Juan Pedro Schmid, Mona Prasad, Henry Mooney, and Marta Bruska from the World Bank, and Hew6 Joly, Perry Perone, Anna Unigovskaya, Christian Beddies, Jayendu De, Albert0 Espejo, Ritha Khemani, and Cecilia Mongrut from the IMF. Monterrey Consensus refers to the document adopted at the International Conference on Financing for Development in Monterrey (Mexico) in2002. It represents an agreement on common goals in financing development forged among heads o f states, representatives o f international organizations, NGOs, and other stakeholders. Since its adoption, the Monterrey Consensus has become a key reference point for international development cooperation. 2 welcomed initiatives that had already been undertaken, such as the HIPC Initiative, and invited further measures as appropriate; 0 called for the speedy, effective, and full implementation of the HIPC Initiative, which should be fully financed through additional resources; 0 stressed the importance o f continued flexibility, particularly regarding the application o f the eligibility criteria; recommended that debt relief analysis at the completion point take into account any exogenous factors, such as worsening global growth prospects or declining terms o f trade; and 0 suggested taking into account the impact o f debt relief on progress towards the achievement o f the Millennium Development Goals (MDGs). B. RecentDevelopmentsand Implementationof the ConsensusRecommendations 4. Substantialprogresshasbeen madeinthe implementationof the HIPC Initiative.Morethan three quarters o f eligible countries (33 out o f 41) have passed the decision point and qualified for HIPC Initiative assistance. Ofthose, 23 countries have reached the completion point and qualified for irrevocable debt relief under the HIPC Initiative and MDRI, most o f them (19) since the Monterrey conference (Table 1). Since the last Status of Implementation report, the Central African Republic and Liberia reached the decision point in September 2007 and March2008, respectively, bringingthe number o f interim HIPCs to ten, and The Gambia reached the completion point inDecember 2007.4 4Initiative for Heavily Indebted Poor Countries (HIPC) andMultilateral Debt Relief Initiative (MDRI)-Status of Implementation (SM/07/3 10, August 30, 2007) 3 Table 1.Listof Heavily IndebtedPoor Countries(as of end-July 2008) 23 Post-Completion-Point Countries I' Benin Honduras Rwanda Bolivia Madagascar Siio Tom6 and Principe Burkina Faso Malawi Senegal Cameroon Mali Sierra Leone Ethiopia Mauritania Tanzania Ghana Mozambique Uganda Guyana Nicaragua Zambia Gambia, The Niger IO InterimCountries '' Afghanistan Congo, Dem.Rep. o f the Haiti Burundi Congo, Rep. o f Liberia Central African Republic Guinea Chad Guinea-Bissau 8 Pre-Decision-Point Countries 3` CBte d'Ivoire Kyrgyz Republic 41 Sudan Comoros Nepal Togo Eritrea Somalia Notes: Countries that have qualified for irrevocable debt reliefunder the HIPC Initiative and have received MDRIrelief. 21 Countries that have qualified for assistance under the HIPC Initiative (Le., reached decision point), but have not yet reached completion point. 31Countries that are potentially eligible and may wish to avail themselves o f the HIPC Initiative.41 The Kyrgyz authorities indicated inearly 2007 that they did not wish to avail themselves o f the HIPC initiative but subsequently expressed interest for the MDFU.At end-2007, indebtedness indicators were estimated to be below the applicable HIPC Initiative thresholds, while income levels were estimated to be above the IMFMDFU thresholds. 5. The overallassistance committedto the 33 post-decision-pointHIPCs amounts to US$117billion(in nominalterms), includingUS$49 billionunder the MDRI.This represents on average about 50 percent o f these countries' 2007 GDP. As a result o f this debt relief, as well as relief under traditional mechanisms and additional beyond HIPC relief from some creditors, the debt burdeno f the 33 post-decision-point HIPCs is expected to be reducedby about 90 percent, compared to their pre-decision-point debt stock. 6. While preservingthe HIPC Initiative's core principles,flexibility hasbeen often exercisedto facilitate HIPCs' receipt of debt relief. Inparticular, as the universe o f countries inneed o f debt relief changed, with a growing share o f post-conflict cases, operational modalities were adapted to fit their challenging circumstances better. Eligibility criteria were reviewedto ensurethat no countrywith debt burdens in excess of the HIPC Initiative's thresholdswould be leftwithout a comprehensive framework to addressits debt problems.Eligibility initially requiredmeeting the Initiative's debt and income criteria, and having started a Fund- or IDA-supported program inthe period following the launch o f the Initiative in 1996.A sunset clause 4 on eligibility was introduced early (and renewed four times) to prevent the Initiative from becoming permanent, minimize potential moral hazard arising from excessive borrowing inanticipation o f debt relief, and encourage early adoption o f reforms. In 2006, the Executive Boards o f the IMF and the IDA endorsed and closed ("ring- fenced") the list o f countries eligible or potentially eligible at that time but clarified that it could be amended to include other countries that would meet, inthe future, the Initiative's income and indebtedness criteria using end-2004 data.5For instance, Afghanistan, although not on the 2006 list, was later found to be eligible for HIPC Initiative assistance and reached the decision point inJuly 2007. 0 The definitionof a satisfactorytrack recordof policyperformance-a requirementfor reachingboth decisionand completionpointunder the HIPC Initiative-has also been applied flexibly. While the PRGF-HIPC Trust Instrument provides for a track record o f normally three years o f sound policies under a Fundor IDA-supported program to reach the decision point and another three years to reach the completion point, the practice inrecent years has been to consider satisfactory a much shorter track record, with a minimum o f six months ineach case. The instruments that may be used to establish the pre-decision-point track record have been modified: since 2003, programs supported under Emergency Post-Conflict Assistance (EPCA) have also been used (inaddition to programs supported under the PRGF, ESF, EFF, SBAs, RAP and SAF) to establishthe pre-decision-point track record (e.g., Haiti). Since early 2008, to give credit to countries implementing sound economic policies but where the existence o f protracted arrears precludes other forms o f Fundengagement, performance under staff-monitored programs (SMPs) that have been found by the Fund's Executive Board to have policies meeting the standards required for arrangements inthe upper credit tranches or under the PRGFmay count toward the track record for the decision point (e.g. Liberia).6 The HIPC Initiativeprovidesincentivesfor early pre-decision-pointclearanceof arrears. Clearance o f arrears has been allowed to be counted towards a creditor's expected debt relief under the Initiative. Since 2002, multilateral creditors have cleared arrears inBurundi, Central African Republic, Democratic Republic o f the Congo, Haiti, Liberia, Togo, and CBte d'Ivoire. The Bank and the Fundcoordinate 5Whereas for the Bank the two criteria are bound by end-2004 data, for the Fundonly the indebtness criterion is. So far, this difference has not resulted in different assessments o f eligibility by the two institutions. 6The amendment also added these qualifying SMPs to the list o f instruments that members may use to establish eligibility for HIPC Initiative debt relief. See "Proposal to Modify the PRGF-HIPC Trust Instrument--Further Considerations and Proposed Decision", EBSI071152. 5 closely with other Multilateral Development Banks' arrears clearance operations. ' IDAhas also developed a framework to provide additional concessionalfinancing for fragile states before and after arrears clearance and to help countries improve government accountability and strengthen institutional capacity.' 0 There has also beenflexibility regardingthe preparation and implementationof povertyreductionstrategies.The ability to reachthe decisionpoint onthe basis of a satisfactory poverty reduction strategy set out in an interim poverty reduction strategy paper has allowed countries with limited administrative capacity to reach the decision point more easily. A full PRSP (including a one-year implementation period) i s required only for reaching the completion point. Most HIPCs have availed themselves o f this flexibility at the decision point. 0 Interim relief limitshavebeenincreasedinexceptionalcases. Boththe Bank and the Fundhave established caps on their provision o f reliefbetween the decision and completion point to provide incentives for the timely implementation o f reform programs. For the Bank, the assistance i s normally capped at one third o f the relief committed at the decision point; for the Fund, it i s capped at 60 percent o f the relief committed at the decision point (and no more than 20 percent for each 12-month period) but inexceptional circumstances interimassistance can be raised to 75 percent (and 25 percent for each 12-month period). The Bank raised its cap to 50 percent for Guinea, Guinea-Bissau and Haiti; and the Fundhas applied its exceptional circumstances limit for Zambia and Sierra Leone, to align the provision o f HIPC interimassistance with the profile o ftheir debt service to the Fund. Judgmenthasbeenusedto assess progresstowards completion-pointtriggers. Based on staffs' assessment o f progress inimplementing the completion-point triggers, the IDA Board has flexibility indeciding ifthe country reaches completion point inspite o f not fully meeting all the triggers, while the FundBoard can formally grant waivers. To date, 14o f the 23 post-completion-point HIPCs were granted 7 See "HIPC Debt Initiative: The Chairman's Summary o f the Multilateral Development Banks' Meeting," March 6, 1998, IDA/Sec M98-90. * Among the 18 pre-completionpoint HIPCs, currently seven post-conflict countries receive additional IDA resources and three re-engaging countries receive exceptional IDA allocations under IDA'Spolicy to support fragile states. For IDA policies infragile states see "Operational Approaches and Financing inFragile States", IDA 15, June 2007; "Further Elaborationof a Systematic Approach to Arrears Clearance", June 2007, IDABecM2007-0443; and "Establishment o f a State- and Peace-Building Fund", March 2008, IDA/R2008- 0056. 9For IDA interim reliefdelivery see "Enhanced HIPC Initiative: Proposals Concerning Sunset Clause and Provision o f InterimRelief' IDA/R2004-0234 (September 15, 2004). 6 waivers at the completion point for failing to implement one or more triggers. Judgment has been applied incases o f long interimperiods, which increase the likelihood that unforeseen events make some triggers less relevant or adapted to the country's evolving situation. 7. The HIPC Initiativeframework hasbeen adaptedto take into accountthe impactof exogenous factors on debt relief recipients.Additional debt relief("topping-up assistance") has been provided when, by the time a HIPC reached the completion point, debt burden indicators had deteriorated because o f factors beyond the country's control. The additional relief helps ensure that the debt burden i s still lowered to no more than the HIPC Initiative thresholds. Topping-up i s provided when a country's economic conditions have suffered a fundamental change because o f unanticipated exogenous developments such as natural calamities or a decline inthe terms o f trade." Six o f the 23 countries that have reached the completion point have benefited from topping-up assistance (Burkina Faso, Ethiopia, Malawi, Niger, Rwanda, and S5o Tom6 and Principe). 8. Further debt relief hasbeenprovidedthrough the MDRIto accelerateprogress towards the MDGs.The MDRIwas first proposedinJune 2005 bythe Group o f 8 (G-8) major industrial countries and was implemented in2006 by the IMF,IDA, and the African Development Fund(AfDF). Inearly 2007, the Inter-American Development Bank (IaDB) also decided to provide similar debt relief to the five HIPCs inthe Western Hemisphere. Under the MDRI, debt relief i s provided inrespect o f 100percent o f these institutions' eligible debt claims on countries that reach the completion point under the HIPC Initiative.l1 The objective was to provide substantial additional debt relief to free up resources to help HIPCs reach the MDGs. 9. While poverty-reducingexpenditureshaveincreasedand debt service has declinedconcomitantly, the impactof debt relief on attainingthe MDGs has been hard to quantify. One would intuitively expect debt relief, especially when massive, to contribute significantly to poverty reduction, by freeing up resources for poverty-reducing spending.l2 loTopping-up assistance is calculated after debt relief committed by all creditors at the completionpoint has beentaken into account, including relieffrom officialbilateral creditors beyondHIPC but excluding MDRI relief. 11MDRIdebtrelief generally covers debt disbursedbefore end-2004 (for the IMF,ADF, and IaDB) or end- 2003 (for IDA) and still outstanding at the time the member reaches the completion point under the HIPC Initiative. The IMF also provided assistance under the MDRIto Cambodia and Tajikistan-two non-HIPCs with annual income per capita below US$380 (See footnote 30 inlast year's report (SM/07/310)). 12Debt reliefwould also eliminate debt-related constraints on investment and growth. However, the studies on the effects o f debt relief on growth have been inconclusive. For example, Clements et al. ("Can DebtRelief Boost Growth inPoor Countries?", IMFEconomic Issues 34) suggests that debt reliefhas significant indirect effect on growth through higher public investment. However, Chauvin and Kraay ("Who Gets Debt Relief?", (continued) 7 However, this result has been difficult to establish empirically, given data limitations and the multiplicity o f channels at play. Empiricalwork has instead focused on the linkbetween debt relief and poverty reducing expenditures, which is easier to measure than social outcomes. For HIPCs, there appears to be a strong positive correlation between the reduction indebt service and the increase inpoverty-reducing spending: as Figure 1shows, poverty-reducing spending has increasedby about 2 percent o f GDP inHPCs since the late 1990s,while debt service has decreased by about the same amount. Recent empirical research also seems to suggest that debt reliefhas not affected negatively revenue mobilization, an important development ifdebt relief is to increase fiscal space (Box 1). Figure 1:Average DebtService and PovertyReducingExpenditures" 9 4 PR expenditure Debt seivice before MDRI 3 1 1 Debt service after MDFU 0 4 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007e 2008p 2009p 2010p Sources: HIPC documents; and IMF staff estimates. I/ Prior to 2006, figures represent debt-service paid, and thereafter, debt-service figures are projected. For detailed country data refer to Appendix Table 2. World Bank Policy ResearchWorking Paper No. 4000) found little evidence that debt relief has raised growth or investment rates. 8 Box 1. Debt Relief, Poverty-Reducing Expenditures (PRE), and Revenue Mobilization Debt relief could contribute to higher PRE intwo ways. First, debt relief creates fiscal space that may be used for PRE. Second, a reduction inthe debt stock eases the government's intertemporal budget constraint, and may facilitate borrowing to raise PRE. The first effect would be limited if debt relief i s provided inthe form o f arrears clearance, which would not reduce debt service due. The latter channel may not work incountries which are still credit constrained, like HIPCs inthe interimperiod. Empirical research o n the effect o f debt relief on PRE has been sparse, mainly due to difficulties inobtaining consistent data across countries." Usually PRE include expenditures o n health and education, but also insome countries capital expenditures on infrastructure, land irrigation, etc. The results o f recent studies have been mixed: 0 Chauvin and Kraay (2005) focused o n the effects o f debt relief o n expenditures o n health and education and didnot find any significant effect. However, partly due to difficulties inobtaining debt service relief data, this study only looked at the effect o f the reduction indebt stocks. Thomas (2006) attempted to take into account a number o f factors that may affect social expenditure (defined as expenditure o n health and education), inaddition to debt relief. Among those factors are foreign aid, output per capita, urbanization, and a target variable-the literacy rate. The study includes both LICs and MICs (110 countries) over 1985-2004. The results suggest that a decline in debt-service costs helps raise health and education expenditures significantly inLICs (a 1percent decline indebt service increases these expenditures by 0.35 percent o f output inthe long run). Cassimon and V a n Campenhout (2006), using vector autoregressive techniques, found a positive effect o f debt relief o n overall investment spending, rather than PRE, inAfrican HIPCs. A relatedissue concerns the effect o f aid, including inthe form o f debt relief, on incentives to collect revenue. Some argue that aid, especially inthe form o f fungible grants, could reduce the incentive to collect more revenue, particularly when it entails politically difficult decisions.2' Iftrue, the impact o f debt relief o n freeing up financial resources for PRE could be diminished. The counterargument, however, i s that debt relief allows revenue efforts to be used o n domestic programs, rather than for the service o f external debt; inthis sense, revenue efforts have more direct benefits for the population and are easier to justify and undertake. Ina survey o fearlier studies, Gupta, Powell, andYang (2006) found that the empirical evidence onhow aidflows affect domestic revenue collection is mixed, with the magnitude, sign, and significance o f the impact o f aid varying by study. With a few notable exceptions, however, the impact o f aid is found to be either negative or insignificant. T w o recent studies on HIPCs do not find evidence o f adverse effect o f debt relief o n revenue efforts. Cassimon and V a n Campenhout (2006) found a significant positive response o f tax revenue to debt relief. Kpodar and Unigovskaya (forthcoming) compare the revenue effort o f HIPCs to that o f other LICs (a sample o f other PRGF- eligible countries is used as a control group) usingpanel data analysis. They find n o evidence o f an adverse effect. The result o f both studies, however, should be treated with caution due to data limitations. ' See: Chauvin and Kraay, "What Has 100 Billion Dollars Worth of Debt Relief Done for Low-Income Countries?"(September 2005). Available at SSRN: http:/1ssrn.comiabstract=818504; and Thomas, "Do Debt-ServiceSavings and Grants Boost Social Expenditures?", IMF Working Paper No. 2006/180. Available at: http://www.imf.org/exteiiial/pubs/cat/longres.ciin?sk=l9272.O. ''See: Cassimonand Van Canipenhout, "Aid Effectiveness, Debt Reliefand Public Finance Response. Evidence fiom a Panel of HIPCs", WIDER Research Paper No. 2007159, Helsinki: UNU-WIDER; Kpodar and Unigovskaya, "Does debt Relief Under the HIPC Initiative Undermine Domestic Revenue MobilizationEffort?", IMF Working Papcr, (forthcoming); and Gupta, Powell, and Yang "Macroeconomic Challenges of Scaling Up Aid to Africa", IMF, C. Conclusions 10. The Bank and the Fund, together with the international community, have taken substantial steps to meet the Monterrey Consensus commitments on debt relief, and as a result debt burdens have been reduced markedly for many HIPCs. Progress was made on each of the recommendations. Together, the Bank and the Fund have already committed debt relief amounting to US$16.3 billion (in end-2007 NPV terms) to the 33 post-decision- point countries under the HIPC Initiative and an additional US$17.9 billion has been delivered to the 23 post-completion-point countries under the MDRI. 11. Completing the implementation of the HIPC Initiative will require sustained efforts from the international community-creditor and pre-completion-point countries.Despite the achievements described above, a number of challenges remain to be addressed for a full implenientation of the Initiative, such as: (i) full financing of the HIPC initiative and MDRI; (ii) hll participation of official and comnlercial creditors to the Initiative; and (iii) support to the remaining countries to reach completion point. 12. Debt relief, while welcome, addresses only a relatively small part of HIPCs' financing needs and cannot ensure debt sustainability permanently. Debt relief savings accrue through time and generally constitute only a fraction of net aid inflows to HIPCs.13 Addressing HIPCs', and more generally LICs', development needs therefore requires higher new aid flows in addition to debt relief. New flows also allow for a quick and targeted response to address any emerging issues, such as the recent surge in food and fuel prices.I4 These new flows need to be on appropriate terms to make sure that debt sustainability, which has been restored through debt relief, is maintained in the future.I5 l3See Chapter 3 of the IMF-World Bank 2008 Global Monitoring Report. l4 Simulationssuggest that the reserve position of eight pre-completion point countries may substantially deteriorate if commodityprices increase further. Most of these countries are also highly fiscally vulnerable (with a CPIA rating on the criteria for fiscal and debt managementpolicies below 3), with limited capacity to help absorb these kinds of shocks. See "Food and Fuel Price-Recent Developments, MacroeconomicImpact and Policy Responses", IMF, June 2008. Simulationsassume a 20 percent increase in oil and food prices compared to baseline projection of the Spring 2008 WE0 and do not assume policy or behavioral responses to the increase in prices. For this analysis on HIPCs, a reserve deterioration is considered as "substantial" if reserves coverage drops to less than 3 months of next year's imports of goods and services as a consequence of the increase in food or oil prices or a combined shock. l5The IMF and the World Bank stand ready to provide policy advice and balance of payment and budget support to the affected countries. The IMF provides fmancing through augmentations of PRGF arrangements. The Exogenous Shocks Facility is also being streamlinedto ease access. The World Bank has launched the Global Food Crisis Response Program in May 2008 targeted at vulnerable IDA countries with priority to the most fragile states. To June 2008, seven HIPCs, including two pre-completion point countrieshave benefited from augmentations of PRGF arrangements.As of end of July 2008, the World Bank has already approved US$64 million in grants to six countries, including three pre-completionpoint HIPCs. The Bank and the Fund (continued) 10 13. In recognition that debt relief alone would not be sufficient to ensure long-term debt sustainability, the Monterrey Consensus also called for other measures, which are supported by the Bank and the Fund.The Monterrey Consensus: (i) highlightedthe role of comprehensive strategies inreducing the vulnerability o f debtor countries; (ii) for called debtors and creditors to share the responsibility for preventingand resolving unsustainable debt situations; and (iii) called for the strengthening o f technical assistance for debt management and debt tracking. Inthe past few years, the Bank and the Fundhave actively helped HIPCs preserve the benefits from debt relief and mobilize resources to meet their development needs ina sustainable manner. Bank and Fundefforts inthis area are detailed in Section V. provide also policy advice to help countries quantify needs and implement measures to protect the poor while minimizing the additional fiscal costs. 11 111. An Updateon the Costs of the HIPC Initiative and the MDRI 14. The total cost to creditors of HIPC Initiativedebt relief is estimatedat US$71 billioninend-2007 NPV terms (Table 2).16Nearlyhalfo fthe cost, or US$35 billion, represents irrevocable debt reliefto the 23 post-completion-point countries. The cost for the 10 interim countries amounts to US$16 billion, an increase o f almost 25 percent from last year mainly on account o f the inclusion o f two new post-decision-point countries-the Central African Republic and Liberia (US$0.6 billion and US$2.8 billion, respectively). The estimated cost o f HIPC Initiative debt relief to the remaining eight pre-decision-point HIPCs i s estimated to be US$20 billion, most o f which i s accounted for by three countries-Sudan, C6te d'Ivoire and Somalia. Topping-up assistance (received so far by six HIPCs) only represents 3 percent o f the total HIPC Initiative cost. Table 2. HIPC Initiative: Costsby Main Creditor and Country Group (Inbillions ofU.S. dollars, inend-2007 NPVterms, unless otherwise indicated) Post-Completion- Interim Total Post-Decision- Pre-Decision-Point Total Point HlPCs HIPCs Point HIPCs HIPCs (23) (10) (33) (8) (41) (1) (11) (111) =(I)(11) + (I\') (1')=(Ill)(IV) f Multilateral creditors 18.9 6.9 25.8 6.7 32.5 IDA 9.3 2.7 12 0 2.3 14.3 IiMF 2.8 1.5 4.3 I.8 6.1 AfDB Group 2.5 1.9 4.3 0.7 5.1 laDB I.6 0.1 1.6 0.0 1.6 AsDB 0.0 0.I 0.1 0.3 0.3 Other 2.8 0.7 3.5 1.5 5.0 Bilateral and coininercial creditors 16.0 9.3 25.3 13.4 38.7 Paiis Club 11.4 7.1 18.5 7.1 25.5 Other Official Bilateral 3.7 0.8 4.6 4.5 9.1 Commeicial 0.9 I.4 2.2 1.8 4.0 Total Costs 34.9 16.1 51.1 20.1 71.2 MemorandumItems Total Costs fiom PreviousRepoit I/ 34.9 12.9 47.8 23.4 71.2 Total Change in Costs (pelcent): 0.2 24.9 6.9 -14.1 0.0 Sources: Countiy authorities, andWorld Bank andIMFstaffestimates I/TotalcostsasreportedinTable3of"HIPCInitiativeandMDRI:StatusofImplernentation,September2007".discountedtoend-2007teims. 21 Since August 2007, the Gambiareachedconipletion point; the CentralAfiican Republic and Liberia reachedthe decision point. 16 No cost is computed for the Kyrgyz Republic as its indebtedness ratios at end-2007 are estimated to be below the applicable HIPC Initiative thresholds. 15. Multilateral and Paris Club creditors shoulder most of the total HIPC Initiative cost (46 percent and 36 percent respectively; Figure 2). Among multilateral creditors, the heaviest burdens are borne by IDA (20 percent), the IMF (9 percent) and the AfDB Group (7 percent). The share of total cost borne by multilateral creditors is higher for post-conlpletion- point countries (at 54 percent) than for interim countries (43 percent) or pre-decision-point countries (33 percent). The share of Paris Club creditors is about one third for post- completion-point and pre-decision-point countries, but much higher (44 percent) for interim countries. Figure 2. Distribution of Potential Costs under the HIPC Initiative and MDRI by Creditor Under the HIPCInitiative IJnder the MDRI WorldBank IDA Sources:HIPCs decision and completionpoint documents. Note: * Excludes non-HIPCs. 16. With respect to MDRI, the total cost to the four participating creditors is estimated at US$28 billion in end-2007 NPV terms (Table 3). About two thirds has already been delivered to the 23 post-completion-point countries. Two thirds of the total estimated MDRI cost will be borne by IDA, with the share of the IMF, AfDF and IaDB amounting to 14, 13, and 8 percent, respectively. Table 3. MDRI Costs by Creditor and Country Group (In billions of U.S. dollars and in end-2007NPV terms) Assistance in end-2007 NPV Assistance in Nominal Terms 21 T m Foregone Principal and Foregone Principal Total Interest Interest Post-Completion-Point HIPCs 11 38.9 4.4 43.3 22.7 IDA IMF 31 AfDF laDB Interimand Pre-Decision-Point HIPCs 21 10.0 0.9 10.9 5.6 IDA IMF 31 AfDF IaDB All HIPCs IDA IMF 31 AfDF IaDB Non-HIPCs 41 Sources: Country authorities, and World Bank, IMF, AfDB and IaDB staff estimates. 11These countries have qualified for MDRI relief. Figures are based on actual disbursements and commitments. 21Estimates are preliminaryand subject to a number of assumptions, including the timing of HIPC decision and completion points, and, where applicable, of arrears clearance. 31The estimated costs for IMF reflect the stock of debt eligible for MDRI relief, which is the debt outstanding (principal only) as of end-2004 and that has not been repaid by the member and is not covered by HIPC assistance (EBSlO51158Revision 1, 1211512005). 41 IMF MDRI assistance to Cambodiaand Tajikistan. IV. Remaining Challenges 17. Conipleting the implementation of the HIPC Initiative will entail addressing three main challenges: (i) taking the remaining 18pre-completion-point countries to the completion point; (ii) ensuring full participation of all creditors; and (iii) mobilizing additional resources to finance debt relief to all remaining HIPCs. 14 A. TakingRemainingCountriesthrough the HIPC InitiativeProcess 18. Many of the 18 pre-completion-pointHIPCsface common challenges,beyond meetingthe HIPC Initiative's requirements.These challenges include preservingpeace and stability, and improving governance and delivery o fbasic services. Most o f these countries are fragile states." Almost half o f pre-completion-point countries have been affected by war inrecent years, and many remain at a highrisk o f conflict and/or political instability. Most o f those countries have weak policies and institutions: they are all poor performers according to the Country Policy and Institutional Assessment (CPIA) rating and their performance is on average worse than that o f post-completion-point countries (Figure ,)*I8 Figure3: PolicyPerformanceand Prevalenceof ConflictsinHIPCs r PolicyPerformanceatthe DecisionPoint Share of HlPCswith ConflictsPrecedingthe DecisionPoint 25 100% 20 Weak, CPIA<3.2 Medium 75% Strong, CPIA23.8 15 50% 10 5 n 25% 0 post-CP l' Interiml` pre-DPZ33' 0% post-CP interim pre-DP Source World Bank I/AsmeasuredbytheCPIAatDP 27 For PeDP HIP& refers to latest amilable CPIA Source UCDPiPRlOArmed Conflict Dataset 31 Pre-DP excludes unamiling HIPCs (Kyrgyz and Nepal)and Sornjlia (data unamilable) 11PreDP countnes presence of conflict in the last 3 yean 17For the purposes o f this report, fragile states are IDA-eligible countries with an average CPIA rating o f 3.2 and below. However, different organizations use different parameters to judge fragility, ingeneral combining aspects o f the capacity and accountability o f institutions with indicators related to conflict risks. See "IDA15: Operational Approaches and Financing inFragile States", June 2007. ''TheWorld Bank's CPIA i s done annually for all its borrowing countries. I t has evolved into a set o f 16 criteria, which are grouped in four clusters: (a) econoinic nlanagement; (b) structural policies; (c) policies for social inclusion and equity; and (d) public sector management and institutions. The Bank discloses for all IDA- eligible countries, including blend countries (i.e., countries that are currently eligible for funding from IDA and IBRD):(i) scores for the 16 criteria; (ii) cluster averages; and (iii) overall score. See IDNR2004- the the the 0210 "Disclosing IDA Country Performance Ratings" (August 9,2004). 15 19. Despite these challenges, more than half of these countries are making progress under the Initiative: 0 Three pre-decision-point HIPCs-Comoros, CBte d'Ivoire, and Togo-are making progress towards the decision point. This year, C8te d'Ivoire and Togo cleared arrears to major creditors, including IDA, and are on track with the implementation o f their Fund-supported programs (EPCA andPRGFrespectively). Both countries are making notable progress with the preparation o f their PRSPs. Togo and C6te d'Ivoire could reach the decision point by end-2008. Comoros cleared its arrears to the AfDB and, following the resolution o f a short internal conflict, Fundsupport under EPCA i s being discussed with the authorities. Seven interimcountries-Afghanistan, Burundi, the CentralAfrican Republic, Guinea, Guinea-Bissau, Haiti, and Liberia-are advancing towards the completion point. All o f them are currently on track with the implementation o f their Fund- supported programs (all but Guinea-Bissau have a PRGF-supported program), although some have faced challenges, as indicated inthe appended country notes, in the implementation o f the floating completion point triggers. Burundiand Guinea- one o f the countries with the longest interim period-are expected to reach the completion point inlate 2008 or early 2009 (Figure 4). 16 Figure4. Durationof the Interim Periodunder the HIPC Initiative (Inyears) 0 Libeiia n S Afghanistail 0 t Cenhal AfricanRepuhl~c Haiti a Congo, Rep o f g r Bum& I f Congo, Dem Rep o f the n Chad Gutnea-Bissau g -_--------------------------------------------------------- Guinea O f I1 I I2 0 t f e Y 2 m e I I P e P /' e 2 r 0 I d 0 d I I 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: HIPC Decision and Completion Point documents. 20. The mainobstaclesto the other eight countries' progressunder the Initiative are of a politicalor security nature: The Kyrgyz Republic and Nepal, which both have declining debt ratios, have not expressed a willingness to avail themselves of the HIPC Initiative. Somalia and Sudan have protracted arrears to multilateral institutions. Prior to reaching the decision point, they will first need to mobilize resources to finance the clearance of their arrears. Mobilizing such resources will be challenging, given the size of arrears. Inaddition, the two countries will need to resolve their security situation. Eritrea's authorities indicated in2008 discussions that they would give serious consideration to seeking HIPC initiative assistance once the external security situation improves. 17 Finally, the existence o f natural resources gives Chad and the Republic o f Congo access to alternative sources o f external financing which may have reduced the urgency o f getting debt relief and contributed to these countries' slow progress towards the completion point. Inthe case o f the Democratic Republic o f the Congo, although an unsatisfactory track record o f policy implementation has been the primary factor indelaying access to debt relief, the recent contracting o f a large resource-backed nonconcessional government-guaranteed debt is causing further delays. 21. The absenceof progress under the HIPC Initiative may have a number of negativeconsequencesfor the concernedcountries: Some pre-decision-point HIPCs whose debt ratios are improving may at some point no longer meet the debt qualification criteria." Such a situation might create an incentive not to service outstanding debt and to runarrears to ensure that debt remains highenough for qualification purposes. These arrears, inturn, mayprevent financing from traditional donors, including the IFIs, and lead these HIPCs to pursue other more expensive sources o f financing, such as collateralized nonconcessional borrowing. For interim HIPCs, the lack o f progress may result inan exhaustion o f interim assistance provided by some creditors and difficulties servicing external debt obligations. Ina fragile environment, where major financing needs for reconstruction and basic social services exist, inability to reach the completion point and benefit from full HIPC Initiative and MDRIdebt relief may create the incentive to resort to collateralized nonconcessional 22. Modifyingthe HIPC Initiative frameworkwould be unlikely to helptackle these issues.*'Giventhe political and security constraints infragile HIPCs described above, the only change to the framework that could accelerate access to full debt relief would be to give 19 Inthese countries the debt ratios have declined usually as aresult o fhighGDP and export growth andor a reduction inborrowing while continuing to service existing debt. 20For IDA, for example, the interimassistance to four HIPCs (Chad, Guinea, Guinea-Bissau, and Haiti) has exceeded the one-third limit o f interimassistance committed at the decision point. This limit i s usually one-third o f the N P V o f debt relief, but IDA may, on a case-by-case basis and subject to staff assessment o f satisfactory progress inpolicy performance, increase the limit on interimassistance to interim HIPCs to up to 50 percent o f the N P V o ftotal debt reliefcommitted at decision point. See "Enhanced HIPC Initiative: Proposals Concerning Sunset Clause and Provision o f InterimRelief' IDNR2004-0234 (September 15, 2004). 21A Technical Briefing to the IDA Boardonthe issue was delivered on July 22"d, 2008. 18 this reliefunconditionally to all the countries meetingthe Initiative's debt andincome criteria. However, conditionality under the HIPC Initiative i s aimed to provide assurances that resources freed by debt reliefwill be usedproductively by HIPCs through the establishment o f a stable macroeconomic environment and the implementation o f a poverty reduction strategy. Inabsence o f any conditionality, there would be little or no assurance that debt reliefresources would be put to best use, particularly insome o f the challenging situations described above. 23. The HIPC Initiative framework can address a wide range of country circumstances.Liberia's recent experience shows that the most difficult cases inthe area o f debt relief can be addressed within the flexible architecture o f the HIPC Initiative(see Box 2). The flexible implementation o f the requirements has beenguided at each stage by the very objective o f the Initiative to reduce the level o f external debt burdens inreforming HPCs. Inaddition, it should be recognized that the HIPC Initiative i s only one o f the many instruments for addressing development problems infragile and conflict-affected states.22 22For IDA for example, see "Operational Approaches andFinancinginFragileStates" IDA15, June 2007; and "Establishment of a State- andPeace-BuildingFund", March 2008, IDAiR2008-0056. 19 Box 2. Liberia's Path to the Decision Point Liberia's reaching the decision point i s an illustrationo f the commitment by the international community in addressing the daunting challenges ina fragile, post-conflict country while preserving the HIPC Initiative's principles. After over twenty years o fpolitical instability, Liberia had accumulated an unprecedented level o f arrears: at end-June 2007, o f the estimated US$4.7 billion public and publicly-guaranteed external debt, 96 percent was in arrears. In2006, Liberia began a bold reformprogram under the leadership o f newly-elected President Johnson- Sirleafbut arrears to the Fundand other multilateral institutions prevented it from accessing Fundresources. Additionally, because Liberia's economic situation required that it be eligible for debt relief on any new financing related to an arrears clearance operation, financing assurances for such relief were necessary before Liberia could engage inany o f the available Fund-supported programs that then qualified as a track record o f policy performance towards the decision point. Therefore, despite Liberia's strong track record o f reform, the difficulty o f mobilizing financing assurances for arrears clearance operation and ultimately HIPC Initiative debt reliefrisked delaying Liberia's reaching the decision point. Inaddition, the lack o f reliable information on private debt-most government records were destroyed during the preceding conflict-was a serious challenge for the estimation o f the neededdebt relief. Taking into account Liberia's special situation and the needto support its reform momentum, as well as the recognition o fpotentially similar issues for other countries with strong policies and performance records, but lacking financing assurances to start a qualifying decision-point track recordprogram, a number o f steps were undertaken. First, the Fund's PRGF-HIPC Trust instrument was amended to address the problem regarding the inability to establish a qualifying track record as faced by Liberia and other countries in similar situation. Specifically, in January 2008, the Fund's Executive Board amended the PRGF-HIPC Trust Instrumentto add SMPs to the list of instrumentsthat may be used to establish eligibility for HIPC Initiative debt relief, and that may be usedto build a track record for reaching the decision point, incases where the Executive Board agrees with the staffs assessment that the macroeconomic and structural policies under the SMP meet the policy standards associated with upper credit tranche or PRGF arrangements." Second, a methodology was developed with the assistance o f Liberia's financial advisers and agreed to with private creditors to facilitate commercial debt reconciliation.*' Third, exceptional finds were allocated for arrears clearance by multilateral institutions. Liberia's arrears to the World Bank were cleared inDecember 2007 through a bridge loanprovided by a bilateral donor. Liberia then used the proceeds o f a Development Policy Operation to repay the bridge loan. This operation was financed with an exceptional allocation o f IDA resources provided on grant terms. IDA'Sshare o f HIPC Initiative debt relief was delivered infull through the arrears clearance operation. On the Fund's side, the necessary financing assurances were acquired largely through commitments by donors o f resources arising from a partial refundof SCA-13' resources and o f deferred charges-related adjustments. InMarch 2008, an arrears clearance operation was conducted with resources from a bridge loanprovided by the U.S. Treasury which was followed on the same day by Board approval o f Liberia's exceptional access to Fundfinancing and its reaching o f the decision point. Arrears to the African Development Bank Group were also cleared inDecember 2007 through an Dperation under their framework for assisting post-conflict countries. Strategies for arrears clearance with Liberia's six smaller multilateral creditors were also agreed upon or have been under discussion. `ISee "Proposals to Modijj the PRGF-HIPC trust Instrument-Further Considerationsnnd Proposed Decision" (EBSI071152, 12/21/07). "See Box 1 in IDA and IMF Republic of Liberia Enhanced HIPC Initiative Decision Point Document. (February28,2008). " A special account establishedspecifically to protect the IMFagainstthe risk of loss ofprincipal resultingfrom arrears. 20 B. Ensuringthe FullParticipation of All Creditors 24. Smaller multilateral institutions, non-Paris Club official bilateral creditors, and commercial creditors still need to participate more fully inthe HIPC Initiative. Together, they are expected to bear about 25 percent o f the total HIPC Initiative cost, and therefore their participation does make a significant difference for HIPCs. Inaddition, their participation i s essential for the credibility o fthe Initiative, to limit the perception o f free- riding, andmaintain the goodwill o ftraditional donors. Multilateral and Paris Club Creditors 25. The World Bank, the African DevelopmentBank, the IMFand the Inter- American DevelopmentBank, as well as all Paris Club creditors, continueto provide debt relief in linewith their commitmentsunder the HIPC Initiative,including by providing interimreliefto countries that have reached the decision point. Paris Club creditors also continue to provide additional "beyond HIPC Initiative" relief on a bilateral basis. 26. The remainingmultilateralcreditors represent about 7 percentof the total estimatedHIPC Initiative Their share o fthe cost o fproviding HIPC Initiative relief to post-completion-point countries amounts to US2.7 billion inend-2007 NPV terms. Twenty creditors, representing 99 percent o f the amount above, have indicated their intention to participate inthe HIPC Initiative (see Appendix Table 5). The other eight creditors have not yet indicated their intention to provide relief under the HIPC Initiative.24 27. Dueto incompleteinformation,delivery of HIPC Initiativeassistanceby smaller multilateralcreditors cannotbe estimatedat this juncture.The majority o fthe 20 participating creditors has reportedly agreed on the modalities to deliver HIPC Initiative debt relief to their post-completion-point HIPC debtors. Six creditors representing 62 percent o f the cost, are knownto have provided debt reliefinthe interim periodthrough debt service reduction or rescheduling o f arrears and maturities falling due.2s 23Twenty eight creditors comprise the group o f remaining multilateral creditors. 24These creditors are: Bank o f Central African States (BEAC), Central African States Development Bank (BDEAC), ECOWAS Bank for Investment and Development (EBID, Eastern and Southern African Trade and Development Bank (PTA Bank), Development Bank o f Great Lake States (BDEGL), Fundo f Aid and o f Loans Guarantee o f the Agreement Council (FEGECE), Fondo Centroamericano de Estabilizacion Monetaria (FOCEM), and the Islamic Fundfor Solidarity and Economic Development (FSID). 25These creditors are Arab Bank for Economic Development inAfrica, Central American Bank for Economic Integration(to Honduras only), European Commission, European InvestmentBank, Islamic Development Bank and OPEC Fundfor International Development. 21 28. Staffs are workingwith their counterpartsin many of these institutionsto improvethe availabilityof information.At the latest annual meeting o fmultilateral development banks on debt issues, participating institutions agreed on a methodology to compile comprehensive data on their delivery o f HIPC Initiative debt relief and on new lending to low-income countries.26These efforts should allow staffs to report more extensively on this issue innext year's report. Non-ParisClub OfficialBilateralCreditors 29. The share of HIPC Initiative debt reliefdeliveredby non-ParisClub bilateral creditors,which representabout 13 percent of the total cost, remainslow, at around40 percent(Table 4 and Appendix Table 15).27Only eight creditors have provided full relief, 22 creditors have provided partial relief, while 21 creditors have not yet delivered any HIPC Initiative debt relief at all. This latter group includes two large creditors (Costa Rica and Taiwan, China) accounting for more than 20 percent o f the expected debt relief from non- Paris Club creditors. 30. Progresssince lastyear's reporthasbeenlimited.Hungary completed its delivery o f HIPC Initiative relief and Tanzania confirmed the delivery o f full debt reliefby Egypt, bringingto eight the number ofcreditors havingprovided the expected reliefinfull.28 China, Kuwait, and Venezuela signed debt relief agreements with a number o f HIPCs inthe course o f last year. 31. A few creditors are making efforts to lift constraintsthat hindertheir delivery of HIPC Initiativedebt relief. Colombia has informedstaffs that its congress recently passed a billto permit the provision o f debt reliefto Honduras, its only HIPC debtor. Kuwait, a strong supporter of the HIPC Initiative through the Kuwait Fundfor Arab Economic Development, reported that it i s considering a modificationo f the rules and laws governing the operations o f the Kuwait Investment Authority (KIA) to make them more compatible with the HIPC Initiative. 26See "Meeting o f Multilateral Development Banks on Debt Issues Washington D.C., July 9-10,2008 - Chairman's Summary" (SecM2008-0338). 27As in2007, this update o f earlier staff estimates is based on responses to a survey o fpost-completion-point HIPCs and their bilateral non-Paris Club creditors (except for creditors that have provided full HIPC Initiative debt relief, have small or no remaining claims, are also HIPCs themselves (except Honduras, which i s a large creditor), generally participate inParis Club meetings, and are not members o f the IMF).Responses were received from 21 o f the 23 post-completion point HIPCs but only 12 creditors (out o f 28 contacted). The survey didnot include pre-completion-point HIPCs and thus does not account for the reliefthat has beenprovided to themby some oftheir creditors. For details onthe methodology, see SM1071323. 28Egypt, Hungary, Jamaica, Morocco, Republic of Korea, Rwanda, South Africa and Trinidad and Tobago. 22 32. HIPCs' situationregardingdeliveredrelieffrom these creditorsvaries significantly across countries.Four HIPCs (Honduras, SZo Tom6 and Principe, Madagascar, and Zambia) have received less than 15 percent o f their expected debt relief from non-Paris club creditors. On the other hand, some HIPCs (Benin, Cameroon, Ghana and Sierra Leone) have received more than 75 percent o f the expected debt relief, but these HIPCs account for less than 4 percent o f the expected HIPC Initiative relief from non-Paris Club creditors. 33. Bank and Fundstaffshavecontinuedto encouragenon-ParisClub creditorsto deliver full HIPC Initiativedebt relief. They have preparedtechnical notes for a few creditors that requested additional information on the methodology for calculating HIPC Initiative debt relief. Discussions with creditors and debtors have continued to take place duringArticle IV consultation missions. Staffs and the Paris Club Secretariat have conducted joint briefings o f debtors on HIPC Initiativeimplementation issues and ways to maximize debt relief delivery from their creditor^.^' Delivery o f debt relief has been increasingly monitored instaff reports or debt sustainability analyses on post-completion-point HIPCs. In addition, with the objective o f providing information to the public, the estimated delivery o f HIPC Initiativedebt reliefby each o f these creditors to post-completion-point HIPCs has been published on the Fundand Bank's external websites inNovember 2007 and updated in April 2008.30Although staffs will maintain their dissemination efforts and provisiono f technical support, bilateral peer pressures may be required to see additional progress innon- Paris Club bilateral creditor participation. 29 The Paris Club secretariat has also stepped up its technical assistance to these countries on the issue of comparability of treatment. 30 See the latest update o f delivery o f HIPC Initiative Reliefby Non-Paris Club Official Bilateral Creditors (April 2008) at h t t ~ '.wu~~..~iiifexternal nu pp'ene 2008 041008 pdrand . o i ~ 1ci.pdf Table 4. Debt Reliefto Post-Completion-PointHIPCs fromNonParisClub Bilateral Creditors ExpectedDebt Relief Debt Relief Delivered 2007 NPV temis Percent of Total 2007 NPV temis Percent of Total (US$millions) Relief (US$millions) Relief Total Debt ReliefExpected I/ 3,741 100 1,319 1,516 35-41 ~ By Creditor Countries Relief Fully Delivered (8 creditors) 39 1 39 100 ReliefPartially Delivered (22 creditors) 2,44 1 65 1,280 - 1,477 52-61 No Relief Delivered (20 creditors) 1,260 34 0 0 Larger Creditors Costa Rica 527 14 0 0 Guatemala 501 13 494 99 Taiwan, China 332 9 0 0 Kuwait 322 9 228 71 China 301 8 138-183 46-61 Libya 295 8 28-49 9-17 Algeria 258 7 13 5 Saudi Arabia 172 5 81-134 47-76 Iraq 118 3 0 0 By Debtor Countries Smaller Debtors (15 countries) 686 18 239 315 ~ 35 - 46 of whicli: Malawi 28 10 34 Bolivia 27 11 42 Sao Tome &Principe 21 0 0 Benin 1719 16 93 Cameroon 15 19 ~ 79 - 100 The Gambia 16 0 0 Larger Debtors (8 countries) 3,055 82 1,319 - 1,516 35 - 41 of whicli: Nicaragua 1,742 713 41 Mozambique 332 81 25 Tanzania 252 63- 114 25 - 45 Mauritania 173 66 38 Niger 170 67 - 90 39 - 53 Ethiopia 155 34 - 83 22 - 54 Senegal 119 45 38 Madagascar 112 3 11 10 Sources: HIPC documents; country authorities; and staff estimates. I/Estimatesbasedoninformationreceivedasofend-June2008. 24 CommercialCreditors 34. The delivery of HIPC Initiativerelief by commercialcreditors increased markedlylastyear. Commercial creditors only account for 6 percent o fthe total HIPC Initiative cost and delivery o f the related reliefhad so far constituted a challenge, with participation inthe low single digits until last year. This share increased significantly through March 2008 thanks to a large London Club operation and two successful buybacks supported bythe IDADebtReduction Facility (DRF).31 35. In December 2007, the authorities of the Republicof Congo reacheda debt restructuringagreementwith their commercialcreditors,organizedas a creditors' committee (previously knownas the LondonClub).The restructuring operation entailed the issuance o f US$477 million o f Eurobonds maturing in2029 inexchange for commercial claims totaling US$2 billion (equivalent to 58 percent o f Congo's external commercial debt). Private creditors, includingbanks, a few suppliers, and some distressed debt funds, accepted the authorities' offer with a participation rate o f over 92 percent. The debt reliefprovided by this operation is estimated by staffs to be inline with the effort expected from these creditors under the HIPC Initiative. 36. Since lastyear's report, the DRFhas helpedfinance two important debt buybacks-for Mozambiqueand Nicaragua-and preparea buybackfor Liberia.32 The IDADRFoperations inMozambique andNicaragua together extinguished about US$1.5 billiono f commercial external debt on terms at least as favorable as those under the HIPC Initiative. InNicaragua, US$1.3 billion o f commercial debt was extinguished, accounting for 95 percent o f the total reconciled eligible commercial debt. Inthe case o f Mozambique, all four eligible commercial external creditors tendered their debt inthe buyback operation. InApril 2008, a DRFpreparation grant for Liberia was approved by IDA'SExecutive Board; other operations inHIPCs are at preparatory stages. 37. These developmentsshow the value of a proactive and cooperativeapproach to debt restructuringsinvolvingHIPCs. Such an approach, which staffs encourage HIPCs to implement, i s at the core o f DRF-supported operations and can lead to mutually beneficial outcomes. Inthis regard, recent policy modifications will allow the DRFto act more quickly 31The rate o f participation, estimated at around 33 percent, is based on information received from HIPC authorities inthe context of the 2008 survey on commercial creditor participation and litigation. 32As a result o frevisions introduced in2006 and 2008 the DRF fosters commercial creditor participationinthe HIPC Initiative by providing grants to help reforming, heavily indebted, IDA-only countries reduce their sovereign external commercial debt, as part o f a debt resolutionprogram. Once approved by the IDA Board, these grants support countries inthe preparation and implementationo f commercial debt reduction operations. Since its establishment in 1989, the DRF has helpedextinguish about US$9 billion o f commercial external debt at a deep discount through 24 buyback operations in 19 HIPCs and 2 other IDA-only countries. 25 insupporting the preparation ofcommercial debt reduction operations incountries approaching the HIPC Initiative decision point, and to be more effective inresolving commercial debt burdens ina single operation by ensuring higher creditor participation (Box 3). Box 3. The IDA-Debt ReductionFacility:RecentModifications" InApril 2008, the IDA'SExecutive Boardapproved changes to the DRF's policiesandpractices. The modifications will enable the DRFto be even more effective inhelping reforming, heavily indebted IDA- only countries to reduce their sovereign commercial external debt as part o f a broader debt resolution program. These modifications incorporate past experience from DRFnegotiations and feedback from stakeholders including the Paris Club, the G7 debt experts group, recent DRF-beneficiary governments, and their financial and legal advisers. The approved modifications include: a. Eligibility for DRFpreparation grants was extended, on a case-by-case basis, to pre- decision point HIPCs. In2004, the IDA Board had decided to limit eligibility o f the DRFto post-decision-point HIPCs only. This modification gives reformingpre- decision-point HIPCs access to preparation grants to enable them to move faster to decision point. However, eligibility for implementation grants remains at decision point. b. Formerly bilateraldebts that were sold to commercial creditors after the HIPC decision point reference date will normally no longer be considered eligible for buyback. This modification aims to prevent distressed debt funds from making a profit by buying bilateral claims at a deep discount and tendering them for a buyback under the DRF. It i s also aimed to discourage the sale o f debt from official to commercial creditors. C. For the same reason, formerly domestic debts sold to external creditors after the HIPC reference date will normally be considered ineligible for buyback. d. Participationthresholds stipulated for buybacks, including second buybacks, will normally not be below 90 percent. Participation rates inearlier operations were below 80 percent insix cases and below 65 percent intwo cases. The increase to 90 percent aims to help resolve the commercial debt problemmore comprehensively as well as avoid second buybacks and increase inthe value o f holdout claims. e. IBRDcontributions to DRFwillnormally not exceed 50 percent ofthe costs of any given implementation grant. Exceptions were made to the earlier limit o f US$lO million inseven ofthe 22 DRFoperations. Hence, the limitwas modified to reflect financing needs better. f. Staffwillbeallowedmore flexibility onadvisory fees-particularlyinlarger andmore complex cases. Preparation grants had been capped at US$800,000-900,000, regardless o f the size or complexity o f the operation and without inflation adjustments. This modification is expected to enhance the ability o fparticipating countries to hire the best qualified financial and legal advisers. "See DebtReductionFacility for IDA-Only Countries:ProgressUpdateand ProposedAmendments to PoliciesandPractices (IDA/R2008-0066/1, April 14,2008). 26 CommercialCreditor Litigationagainst HIPCs 38. Information available to staffs indicatethat at least54 court cases havebeen filed by commercialcreditorsagainst 12 HIPCsover the past decade.33Inmost cases, a court award has already been granted, for a total estimated cost o f US$1.2 billion (excluding the court awards extinguished through the recent DW-supportedbuybacks; see below). The potential impact o f such awards varies from less than 0.5 percent o f the debtor's GDP to 49 percent inthe case o f Liberia. The HIPCs facing the most litigation cases are Liberia, the Republic o f Congo, Uganda, and Sierra Leone, with ten, eight, six, and five lawsuits, respectively. The authorities o f Liberia, a country that reached the decision point inMarch 2008 and was covered for the first time by the survey this year, have reported 10 lawsuits, of which two are still incourt while judgments have been issued inthe other cases. N o new case o f litigation against HIPCs was reported to have been filed inthe past year (Table 5 and Appendix Table 16).34 39. Some courtjudgments againstNicaraguahavebeensettled through the recent DRF-supportedbuyback.All four litigating creditors o fNicaragua, which hadsecured court judgments inthe order o f US$276 million, participated inthe buyback operation. These four creditors accepted the proposed discount o f principal and interest and took a significant cut inthe value o f their legal claims. The Nicaragua buyback has extinguished 20 percent o f the overall value o f reported courtjudgments against post-decision-point HIPCs, and about 70 percent o f suchjudgments against post-completion-point HIPCs. 40. Active and cooperativenegotiationaimed at debt restructuringagreementscan be a successfulstrategy to limit creditor litigationand, where appropriate,should be a HIPC's first line of defense.The participation o f litigating creditors inNicaragua's buyback suggests that pressure from the public opinion and a cooperative stance could help moderate litigation. Non-litigating creditors can help too, for instance by agreeing not to sell their claims on HIPCs to creditors unwilling to provide debt relief, as was done in2007 by Paris Club members and inM a y 2008 by European Unioncountries.35 33Information derived from a survey on commercial creditor participationand commercial creditor litigation undertaken annually by staffs. The survey was extendedthis year to all HIPCs (it was previously limited to post-decision-point HIPCs). Responses were received from 33 countries, including 28 post-decision-point HIPCs and five pre-decision-point HIPCs. 34No new case of litigation has been reported by the authorities of HIPCs that responded to the survey last year. Among the new respondents, Liberia and Sudan reported cases had that been brought against themincourt sometime ago. 35Meeting of the Council o f the European Union inBrussels, 26 and 27 May 2008, Council Conclusions: Speeding upprogress towurds the Millennium Development Goals (MDGs).EUcountries agree not to sell claims on HIPCs to creditors unwilling to provide debt relief, and support: (i) dialogue with other creditors (continued) 27 Table 5. HIPC Initiative:CommercialCreditor LawsuitsagainstHIPCs Status at end-2007 l' Commercial Creditor Lawsuits 2' ~t'??~n:nogT ClaimsoiLitigating Court Awards 41 Creditors 3/ Creditors (Inmillions (In units) ofU S (Inpercentof ( ' " ~(In~ l ~percent dollars) GDP) dollars) 23 Completion-Point HlPCs TOTAL 28 521 121 Benin 0 Bolivia 0 Burkina Faso 0 Cameroon 4 158 0 8 51 0 2 Ethiopia 2 187 1 0 Gambia. The Ghana 0 Guyand 3 46 4 5 Honduras 1 1 0 0 Mabgascar Malawi 0 Mali 51 Mauritania 0 Mozambique 0 Nicaragua61 5 9 0 2 0 0 0 0 Niger 0 Rwanda 0 S?mTome andPrincipe 71 0 Senegal 0 Sierra Leone 5 29 17 25 15 Tanzania 0 Uganda 6 36 03 30 03 Zambia 51 2 55 05 16 0 1 IOlnterim HIPCs TOTAL 19 805 901 Afghanistan 0 Burundi 0 CentralAfrican Republic 0 Chad 51 Congo, Dem Rep ofthe 81 1 100 i o 100 1 0 Congo, Rep. o f 9 8 575 7 5 443 58 Guinea 51 Guinea-Bissau 0 Haiti 0 Liberia I O 130 I 7 8 357 49 0 8 Potentially Eligible Countries 3 151 146 Comoros 51 Cate d'lvoire Eritrea 5/ Kygyz Republic 0 Nepal Somalia 91 Sudan 3 151 03 146 03 Togo Post Decision-Point and Potentially Eligible HlPCs 50 1,477 1,168 Source Survey on CommercialCreditor Participationand Creditor Lawsuits againstHIPCs I1 Commercialcreditors lawsuits against HlPCs are reportedwithout assessing the merits of these disputes The informalion reportedin this table reflectsresponsesto the survey only, and it shouldnot be considered acompletesummaryof all commercialcreditor proceedingsagainstHlPCs 21Responseswere receivedfrom 33 countries, including 28 post-decision-pointHlPCs and live pre-decision-pointHlPCs andby 4 out 7 potentially eligible HlPCs 31 HlPCs that did not respondlo the survey are shown in bold, and three dots indicate no information 41Judgement was awarded, but in few cases out ofcourt settlementswere reached aller a court decisionwas issued 51 The authoritiesdid not respond to the survey 61Excludes court awards extinguished troughDRPsupported buyback 71A previously reportedlawsuit against SPo Tome andPrlncipe has beendeterminedto be an official claim against Angola 81The response to the survey 2008 didnot include a previouslyreportedcase againstDRC The 51x11 has excludedthis case until further clarifications are received 9/ The survey was not sent to Somalia (bilateral, multilateral, commercial) and with borrowing countries;(ii) technical assistance to strengthen the debt management capacities of low income countries and assist efficient debt negotiations; and (iii) commercial debt buy-backs complementary to HIPC debt reliefoperations. 28 41. The rangeof instrumentsto supportHIPCs facinglitigationhas increased.In April 2008, the Executive Boardo fthe African Development Bank approved aproposal to establish the African Legal Support Facility. 36 The Facility would provide (i) technical legal advice to members o f the Facility increditor litigation, and (ii) technical legal assistance to members o f the Facility to strengthen their legal expertise and negotiating capacity inmatters pertaining to debt management, natural resources and extractive industries management and contracting, investment agreements, and related commercial and business transactions. The Commonwealth Secretariat recently established the HIPC Clinic to provide legal advice to HIPCs that are facing or likely to face debt litigation. The Clinic, which employs a resident legal advisor, aims to support sovereign debtors and assist member countries as well as other non Commonwealth HIPCs, and it intends to hold regional seminars to raise awareness about legal aspects o f debt management, legal soundness of loan agreements, debt restructuring, and how to deal with litigation 36The African Legal Support Facility will come into existence when the Agreement creating the Facility i s signed by at least ten participating states or international organizations, as well as instrumentso f ratificatiodapproval are depositedby at least seven o f those participating states or international organizations. Membership inthe Facility will be open to: member states o f the African Development Bank; the African Development Bank; other states; and international organizations and institutions. 37See HIP(' Legal Cliiiic at Ihe Common~~ealfh Secietariat 29 C. EnsuringFinancingof the HIPC Initiative 42. For the World Bank,the HIPC DebtInitiativeTrust Fundfacilitates the fulfillment of commitmentsof multilateralcreditors, includingeligible regionaland sub-regionalcreditors, to provideHIPC Initiativedebt relief.To date, donors have pledged close to US$4.0 billion to the HIPC Trust Fundto support these creditors, and have contributed more than US$3.7 billion inthe form o f cash andpromissory notes. The HIPC Trust Fundhas reimbursed close to US$2.8 billion towards the cost o f debt relief to IDA out o f allocations from IBRD'snet income and creditor-specific contributions made by donors to the HIPC Trust Disbursements from the HIPC Trust Fundto eligible regional and sub-regional creditors now total more than US$2.8 billion.39 43. Mobilizingadditionalresourcesto finance debt relief to all remainingHIPCs may, however, pose challengesto the Fund.Resources available inthe PRGF-HIPC Trust are currently insufficient to finance the cost o f debt relief to all pre-decision point HIPCs (to whom such resources are available on a first-come, first-served basis). This is because the cost o f debt reliefto Sudan and Somalia, as well as to other countries that entered the Initiative after 2006, were not included inthe original financing fi-arnew~rk.~~Should these two countries progress to the decision point, mobilizing resources would become an urgent task, and as demonstrated inthe case o f Liberia, could be ~hallenging.~' 38Since May 2006, donor contributions under the IDA14 arrangements have been usedto cover IDA'Scost o f HIPC debt relief. 39Regional and sub-regional eligible creditors include: AfDB, BOAD (West African Development Bank), CABEI (Central American Bank for Economic Integration), CAF (Corporaci6n Andina de Fomento), CDB (Caribbean Development Bank), CMCF (CARICOM Multilateral Clearing Facility), EADB (East African Development Bank), FONPLATA(Fundfor the Financial Development o f the River Plata Basin), IaDB, IFAD (International Fundfor Agricultural Development), and NDF (Nordic Development Fund). 40The original HIPC-MDRI financing framework didnot include Afghanistan, countries newly identifiedinthe 2006 ring-fencing exercise (Eritrea, Haiti, the Kyrgyz Republic, and Nepal), and the three protracted arrears cases (Liberia, Sudan, and Somalia). 41The total stock o f arrears o f Sudanand Somalia to the Fundas of end-June 2008 amounted to SDR 1.2billion (equivalent to US$2 billion). V. Debt Outlook in Post-Completion-Point Countries A. Overview 44. Debt relief provided to post-completion-point countries is expected to reduce their external debt stock by more than 90 percent in end-2007 NPV terms (Figure 5). Most of this reduction (77 percent) would be delivered in the context of the HIPC Initiative and the MDRI. The remainder is attributable to traditional debt relief and voluntary bilateral debt relief beyond HIPC. Debt stocks in the 10interim period countries are expected to decline by a similar factor. Figure 5. Post-Decision Point HIPCs' Debt Stock under Different Debt Relief Stages (In billions of U.S. dollars, in end-2007 NPV terms) Before traditional After traditional debt After HIPC Initiative After additional After MDRI debt relief relief debt relief bilateral debt relief 1 23 Completion-PointCountries h 10InterimCounbies / Sources: HIPC Initiative country documents, and IDA and IMF staff estiniates. Note: Estimates based on decisionpoint debt stocks. 45. Debt sustainability analyses (DSAs) performed under the Debt Sustainability Framework (DSF) provide a comprehensive view of the debt outlook of post- completion-point countries. Their forward-lookingnature allows for a nuanced assessment of risks that goes beyond the consideration of current debt ratios. The remainder of this section analyzes the information contained in DSAs conducted so far on these countries. 46. DSAs confirm that post-completion-point countries are in a better debt situation than other HIPCs, and also than non-HIPCs. At end-2007, the NPV of the debt-to-export ratio for post-completion-point HIPCs averaged 63 percent. This contrasts with an average of 31 200 percent for pre-completion-point HIPCS.~*Reflecting their heavier debt burden, all but one pre-completion-point HIPC have been assessedeither to be indebt distress or to have a highrisk o f debt distress, while most post-completion-point countries have a low or moderate riskrating (Figure 6). The distribution o frisk ratings is also better for post-completion-point countries than for non-HIPC LICs. The better rating distribution reflects both lower debt ratios-a direct outcome o f debt relief-and the fact that post-completion-point countries tend to have, on average, better policies and institutions than other HIPCs and, to a lesser extent, non-HIPCs, as measured by the CPIA rating. Better policies and institutions lead to a higher capacity to carry debt and translates, inthe DSF, inhigher indicative thresholds. Figure 6. Dispersion of the NPV of Debt-to-Exports Ratio and Risk of Debt Distress in Low Income Countries Distributionof the NPV of debt-to-exports ratio in Risk of debt distressin Post-CP HlPCs and Low IncomeCountries Non-HIPC LICS i 600 i 70 Post-CP HIPCS Quartile 1 0 0 Non-HIPCLICs ' - 5oo ;e -Minimum 60 Median v 400 * Maximum 50 e c A Quartile3 ? I 300 i ---+ I L I I 20 f J / 10 1 d ,............?... ...... iiGzzK Post CPS Pre CPs IIOII-HIPC LICS Lou, hioderate High In debt distress Risk rating Sources: Latestjoint BankiFund DSAs available for LICs. Note: Based on the actualiprojected NPV of debt-to-exports ratio under the baseline scenario. 47. However, long-term debt sustainability remains a challenge in many post- completion-point countries. Despite the significant decline o f debt burdens thanks to debt relief, only nine post-completion-point HIPCs (or about 40 percent) have a low risk o f debt distress according to the most recent DSAs. Inaddition, the distribution o f ratings has deteriorated since last year (Figure 7), with the number o f countries with a highrisk rating increasing from one to four. A new DSA for Rwanda confirmed the highriskrating o f the previous DSA. New DSAs for Burkina Faso and S5o Tom6 and Principe changed these 42 ForHIPCs inthe interimperiod, debt ratios incorporate only the impact o finterimdebt relief. 32 countries' risk ratings from moderate to high.Finally, The Gambia, which reached the completion point inDecember 2007, was assessed at that time as having a highrisk o f debt distress. Figure 7. Risk of Debt Distress Ratings of Post-Completion-Point Countries 20 Classification of CP Countries by Risk of Debt Distress 1I ~ 18 J Rating as of mid- 2007 Rating as of mid-2008 Low Moderate High In debt distress Sources: Latestjoint Bank/Fund DSAs available for post-completion point HIPCs 48. The four high-risk countries share a number of vulnerabilities. A close look at the individual DSAs shows that the highrisk ratings are generally associated with a limited capacity to carry debt due to: (i) a low export base, concentratedina few commodities, and therefore also highly susceptible and sensitive to shocks (e.g., droughts and price volatility); and (ii) a poor, or deteriorating, quality of policies and institutions as measuredby the CPIA index (Box 4). 49. DSAs show that most post-completion-point HIPCs share, to various extents, a vulnerability to export ~hocks.4~ Withthe exception oftwo high-risk countries, the NPV of external debt to exports ratio i s below its relevant threshold in2007 inpost-completion-point countries. Incontrast, the projections under the most extreme stress tests ineach DSA, which involves inmost cases a shock to exports,44show a large increase inthe ratio after 10 years (Figure 8). Inlow-risk countries, which have on average lower initial debt ratios and a higher capacity to carry debt thanks to better policies and institutions, the external debt ratio, although much higher after the shock, remains at manageable levels. For moderate-risk 43The following analysis focuses on the NPV o f external debt to exports ratio, which was found to be the indicator breaching most often its indicative threshold, and therefore most likely to drive the risk rating. 44The DSFincludes a standardized shock to exports and one combining a shock to exports with a shock to GDP and non-debt creating flows. 33 . countries, the increase is on average much larger and brings the ratio above the indicative thresholds, inlight of a lower capacity to carry debt.45The dispersion o f outcomes is also much larger than for low-risk countries. These developments are magnifiedinthe case o f high-riskcountries. Figure 8. Distribution of the NPV of debt-to-exports ratio . inpost completion pointHIPCs 450 400 x Quartile 1 5 n 0 Minimum 350 -Median Maximum A Quartile3 s:R 300 ~ I 250 + r" -t .L 200 I - c 150 0 100 I 50 0 2007 Low 2017 1 2007 2017 2007 2017 Moderate High Debt Distress Rating Sources: Latestjoint Bank/Fund DSAs available for post-completionpoint HIPCs Note: 2007 figures refer to the baseline scenario and 2017 figures to the most extreme test. 50. DSAs also show that post-completion-point countries' debt outlook is highly sensitive to the terms of new financing. To help borrowers and lenders intheir decision- making, the DSFincludes a standard alternative scenario that assumes less favorable terms for new Inabout 60percent ofDSAsfor post-completion-point HIPCs, this alternative scenario leads the NPV of external debt-to-exports ratio beyond its threshold, compared to 30 percent for non-HIPCs. This result confirms that these countries should approach nonconcessional financing with caution. 45This likely reflects a higher vulnerability to shocks, which is measuredinthe DSFby historical macroeconomic volatility. 46The test assumes a 2 percent increase inthe interest rate charged onnew loans. This scenario mimics one in which there i s an increase inless-concessional loans to cope with lower than expected highly concessional or grant financing. 34 Box 4. High Risk of DebtDistressin Post-Completion-PointHIPCs As o f end-June 2008, BurkinaFaso, The Gambia, Rwanda, and S5o Tome and Principe had a highrisk o f debt distress. With the exception o f The Gambia, all these countries were granted topping-up assistance at the completionpoint. Debt relief at the completionpoint is expected to reduce the 2007 N P V o f debt-to-exports ratio o f these countries to levels below (Burkina Faso and Rwanda) or close to (SBo Tome and Principe and The Gambia) the relevant indicative threshold. However, DSAs show that these countries' debt situation remain highly vulnerable. NPV of debt-to-exports ratio (in percent) end-2017 DSF indicative Projection threshold end-2007 Baseline projection under B2 bound test 21 Burkina Faso 150 118 178 356 The Gambia 100 107 130 182 Rwanda 150 62 149 199 Sao Tome and Principe 11 100 1I9 4 8 Average other post-CP HIPCs Average non-HIPC LICs I/ThedecreaseintheratioforSaoTomeandPrincipein2017relatestothestartofoilproduction projectedfor 2014. 21Exportvalue growth at historical average minus one standarddeviation inthe second and third projection year. This reflects structural weaknesses and/or weak macroeconomic management. Inparticular: A narrow export base is often a key factor leading to high risk ratings. The share o fthe top three commodities inthe total exports o f goods inthese countries in2006 was 80 percent on average, way above that o f other post-completion point countries and PRGF-eligible IDA-only non-HIPCs (about 62 percent).", ''Thisvery high concentration means a higher vulnerability to export shocks, which are frequent inthese countries. For instance, inthe case o f S5o Tom6 and Principe, the reclassification from a moderate to a high risk o f debt distress derives mainly from revisions to the timing and levels of oil production. Inaddition, both Silo Tome and Principe and Rwanda have very low export bases (less than 10 percent o f GDP in2007), which means that their capacity to carry debt (based on the NPV o f debt to export ratio) is very limited. The quality of policies and institutions also plays an important role. The Gambia and S5o Tome and Principe are classified as weak performers according to the World Bank's CPIA. Weak policies and institutions mean a lower capacity to carry debt, which i s operationalized inthe DSF by lower indicative thresholds. Poor policies inthe interimperiod have contributed to The Gambia's highrisk rating. The Gambia didnot receive topping-up assistance at the completion point, despite an N P V o f debt to export ratio way above the HIPC Initiative threshold o f 150percent. This i s because this high ratio mostly reflected inappropriate policies during the earlier part o f the interimperiod which affected negatively export volumes and led to excessive external b~rrowing.~'Burkina Faso, previously a strong performer, has been reclassified as a mediumperformer following a decline o f its CPIA rating in2006 and 2007. The reclassification has led to a lowering o f indicative thresholds and contributed to the downgrade of Burkina Faso's risk rating. 'Estimatesbasedon data from the UN-Comtrade Database !'The actual shares were 88 percent for Burkina Faso, 87 percent for Rwanda, 82 percent for S5o Tome and Principeand 65 percent for The Gambia. " See TheGambia: EnhancedHIPCInitiative-Completion Point Document arid MDRI, IMF Country ReportNo. 081109,March 2008 md World Bank ReportNo. 41413-GM (IDNR2007-027912, December2007). 35 B. The Fundandthe Bank's Effortsto Foster Debt Sustainability 51. The aboveresultshighlightthe needfor post-completion-pointHIPCs to implementsoundborrowingpolicies and strengthentheir capacity in publicdebt management.Consideringthe improved macroeconomic and financial outlook o f some low- risk post-completion-point HIPCs, their attractiveness for private and nontraditional official creditors has risen. While welcome, given the extent o f development needs, this situation raises additional risks for debt sustainability. 52. In2006 and 2007, some HIPCshaveborrowednon-concessionallyto finance public investments.Ghana, Mali, Mauritania, Rwanda (all post-completionpoint) and the Democratic Republic o f Congo (a resource rich interim country) have contracted substantial external debt at terms exceeding the concessional element established under the IDA Non- Concessional Borrowing P01icy.~'IDA policy helps grant-eligible and MDRIrecipient countries avoid the re-accumulation o f unsustainable debt while enabling them to gradually access additional financing when country and loan specific factors indicate that non- concessional borrowing i sjustified to meet development needs. 53. The Bank and the Fundhaveincreasedtheir efforts to foster debt sustainability. A key step was the introduction in2005 o f the DSF. But the DSF's effectiveness depends on both borrowers and lenders acting inbroad harmony with it. For this reason, the Bank and the Fundhave increasedtheir outreach efforts on the DSFwith nearly all major multilateral and bilateral creditors to LICs. Outreach opportunities to commercial creditors have been pursued as well. Inaddition, mailboxes to answer specific questions on DSF issues have been created.48As a result o f these efforts, an increasing number o f creditors are referring to the DSF to base their financing decisions, including: the AfDB, the IaDB, the AsDB and IFAD, which now have financing rules similar to IDA'S,where the terms o f financing to LICs are related to the conclusions o f DSAs; and OECD export credit agencies, which adopted in January 2008 a set o f lending principles that adhere to IDA and IMF concessionality 41In2007, Ghana issuedaUS$750 million Eurobondoninternational capital markets, and signed a US$292 million non-concessional loan agreement with China EximBank; Mali entered into a non-concessional external financing agreement with the Islamic Development Bank for about US$70.7 million; Mauritania signed two loan contracts originally on non-concessional terms amounting to US$129 million; The Democratic Republic o f Congo entered into a framework agreement with China for US$9.2 billion infinancing on non-concessional terms; in2006, Rwanda borrowed US$lOO million to finance an energy project from the EximBank o f India on terms with a grant element o f 40 percent, below the minimumgrant element allowed under the policy. See "IDA Non-Concessional Borrowing Policy Review and Update", July 2008 (IDAISecM2008-0473). 48LeiichnrI'oLIc`S(n)norldtlank.or2 and Lendinfr`I'oLIC`S!ir;lmf.org. 36 requirements and refer explicitly to the DSF.49These principles have been officially endorsed by EuropeanUnion 54. On the debtor side, the Bank and the Fund, inpartnershipwith regional capacitybuildinginstitutions,have organizedtrainingworkshops on the DSF.5'Since 2005, eight workshops have been organized inAfrica, Asia, and Latin America, which were attended by country officials from all post-completion-point HIPCs (and LICs across all the regions). The Fund's West AFRITAC also organized workshops on the DSF at the national level infive countries, at the request o f the authorities. 55. The Bank and the Fundhavealso scaled up their work programto help improve debt managementinLICs. The Bank and Fund's additional work program has two components: '* The DebtManagementPerformanceAssessment(DeMPA) tool. DeMPA is a methodology developed by the Bank for identifying strengths and weaknesses indebt management operations. 53As o f end-June 2008, 18 DeMPA assessments (including five pilot assessments) have been undertaken. The DeMPA tool and a guide to using the tool have beenposted on the Bank's external website. Training events (two so far) provided in-depth understanding o f the rationale, scope, coverage, and application o f the DeMPA tool; along with an overview o f the new trends and challenges indebt management indeveloping countries. 49See Working Party on Export Credits and Guarantees, "Principles and Guidelines to Promote Sustainable Lending Practices inthe Provision o f Official Exports Credits to Low-Income Countries" (TAD/ECG/2008( l)), ~l~~~~:.':'"w~~.olis.oecti.ora/olis, 2008cloc.ns~~T.inkTo"NT0000')(i2 ?3XG.! 51Training events have been organized inpartnership with the Centro de Estudios Monetarios Latinoamericanos (CEMLA), Debt ReliefInternational (DRI),the Macroeconomic and Financial Management Institute for Eastern and Southern Africa (MEFMI),P61e Dette and West African Institute for Financial and Economic Management (WAIFEM). 52This effort follows the discussion at the IDA and IMFExecutive Boards o fthe paper, "Strengthening Debt Management Practices-Lessons from Country Experiences and Issues Going Forward," (IDA/Sec M2007-0197 and SM/07/111) Box 5 inthis document contains information o f additional Bank and Fundcapacity-building activities inpublic debt management. For updates on the IDA policy to reach out to lenders and help IDA countries reduce the risks related to non-concessional borrowing see "IDA Non-Concessional BorrowingPolicy Review and Update", July 2008 (IDNSecM2008-0473). 53The DeMPA is a methodology for assessing public debt managementperformance through a comprehensive set o f indicators spanning the fillrange o f government debt management functions. It i s adapted from the Public Expenditureand Financial Accountability (PEFA) framework. 37 TechnicalassistanceindesigningMedium-TermDebtManagementStrategies (MTDS). An MTDS complements the DSA. Ithelps to operationalize a country's debt management objectives by outlining cost-risk tradeoffs inmeeting the government's financing needs andpayment obligations. Bank and Fundstaffs have designed a toolkit, including a guidance note on the process o f designing and implementing an MTDS, a template for strategy documentation, and a preliminary version o f the cost-risk analysis tool (closely linkedto the DSF). This toolkit has been field-tested inBangladesh, Cameroon, Ghana, and Nicaragua and additional field tests will be carried out this calendar year. 56. Continuedsustainedeffortswill be requiredto support pre- and post- completion-pointcountries,and LICs more generally, in their efforts to achieve or maintaindebt sustainability.First, debtor-reported information, which is the main source o f data for DSAs, remains weak inmany LICs. Improving the reliability, comprehensiveness and timeliness o f debtor information will likely take time and external support. Meanwhile, creditor data can help fill the information gap, and enhanced data sharing will be important. Second, the rapidly expanding number o f creditors to LICs and the lack o f information on associated amounts and terms o f financing increases the risk o f excessive debt accumulation. Thus, continued outreach efforts to creditors and debtors to promote appropriate lending and borrowing decisions and information sharing are needed. Third, significant training and technical assistance will continue to be required inthe area o f debt sustainability and management. Finally, debt sustainability depends not only upon a country's level o f debt or sound debt management, but also upon enhancing its repayment capacity. This ultimately requires sound growth-enhancing policies. 38 Annex I.EnhancedHIPC Initiative:ImplementationStatus by Country (As o f end-July 2008) A. Pre-Decision-PointCountries Comoros R cent PoliticalDevelopments:The Unionarmy backedby an Afri an Unionforce removed Colonel Bacar from power inAnjouan, which hadbroken from the Union o f Comoros. Anjouan was fully integrated into the fold o f the Union o f Comoros, following the election o f the new island president inJune 2008. Interisland cooperation can now be restored, ending the political crisis and opening the way for a resumption o f support from donors and the IFIs. However, political risks will remain significant. PRSPStatus:An I-PRSP endorsed bythe government was presentedto the Boards o f IDA and IMFalongside a JSAN on M a y 16,2006. As noted inthe JSAN, the I-PRSP and related action plan are more comprehensive than i s usually expected, and they contain most of the material required for a full PRSP. Going forward, it will be important to translate the strategy into near-term specific priority actions that are consistent with implementation capacities and the anticipated financial resources. This will require some further prioritization between the strategic axes and sectors. Staffs also believe that more work will be required inaddressing implementation risks and strengthening monitoring systems. The full PRSP i s not likely to be completed before the end o f 2008. IMF-SupportedProgramandMacroeconomicStatus: Political crisis inJuly 2007 necessitated postponement o f a request for a PRGF-supported arrangement to the IMF Board. With the crisis now resolved and interisland cooperation beingrestored, a six-month EPCA- supported program i s currently under discussion for the second half o f 2008, as a bridge to a PRGFin2009. DecisionPoint: The decision point maybe reachedby end-2009. C8te d'Ivoire RecentPoliticalDevelopments:Since the late 1990s, C8te d'Ivoire has been inpolitico- military crisis, culminating ina brief civil war in2002-2003, which effectively divided the country intwo. A breakthrough was achieved with the signing o f the Ouagadougou Peace Accord on March 7, 2007 which resulted from direct dialogue between President Gbagbo and the ex-rebel Forces Nouvelles leader Soro. The Accord, which was brokered under the auspices o f Burkina Faso's President Compaork and received the support o f the international community, sets out a roadmap for disarmament, demobilization and reintegration, the 39 dismantling o f militias, reunification o f the country, and preparations for elections. Presidential Elections are expected to take place on November 30,2008. Implementing in time the roadmap for the presidential elections, as targeted, will be challenging. PRSP Status: The Government i s preparing a full PRSP, expected to be completed in September 2008. Ten regional consultations have taken place with local governments and the population at large to assess the perception o f poverty and the impact o f the crisis, as well as to learn about the main challenges and possible ways to address them. A technical workshop was held inmid-May 2008 to validate the draft PRSP. IMF-Supported Program and Macroeconomic Status: The last PRGF arrangement was approved inMarch 2002, but went o f f track later that year due to the crisis. The Board approved a first Emergency Post-Conflict Assistance (EPCA) inAugust 2007, and a second one inApril 2008. Shortly before the second EPCA, the IDA Executive Board approved an arrears clearance and budget support operation. Discussions on a new PRGF arrangement for 2009-11are ongoing. After 1.5 percent in2007, real GDP growth in2008 is projected at 3 percent, and to pick up further thereafter, drivenby the country's reunification, increasing oil output, and favorable terms o f trade. Fiscal policy foresees continued fiscal consolidation, addresses post-conflict needs, and takes into account the financing constraints due to arrears clearance with the World Bank (completed) and the AfDB (planned for the third quarter). The net impact o f rising food and fuel prices on the current account surplus i s likely positive, but inflationis expected to rise significantly. Decision Point: The IMF and World Bank staffs are working with the authorities on a Preliminary HIPC Document. The decision point could be reachedby the end o f 2008 concomitantly with a PRGF approval provided CBte d'Ivoire has a satisfactory track record o f policy implementation under its EPCA-supported program, a PRSP is inplace, and an agreement i s reached on the completion point triggers. Eritrea Recent Political Developments: Since independence in 1993, Eritrea has been ruled by President Afiverki andthe People's Front for Democracy and Justice. Relations with neighboring Sudan have improved, leading to the resumption o f full diplomatic relations and a re-opening o f the border. Eritrea continues to be ina state o f mobilization over the border demarcation dispute with Ethiopia. Relations with neighboring Djibouti came under renewed stress as a result o f border clashes in2008. PRSP Status: An I-PRSP was drafted inJune 2003, but has not been finalized or presented to the Executive Boards o f the IMFand IDA.The draft I-PRSP was also not instrumental in policy making. N o poverty assessment has been undertaken since 2003. 40 IMF-SupportedProgramand MacroeconomicStatus:Eritreahas never hada Fund- supported program. Discussions on an SMP took place inmid-2006, but were not concluded. The last Article IV mission took place inJanuary 2008. The economy continues to stagnate. Inflation rose to 12 percent in2007, largely owing to increasing food prices. Price controls have dampened inflation, but also resulted inshortages o f food and fuel products. The fiscal position has continued to improve, but the fiscal deficit (including grants) remains relatively highat an estimated 10percent o fGDP in2007. DecisionPoint:The authorities have indicated that they would consider participating inthe H P C Initiative only once the external security situation improves. Kyrgyz Republic RecentPoliticalDevelopments:A new constitution was approved inOctober 2007, and a new parliament was elected inDecember 2007. President Bakiev's party won a large majority inthe parliamentary elections. Opposition parties failed to win seats, partly because o f highvote thresholds introduced with the new constitution. A new government was installed inJanuary 2008, headedby Prime Minister Chudinov. PRSPStatus:A full PRSP was completed and endorsed by the IMFand IDAExecutive Boards inFebruary 2003. The second APR and accompanying JSAN were sent to the Boards inApril 2006. The authorities have updatedthe PRSP (renamed Country Development Strategy, CDS) extending the poverty reduction strategy to 2010. The Boards endorsed the CDS and accompanying JSAN inJune 2007. IMFProgramandMacroeconomicStatus:The sixth and final reviewunderthe PRGF- supported arrangement was completed on M a y 21,2008. The Executive Board also approved an augmentation in access under the arrangement, to help the country deal with the increase ininternational food and fuel prices and a generally moreuncertain global andregional economic environment. The Kyrgyz authorities expressed interest ina new PRGF arrangement. The discussions will start during the summer. DecisionPoint: A decision point paper was prepared for presentationto the Boards inMarch 2007, but was withdrawn following the Kyrgyz government's request not to avail itself o f HPC/MDRIdebt reliefafter strong pressures from the parliament and civil society.54 54Following this decision, then-Prime Minister Atambaev wrote to the Managing Director o f the IMF and the President o f the World Bank asking whether the Kyrgyz Republic could qualify for MDRI. The Fund and the Bank managements wrote back explaining that the Kyrgyz Republic does not qualify for debt relief under MDRI either on the basis of income per capita criteria (Kyrgyz per capita income of then $542 already exceeded the threshold for debt relief by the IMF), or on the basis o f reaching a HIPC completion point-a condition for debt relief under MDRI. 41 Preliminary 2007 data suggest that the Kyrgyz Republic falls well below the NPV o f debt-to- exports and NPV o f debt-to-fiscal-revenues thresholds, and thus cannot proceed to the decision point. Nepal Recent Political Developments: Nepal is undergoing a major political transition. The end o f the decade-long civil conflict inApril 2006, the interim government takeover from the monarchy, and the comprehensive peace agreement between the government and the Maoist party inNovember 2006 set the stage for a transition to a new democratic governance structure. The next step inthis process, the writing o f a new constitution, will be carried out bythe Constituent Assembly. After several delays, the elections to determine this assembly were held on April 10, 2008. Despitepre-election violence, the election were considered largely free and fair by international observers, and the results appear to be broadly accepted, with the Maoist party emerging as the clear victor. The first meeting o fthe Constituent Assembly held on M a y 28 abolished the monarchy and declared the country a republic. PRSP Status: A full PRSP was completed and endorsedby the Boards o f the IMF and IDA inNovember 2003. The PRS has beenincorporated into the government's five-year planand implemented since then. The JSAN o f the third PRSP Progress Report was circulated to the Board inNovember 2006. An interim planfor 2007-2010 has beendeveloped by the transitional government. IMPProgram and Macroeconomic Status: The fifth and final review o fthe PRGF arrangement was completed on November 9, 2007. The 2008 Article IV consultation was discussedby the Board on M a y 16,2008. The macroeconomic outlook for 2007108 remains stable. The agricultural recovery, favorable service sector performance, and a significant increase intourist arrivals have boostedreal GDP growth in2007/08. Anchored by the exchange rate peg, inflation i s projected to remain broadly stable, although higher food prices and adjustments to the administered prices o f fuel could add upwardpressure. On the external side, rising oil imports and stagnant exports have led to a further deterioration inthe trade deficit,but this will bemore than offset byworkers' remittances. Decision Point: The Nepalese authorities have not yet made a decision regarding their participation inthe Initiative. Somalia Recent Political Developments: The political and security situation in Somalia remains unsettled. Fightingbetween the Ethiopian-backed government and the Union o f Islamic Courts (UIC) continues. The viability o f the Transitional Federal Government (TFG), which 42 was formed in2004, remains uncertain as its legitimacy i s continuously being challenged by warring clans. A national reconciliation conference-supported by the UN,and endorsed by the president o f the TGF-was held inDjibouti inJune 2008. An Agreement was signed between the TFG and an opposition alliance calling for the end o f "all acts o f armed confrontation" within 30 days, and withdrawal o f Ethiopian troops within 120 days after a UNpeacekeepingforce isdeployed. Itremainsto be seenifitwillberespectedbyhard-line members o f the opposition who did not participate. PRSP Status: There i s no PRSP inplace inSomalia. Given the lack o f a fully functional national authority and ongoing civil conflict, a PRSP i s not expected inthe near term. IMFProgramand Macroeconomic Status: Somaliahas nothadan JMF-supported program since 1987 and lack o f economic data precludes an assessment o f the macroeconomic situation. Prospects for Fundre-engagement-either via surveillance or an arrangement-in the foreseeable future are minimal. Fundre-engagement is constrained by the absence o f an internationally recognized government as well as the need to first clear Somalia's overdue obligations to the IMF. Inaddition, Somalia would need to demonstrate sufficient capacity and improve its data reporting to qualify for a Fund-supported program. Decision Point: Undetermined. Sudan Recent Political Developments: A Comprehensive Peace Agreement (CPA) was signed in January 2005, allowing for the establishment o f the Government o f National Unity (GNU) and the Government o f Southern Sudan. The third Sudan Consortium held inOslo inM a y 2008 recognized that important commitments were met over the past year o f CPA implementation, but the overall progress has been below expectations. The Darfur issue is far from resolved, despite the advent o f the UN-African UnionMission inDarfur which took over the peacekeepingmission in early January 2008. After troops from the north and south clashed inthe oil rich area o f Abyei, relations between the two sides have improved following a June 2008 agreement to allow for international arbitration regarding the Abyei region. However, the charges formulated by the prosecutor to the International Criminal Court generated further tensions inJuly 2008. Under the CPA, local, legislative, and presidential elections are mandated to take place in2009, followed by a referendum in Southern Sudan in2011to decide on unity or secession. PRSP Status: The government prepared a draft I-PRSP in2004, and a Five Year Strategic Plan inthe fall o f 2007. InFebruary 2007, GNUdeveloped a work plan to prepare a national PRSP (i.e., without preparation o f a formal I-PRSP). Significant funding for this work plan has since been received from the African Development Bank, but progress has been slow. The PRSP i s expected to be completed sometime during 2008-2009. 43 IMFProgramandMacroeconomicStatus:Sudanhas hada stringof SMPs since the late 1990s. The latest SMP was negotiated inJune 2007 and considered by the Board in September 2007. The SMP covers the period o f July 2007 through December 2008. A first review o fthe SMP was presented to the IMFBoard inM a y 2008. Although economic growth was strong and average inflation was relatively low, delays inimplementing public expenditure control measures resulted inthe accumulation o f domestic arrears. Remedial measures were agreed, allowing for the completion o f the first review under the SMP. DecisionPoint:The timingo fHIPC decisionpoint is uncertain, given the need for arrears clearance. Togo RecentPoliticalDevelopments:The recentparliamentary elections marked a milestone in Togo's political reform process and paved the way for donor reengagement. After the death in2005 ofPresident EyadCma, who hadruledfor 38 years, Togo undertook anational reconciliation andpolitical reform process that culminated inmultiparty parliamentary elections on October 14,2007. The international community considered the elections, which gave the rulingparty a majority and produced a new government, to have been free and transparent. The European Union, Togo's largest donor, subsequently resumed its financial assistance after a 15-year suspension. The African Development Bank normalized its relations with Togo inJuly 2008. PRSP Status:Togo's I-PRSP was adopted inMarch2008, and discussed bythe Executive Boards o f the IMF and IDA inApril 2008. The full PRSP is expected to be completed in early 2009. IMFProgramandMacroeconomicStatus:InApril2008, following a successful Staff- Monitored Program that ran from October 2006 to June 2007, the IMF's Executive Board approved a PRGF-supportedprogram, the first since the mid-1990s. DecisionPoint:Togo couldreachthe decision point at the time o fthe first PRGFreview in late 2008, ifprogram performance is satisfactory. The preliminary HIPC document, incorporating the results o f the March 2008 HIPC DSA data reconciliation mission, is expected to be issued around September 2008. 44 B. Interim Countries Afghanistan PRSPStatus:The PRSP for Afghanistan-the National Development Strategy-and the corresponding JSAN were presented to the Executive Boards o f IDA and the IMF inJune 2008. IMF-SupportedProgramandMacroeconomicStatus:A PRGF-supportedprogram approved inJune 2006 is on track, and the fourth review was completed inJuly 2008. Status of Other CompletionPoint Triggers:Progresswith respect to the completion point triggers has been mixed. A database system for external public and publicly-guaranteed debt (used for debt service and liquidity forecasts) was put inplace and made operational. The authorities undertook simple program budget pilots, but ran into difficulties with their implementation. The 2008/09 budget has been submitted to the Parliament, together with a medium-term fiscal framework that was broadly aligned with the medium-term outlook under the PRGF-supported program. The framework, however, does not yet fulfill all o f the requirements outlined inthe decision point document. The finalization o f the triggers inthe areas o f pension and miningwill require focused government involvement. CompletionPoint: Afghanistan may reach the completion point by end-2009. Burundi PRSPStatus:Burundi's first full PRSP was published inSeptember 2006. A JSANwas prepared and discussed by the Executive Boards o f IDA and the IMF, along with the PRSP, inMarch 2007. The fullPRSP benefited from broad and inclusive consultations from all stakeholders at national, provincial, and community levels. Following the sharp deterioration o f social indicators over the past decade, Burundiseems to have made some progress since the return to peace, although its social indicators remain among the weakest insub-Saharan Africa. The authorities are expected to finalize a report on the first year o f PRSP implementation inJune 2008. IMF-SupportedProgramand MacroeconomicStatus:The sixth and last review ofthe previous PRGF-supported program was completed inJanuary 2008. InJuly 2008, a new PRGF-supported program was approved by the Executive Board o f the IMF. Status of CompletionPointTriggers: The budget classification adopted in2005 made it possible to identify pro-poor expenditure, the share o f which has increased markedly. In particular, budgetary allocations for priority spending targeting pro-poor activities and 45 projects have increasedsince 2005. Public spending on education has increased significantly from 4.6 percent o f GDP in2005, to more than 9 percent o f GDP in2007, due to the recruitment o f 6,500 additional teachers and the construction o f new classrooms. Although more effort is needed to make the national healthpolicy fully operational, progress has been made in2006 and 2007. InJune 2006, the Burundian Ministryo f Healthorganized a national campaign for the vaccination against measles with the support o f UNICEF and WHO. According to the Government, preliminary analysis o f regional immunization rates (administrative) data indicates an improvement inregional rates. The World Bank and IMF recently agreed to the authorities' request to redefine the completion point trigger related to the coffee sector. CompletionPoint: Burundimay reach the completion point inlate 2008 or early 2009, at the time o f the first PRGFreview. CentralAfrican Republic PRSPStatus: The PRSP was completed and approvedbythe cabinet inJune 2007. The corresponding JSAN was discussed by the Boards o f the IMF and IDA inM a y 2008. The government intends to finalize the first progress report on PRSP implementation for submission to IDA and the IMF inSeptember 2008. IMF-SupportedProgramand MacroeconomicStatus: A PRGFarrangement was approved inDecember 2006. Performance under the PRGF-supported program was satisfactory, and the second PRGF review was completed inJune 2008. Status of CompletionPointTriggers:Overall progress towards meeting the triggers has been satisfactory, but much remains to be done. Triggers on health and education are close to being implemented. Triggers on public financial management, procurement, and governance are at an advanced implementation stage. On governance, a new law extending the provisions o f the constitution to high-ranking government officials is ready and will be submitted to the parliament. Regarding debt management, satisfactory progress has been made, and related triggers may be met inthe near future. A draft procedural manual for efficient debt management i s being developed incollaboration with P81e Dette. Inaddition, the AfDB has provided a set o f computers and new debt management software (SYGADE). Training o f the debt unit's staff has begun. Upon its completion, the production o f debt data i s expected to begin. Encouraging progress has been noted on the triggers for natural resource management and forestry. The audit o f the miningsector has been completed, but not yet validated. Implementation o f triggers regardingpublic administration and civil service management has been lagging. Audits o f the public administration system and the preparation o f a new performance assessment and remuneration system, as well as new rules and regulations for the civil service have not started. 46 Completion Point: The completion point maybe reached by mid-2009. Chad PRSP Status:The first PRSP was completed inJune 2003 and discussed bythe Executive Boards o f the IMF and IDA inNovember 2003. The first annual progress report was circulated to the two Boards inJune 2005. The government finalized the second annual progress report inDecember 2005, and submitted it to the Boards inMarch 2007. A new PRSP was formally adopted by the government inApril 2008. The report has not yet been officially submitted to the Boards o f the IMF and IDA. IMF-SupportedProgramand MacroeconomicStatus: A PRGF-supported program, approved inFebruary 2005 and later extended to M a y 2008, expired without the completion o f a single review. The last attempt at completing a review failed due to incomplete or outstanding prior actions, including the lack o f agreement on the 2008 budget and the medium-term framework. Discussions o f an SMP covering the second half o f 2008 have begun. After unsatisfactory reviews o f the indicators identified inthe July 2006 Memorandum of Understanding, and following the evacuation o f its staff inthe wake o f the rebel attacks inearly February 2008, the Bank decided to keep its office in Chad closed pending further discussions with government on a framework o f the Bank's future engagement. Although official missions are not taking place at this time, the Bank i s disbursing under its active portfolio. Status of CompletionPoint Triggers: The completion point triggers call for satisfactory progress with governance reforms, as well as inthe following priority sectors: health, education, basic infrastructure, and rural development (including water). Inhealth, for example, the proportion o f health districts and centers that are operational across the country declined and the DPT3 vaccination rate fell. Similarly, ineducation, the repeater rate rose above the target. Regarding rural development, following a rapid increase up to 2004, the rate o f access to potable water has slowed. An assessment o f progress inmore recent years i s constrained by the lack o f data regarding 2006 and 2007. Progress inthe area o f governance has also been uneven and slow in some respects. A new procurement code was adopted in 2003, and the publication o f a quarterly bulletin on public procurement resumed in2008. Progress is still needed in several areas. Inparticular, the public expenditure tracking system for primary education must be made functional; the implementation o f the governance strategy and action plan needs to be accelerated; and, the computerization o f the expenditure circuit must be completed. Completion Point:Chad could reachthe completion point by end-2009. 47 Republicof Congo PRSPStatus: Congo's first fullPRSPwas submittedto the Executive Boards o fthe IMF and IDA inApril 2008. A JSAN i s being prepared, which will be presentedto the Boards in October 2008. The PRSP addresses many o f the issues brought out by the I-PRSP adopted in 2004, and its extended preparation period allowed for a broad-based consultation. IMF-SupportedProgramand MacroeconomicStatus: Following large fiscal slippages in 2007, the Republic o f Congo successfully completed the first assessment under an SMP covering January-June 2008. Satisfactory implementation o f this SMP could pave the way back to a PRGF arrangement. Discussions on a new arrangement were initiated inMay, and will continue inthe period ahead. Status of CompletionPointTriggers: The staffs o fthe IMFand the World Bank are preparingthe second annual progress report on the implementation o f the HIPC triggers, which is likely to be presented to the Boards inOctober 2008. Some progress was made since last year inthe areas o f (i) public expenditure management following the adoption o f the Government Action Plan for Public Financial Management inApril 2008; (ii) public expenditure tracking through the adoption o f a decree establishing a new functional classification inMarch2008; (iii) governance and natural resource management, with the creation o f an Anti-Corruption Observatory in September 2007; and, (iv) oil sector management, through the continued publication o f audits o f the national oil company and establishment o f national EITIcommittees. Satisfactory progress i s also being made on structural reforms inthe forestry, telecommunications, and social sectors. The trigger for external debt management has beenpartially met. Inparticular, debt service projections are now published on the Ministry o f Finance's website, and all debt data are centralized. In order to further strengthen debt management capacity, an assessment has beenundertaken jointly by the government, IDA, and the regional central bank (the BEAC) inJuly 2008, usingthe DeMPA methodology. However, limitedprogress has beenmade inestablishing a formal Medium-Term Fiscal Framework that would take into account the country's large windfall oil revenues, which are projected to decline after 2010. The slow progress with respect to the commercialization o f Congolese oil, public investment management, and the reform o f procurement practices, has generally been due to technical delays and limited capacity, but also the lack o f a political consensus regarding the way forward. Efforts are underway to accelerate progress inthese areas through an intensified policy dialogue between the authorities, the World Bank, and the IMF, as well as technical assistance through the Transparency and Governance Capacity BuildingProject. CompletionPoint: The completion point maybe reached in2010. 48 DemocraticRepublic of the Congo PRSP Status: A fullPRSP was officially adopted and formally transmitted to development partners inJuly 2006. InMarch 2007, the new government endorsed the PRSP. The PRSP and corresponding JSAN were discussed inM a y and September 2007, respectively, by the IDA and IMFBoards. A PRSP progress report will be completed later this year. IMF-SupportedProgramand MacroeconomicStatus: The previous PRGF-supported program, approved by the IMF Board inJuly 2002, expired inMarch2006, prior to the completion o f the last review. Subsequently, agreements were reached on SMPs. The second SMP was extended to end-2008 to provide an opportunity to establish a track record. The authorities recently signed a cooperation agreement for a significant externally-financed investment program inmining and infrastructure. The implications o f this program, in particular for debt sustainability, are being assessedbefore discussions on a possible new PRGF arrangement canbe concluded. Status of Completion PointTriggers: There has beenprogress towards the adoption o f satisfactory sectoral development strategies. The Sector Country Status reports for Education (2004) and Health (2005) were completed. However, spending on education and health has remained well below the levels envisaged inthe PRSP. An agricultural sector review was completed inM a y 2006, and a miningsector review was completed inM a y 2008. A governance capacity enhancement project was approved by the World Bank inApril 2008, and it is expected to contribute over time to service delivery inpriority sectors. UNCTAD has financed the acquisition o f new public debt management software. Progress towards strengthening technical capacity o f the public debt management agency should be complemented by improvements inthe collaboration o f various government bodies involved inthe contracting andpayment o fpublic debt. CompletionPoint: The completion point maybe reachedduring2009. Guinea PRSP Status:The first PRSP was presented to the Executive Boards o fthe IMFand IDAin July 2002. The authorities issuedthe second PRSP (PRSP-11) inAugust 2007, and a JSAN was prepared and presentedto the Boards inDecember 2007. The first Annual Performance Review o f the PRSP-I1is expected to be issued in late summer 2008. IMF-SupportedProgramand MacroeconomicStatus:A new PRGF-supportedprogram was approved inDecember 2007, along with the resumption o f interim HIPC relief. The first review under the program was completed on July 28,2008. 49 Status of CompletionPoint Triggers: With regardto the governance trigger, activity reports by the former Anti-Corruption Committee (CNLS) have been published for 2002 and 2003. The National Agency for the Fight against Corruption (ANLC), which succeeded the CNLS inmid-2004, has published activity reports for 2005 and 2006, and its report for 2007 is expected to be issued during summer 2008. Regarding public procurement, the authorities have undertaken a comprehensive audit o f public procurement contracts granted from 2002 to 2004. Inline with the trigger, they are close to issuing the first quarterly audit report o f large procurement contracts, covering the first quarter o f 2007. The quarterly audit reports are being institutionalized. The triggers for the education sector have been met or surpassed. The objectives inthe health sector were met earlier inthe decade, but could not be maintained because o f weak macroeconomic policies. CompletionPoint: The completion point is expected to be reachedby end-2008, at the time o f the second PRGFreview. Guinea-Bissau PRSP Status:The fullPRSP covering 2006-2008, together with the corresponding JSAN, was issued to the IMFBoard inApril 2007 for information, and presented to the Board o f IDA inMay2007. The first annual progressreport for the PRSP will be circulated soonto the development partners. IMF-SupportedProgramand MacroeconomicStatus:AnEPCA was approvedbythe IMFExecutive BoardinJanuary 2008. Performanceunderthe EPCA-supported programhas been broadly satisfactory. Despite progress instabilizing the fiscal situation under difficult circumstances, this situation remains tight, and pressures are emerging, including regarding the recent surge infood and fuel prices. Additional donor support will be critical to the success o f the program. A second disbursement under EPCA was approved by the IMF Executive Board at end-July 2008.. Status of Completion Point Triggers: Progress is being made with public financial management. A treasury committee, which is incharge o f controlling revenue collection and ensuring that expenditure commitments are consistent with financial resources, has been operating since 2003, despite certain irregularities during 2006. Delays are observed inthe publication o f the executedbudget inthe officialjournal. The action plan to reform the public procurement system i s now being implemented insix ministries (education, health, agriculture, infrastructure, finance, and defense). The final report will be submittedto the Parliament inthe coming months. School fees at the primary education level have been eliminated, which has allowed for an increase inthe gross enrollment ratio. Inthe health sector, 62 percent o f children under the age o f one were fully vaccinated by end-2007, compared to a target o f 40 percent. The government's program to fight HIV/AIDS was 50 adopted in2005. The government's demobilization, reinsertion, and reintegration program was successfully completed in2006. HIPC CompletionPoint: The HIPC completion point maybe reachedby mid-2009. Haiti PRSPStatus: The commodity price shock has diverted attention from PRSP implementation. A donor's conference was to be held inPort-au-Prince inlate April 2008 to set up sectoral strategy working groups and lead to a pledging conference for three year implementation o f the PRSP. However, the conference was cancelled due to violent protests over rising food prices, and the subsequent resignation o f the Prime Minister. Moreover, the FY 2008 supplementary budget that was supposed to align PRSP andbudgetary spending priorities has not been submitted, pending appointment o f a new Prime Minister and hidher government. FundRelationsand MacroeconomicStatus: The PRGF-supported program remains on track. The third review was completed inJune 2008. Status of CompletionPoint Triggers: Significant progress has been made inimplementing the HIPC triggers. Several measures have been taken or are underway, such as the completion o f the PRSP; the maintenance o f macroeconomic stability under the IMFPRGF program; tracking poverty-reducing spending; adoption o f an asset declaration law; increasing immunizationrates; and establishing a national HIV/AIDS plan. However, progress inimplementing the triggers inthe areas o f structural reforms, education, and debt management has been slow. The authorities have taken the commitment to accelerate the implementation o f the triggers related to the new public procurement law, the reinforcement and establishment o f customs control inprovinces, the establishment o f public financing mechanism for primary schools, the centralization o f all information on public external and domestic debt ina single database, and the publication o f external debt data. CompletionPoint: The HIPC completion point maybereachedbythe first halfo f2009. Liberia PRSPStatus:The Government finalized the full PRSP inMarch2008. The JSAN and the PRSP, which covers the period o f April 2008 to June 2011, were circulated to the Executive Boards o f the IMF and IDA inJune 2008. The PRSP was also presented to the Liberia Poverty Reduction Forum inJune 2008. IMF-SupportedProgramand MacroeconomicDevelopments:InMarch2008, the IMF Executive Board approved three-year arrangements under the EFF and PRGF. 51 Status of Completion Point Triggers: Regardingpublic financial management triggers, a new law is indraft form, and the government intends to submit it to the legislature by end- December 2008. However, there is no monthly or quarterly publication o f signed procurement contracts over the agreed thresholds o f US$25,000, $10,000, and $50,000, for goods, services, and works, respectively. On debt management, the government has drafted a debt management strategy, and a debt management unit has been established, but it lacks both trained personnel and the required debt management system to publishregular debt data. However, the government is working with its debt advisors to reconcile its commercial debt. Regarding governance triggers, the government has moved forward with the passage of the Anti-Corruption Law and the establishment o f the independent Anti-Corruption Commission. The government is also working towards the revision o f the investment code by December 2008. The government has placed a highpriority on the implementation o f the social sector measures. Inthis regard, the government has established a Health Sector Fundthat will be utilized for the employment o f more health professionals, and to expand access to basic health services. The government has also made progress towards regularizing and harmonizing the payroll o f public servants, including inthe ministry o f education. CompletionPoint:The completion point maybe reachedin2010. C. Post-Completion-PointCountries Benin ProgressTowards Achievingthe MDGs: The following MDGsappear to bewithin reach bythe target date o f2015: reducing child mortality, universal primary education, gender equality and the empowerment o f women. However, several goals may not be met, including: the eradication of extreme poverty and hunger, improving maternal health, and ensuring environmental sustainability. Debt Sustainability:The latest DSA, completed inDecember 2007, characterizedBenin's risk of debt distress as "moderate". Risks to debt sustainability were evident when assumptions regarding lower economic growth, more volatile cotton production, external price shocks, non-concessional public borrowing, and less generous financing terms were included inalternative scenarios. Benin has shown some progress inthe institutional management o f its external debt and indiversifying exports. The debt management committee chaired by the Minister o f Economy and Finance has been improving debt management and reporting. However, the committee remains vulnerable to politicalpressure. IMF-Supported Program:Benin is currently engaged ina PRGF-supportedprogram with the IMF.The fourth review under the program was completed inJune 2008. 52 Bolivia Progress Towards Achieving the MDGs: Based on the Fifth MDG Progress Report prepared by the government inJune 2008, the attainable MDGs include: eliminating extreme poverty and hunger; reducing child mortality; improving maternal health; gender equality; and, combating HIV/AIDS, malaria, and other diseases and improving access to safe water and sanitation. However, based on current trends, achieving the remaining goals will be challenging. Debt Sustainability:The latest Debt Sustainability Analysis, completed inJune 2007, characterized Bolivia's risk o f debt distress as "low". The sustainability o f Bolivia's public debt improved substantially as a result o f the MDRIand the shift to an overall fiscal surplus since 2006. Debt ratios appear manageable, with ample margins with respect to risk thresholds, and may be expected to decline further over the long rununder baseline policies. Given that the remaining stocks of both domestic and foreign debt are o f long maturities, debt service requirements are also projected to remain low. IMF-Supported Program:Bolivia is not currently engaged inan IMF-Supported program. The previous Stand-By Arrangement expired inMarch 2006. BurkinaFaso ProgressTowards Achievingthe MDGs:Few MDGs will be within reachby2015 on current trends. Many key development indicators remain very low inBurkina Faso, even in relation to the average for Africa, andprogress i s hampered by highpopulation growth of 3 percent. Debt Sustainability:The latest DSA, completed inJune 2008, characterized Burkina Faso's risk o f debt distress as "high". This rating related primarily to the highdebt-to-exports ratio, while other debt indicators were comfortably below their risk thresholds under the baseline scenario. The most significant risk to debt sustainability relates to delayed fiscal adjustment. Risks also relate to worse-than-expected export and growth performance, which could result from a slower than anticipated rebound incotton output or a decline ingold prices. The authorities have recently adopted a national debt policy, and a Debt Management Performance Assessment (DeMPA) ledby the World Bank indicated that the country has relatively strong controls for the contracting o f external debt. While the evaluation also identifies a number o f areas that do not meet the minimumrequirements set out inthe DeMPA framework, inmany cases, the improvements required for reaching those standards are relatively modest. 53 IMF-SupportedProgram:Burkina Faso is currently engagedina PRGF-supported program. The second review under the program was completed inJune 2008. Cameroon ProgressTowards Achievingthe MDGs:Basedon available information, only the M D G for universal primary education appears to be within reach by 2015, while remaining goals may not be achieved on current trends. Debt Sustainability: The latest DSA, completed inJune 2008, characterized Cameroon's risk o f debt distress as "low". While debt sustainability appears resilient to shocks, the absence o f a comprehensive public debt strategy and weak domestic debt management may pose risks. The authorities have already prepared a preliminary draft debt strategy, which i s expectedto be finalized by end-2008, supported by technical assistance from the IMF and the World Bank. IMF-SupportedProgram: Cameroon is currently engaged ina PRGF-supported program. The fifthreview o f the program was completed inJune 2008. Ethiopia ProgressTowards Achieving the MDGs: Strong andbroad-based economic growth over the past several years has facilitated progress with poverty reduction, development o f the education sector, and gender equality at the primary level. Less progress has been made with respect to ensuringsustainable access to drinking water and reducing the infant mortality rate. Present information, however, i s insufficient to determine which o f the MDGs are likely to be achieved. Debt Sustainability: The latest DSA, completed inJuly 2008, characterized Ethiopia's risk o f debt distress as "moderate". Stress tests reveal that debt sustainability i s sensitive to assumptions regarding the growth o f exports and the concessionality o f financing. Looking forward, the authorities will need to develop a comprehensive medium-term debt strategy that includes public enterprises and contingent liabilities. IMF-SupportedProgram:Ethiopiais currently not engaged inan IMF-supported program. The last review under the previous PRGF-supportedprogram was completed inOctober 2004. 54 The Gambia ProgressTowardsAchieving the MDGs: The MDGfor universal primary education appears to be within reach by 2015. However, other goals, including the eradication o f extreme poverty and hunger, improving maternal health, and ensuring environmental sustainability, may prove challenging to achieve by the target date. Debt Sustainability: The latest DSA, completed inNovember 2007, characterizedThe Gambia's risk o f debt distress as "high". The level o f external debt remains high, even after HIPC and MDRIassistance, due to outstanding debt owed to multilateral and non-Paris Club bilateral creditors. Sensitivity analysis shows a substantial worsening o f debt indicators inthe event o f exogenous shocks (e.g., disruption to tourism), slow progress inthe expansion and diversification o f agricultural exports, or external borrowing on insufficiently concessional terms. The government is seeking external assistance to formulate a comprehensive debt management strategy and to strengthen its debt management capacity. The strategy i s expected to set the limits and the terms o f new borrowing, inline with the government's long-term fiscal objectives. IMF-SupportedProgram: The Gambia is currently engaged ina PRGF-supportedprogram. The second review under the program was completed inDecember 2007. Ghana ProgressTowards Achieving the MDGs: Based on current information, the MDGsfor the eradication o f extreme poverty and hunger and universal primary education appear to be within reachby2015. However, achieving the MDGs for improving child andmaternal health will require significant increases inthe number o f physicians and nurses, as well as investment inhealth facilities. Achieving the environmental sustainability goals will also require a major scaling up o f investments. Debt Sustainability: The latest DSA from June 2008 characterized Ghana's risk o fdebt distress as "moderate". Ghana's debt dynamics appear to have deteriorated relative to the previous DSAs, owing to the rapid accumulation o f external and domestic public debt contracted on commercial terms, and highcurrent account and fiscal deficits. While diversifying exports and implementing structural reforms would help to reduce Ghana's external vulnerabilities, these should be complemented by the implementation o f prudent macroeconomic and debt management policies, as well as developing a sound institutional framework for selecting high-return public investment projects. The prospect of significant oil productionwould strengthendebt dynamics. 55 IMF-SupportedProgram: Ghana is not currently engaged inan IMF-supported program. The last review under the previous PRGF-supportedprogram was completed in October 2006. Guyana ProgressTowards Achievingthe MDGs:Based on available information, the following MDGsappear to bewithinreachbythe target date o f2015: universal primary education, gender equality and the empowerment o f women. However, progress regardingpoverty reduction, maternal and child health, and controlling the prevalence o f malaria and other diseases appears to be less certain, and it i s unclear whether Guyana will meet these targets by 2015. Debt Sustainability: The latest Debt Sustainability Analysis, completed inJanuary 2008, characterized Guyana's risk o f debt distress as "moderate". Compared to the 2007 DSA, the outlook has strengthened substantially (aided by additional debt relief from the Inter- American Development Bank), and vulnerabilities have lessened. However, Guyana's risk o f debt distress could increase ifnet non-debt creating flows and real GDP do not grow as projected. Inaddition, higher vulnerability indicators for the total public sector debt ratios than for external debt ratios underscore the need for further fiscal consolidation. Going forward, sustained fiscal consolidation and growth, as well as a prudent debt strategy would be critical inorder to preserve recent gains. Despite the authorities' efforts, capacity to independently prepare a D S A remains weak, and buildingthis capacity would help to ensure the consistency o f new borrowing with the fiscal framework. IMF-SupportedProgram: Currently, there is no Fund-supportedprogram with Guyana. The previous PRGF Arrangement expired in September 2006. Honduras ProgressTowardsAchieving the MDGs: Based on available information, the following MDGs appear to bewithinreachby the target date o f2015: universalprimary education, gender equality, child mortality, and environmental sustainability. Since 2005 poverty rates have been falling substantially (from 65.3 percent to 60.2 percent) and the extreme poverty rate has fallen to 35.9 percent from 47.1 percent. These trends suggest that the MDGrelated to extreme poverty might be achieved. However, based on current information, it is unclear whether the remaining Goals are on track at this time. Debt Sustainability:The latest Debt Sustainability Analysis update, completed inMarch 2008, characterized Honduras' risk o f debt distress as "low". This represents an improvement indebt dynamics since the 2007 DSA following significant additional debt relieffrom the 56 Inter-American Development Bank.The authorities are currently undertaking a series o f important reforms aimed at strengthening and modernizing the public debt office o f the Ministry o f Finance. IMF-SupportedProgram:Honduras is currently engaged ina Stand-By Arrangement with the IMF.The first review under the Arrangement i s scheduled for August 2008. Madagascar ProgressTowards Achievingthe MDGs: Despite stronger economic performance since 2002, overall growth still appears insufficient, and external shocks remain too prevalent to reach most o f the MDGs.However, good progress has been made inthe area o fprimary education, and the MDGs for universal primary education and gender equality appear within reach. DebtSustainability:The DSA o fJuly 2008 characterizedMadagascar's risk o f debt distress as "low". The installation o f the Debt Management and Financial Analysis System has improvedthe efficiency o f debt management, and the government is currently seeking financing to obtain the latest version o f the System and provide internal training. IMF-SupportedProgram:Madagascar is currently engaged ina PRGF-supported program. The fourth review was completed inJuly 2008. Malawi ProgressTowards Achievingthe MDGs:Based on current trends, Malawi appears likely to achieve the MDGs for gender equality and the empowerment o f women by 2015. Despite progress inseveral other areas, including achieving equal enrollment inprimary education, reducing child mortality, and combating HIV/AIDS, malaria, and other diseases, based on current information, it is unclear whether these and other MDGs can be met by 2015. Debt Sustainability:The latest DSA from March2007 characterizedMalawi's risk o f debt distress as "moderate". While debt ratios have improveddramatically inrecent years, some stress tests suggest potential vulnerabilities, particularly ifthe projected growth inoutput and exports does not materialize, or ifthe government borrows on less concessional terms. Reducing the risk o f debt distress will depend on maintaining sound macroeconomic policies and further fiscal consolidation. Export diversification and robust growth rates will be crucial for maintaining a sustainable debt path. A World Bank assessment o f debt management found that, despite some progress, weaknesses persisted, and additional reforms were needed over the medium-term. 57 IMF-SupportedProgram:Malawihasjust completed a PRGF-supported program with the IMF.The sixth andfinal review under the program was completed inJuly 2008. Mali ProgressTowards Achieving the MDGs: Mali is likely to attain the MDGsfor combating HIV/AIDS,malaria, and other diseases, as well as for ensuring environmental sustainability. With concerted efforts, the objectives o f eradicating o f extreme poverty andhunger and universal primary education could also be achieved. However, based on current trends, the targets concerning child mortality, maternal health, and gender equality seem beyond reach by 2015. Debt Sustainability: The latest DSA from April 2008 characterized Mali's risk o f debt distress as "low". While debt dynamics appear positive, further fiscal consolidation, structural reforms, as well as strengthened debt management, would help M a l i further reduce risks to debt sustainability. IMF-SupportedProgram: A PRGF-supportedprogram was approved inMay 2008. Mauritania ProgressTowards Achievingthe MDGs: Basedon current information, Mauritania appears to be on pace to meet the MDGfor gender equality by the target date o f 2015. It i s also possible that the Goal o f eradicating extreme poverty and hunger could be met by the target date, though this would depend on sustained growth and the effective delivery o fpro-poor programs. However, on current trends, the remaining goals do not appear to be within reach by2015. Debt Sustainability: The latest DSA characterizedMauritania's risko f debt distress as "moderate", based on the assumption that Mauritania finds a solution for its debt inarrears. Underthe baseline scenario, all debt burden indicators remain below their policy-dependent indicative thresholds, except for a marginal breach o f the threshold for the NPV o f the debt- to-GDP ratio. However, stress tests indicate that Mauritania i s somewhat vulnerable to adverse shocks, notably the risk o f lower-than-projected growth o f GDP and exports. While HIPC and MDRIassistance helped to reduce Mauritania's external debt levels, about half o f Mauritania's total external nominal debt at end-2007 hadnot been treated on HIPC terms and remained inarrears. While the operational efficiency o f debt management inMauritania has improved, several areas require strengthening, including by improving coordination between the Central Bank and the Treasury, and investing inhuman resources. Improvements are also underway with respect to the quality o f debt data and debt management software and databases. 58 IMF-SupportedProgram:Mauritania is currently engaged ina PRGF-supportedprogram. The thirdreview under the PRGF was completed inM a y 2008. Mozambique ProgressTowards Achievingthe MDGs: The MDGs for the eradication o f extreme poverty and hunger and the reduction o f child mortality appear to be within reach by 2015. However, based on current trends, it is unclear whether the remaining goals will be met by this date. Debt Sustainability: The latest DSA, completed inMay 2007, characterizedMozambique's risko fdebt distress as "low". IMF-SupportedProgram:Mozambique is currently engaged ina PSI-supportedprogram. The second review under the PSIwas completed inM a y 2008. Nicaragua Progress Towards Achieving the MDGs: The available information suggests that the MDGs that follow appear to be within reach by the target date o f 2015: eradicating extreme poverty and hunger, and reducing child mortality. However, if current trends persist, it is unlikely that the remaining goals will be met. In particular, areas where additional effort is needed include: maternal mortality, access to reproductive health care services, chronic malnutrition, access to drinkingwater and sanitation, and illiteracy. Debt Sustainability:The latest Debt Sustainability Analysis, completed inSeptember 2007, characterized Nicaragua's risk o f debt distress as "moderate". Debt ratios have improved over the past several years following fiscal consolidation and HIPC and MDRIdebt relief, and are projected to remain on a declining trend over the medium term under the baseline scenario. However, stress tests suggest that vulnerabilities could emerge if substantial government borrowing takes place at less concessional rates, and ifgrowth remains below projections. The formalization o f pending debt relief agreements with bilateral non-Paris Club creditors remains a key challenge. IMF-SupportedProgram:Nicaraguais currently engaged ina PRGF-supportedprogram with the IMFthat was approved inOctober 2007. The first review under the PRGFis scheduled for September 2008. Niger ProgressTowards Achievingthe MDGs:Niger appears to be on track to meet the MDG for the reduction o f child mortality by 2015. However, on current trends, it appears unlikely that the remaining MDGs can be met by the target date. 59 Debt Sustainability:The latest DSA from December 2007 characterizedNiger's risk o fdebt distress as "moderate". Sensitivity tests show that the external debt burden could worsen in the event o f a deterioration o f export and/or macroeconomic performance, or a sizeable deterioration inthe terms o f new borrowing. The Debt Directorate o f the Ministryo f Finance currently performs the basic tasks o f loan accounting, debt service projections, and debt sustainability analyses every few years. The Directorate is currently building its capacity to develop a medium-term strategy and to analyze debt sustainability annually, including through additional training for staff. IMF-SupportedProgram:Niger is currently engaged ina PRGF-supported program. The sixth and final review under the program was completed inMay 2008. Rwanda ProgressTowardsAchievingthe MDGs: The MDGs onuniversalprimary education, gender equality and the empowerment ofwomen, and combating HIV/AIDS, malaria, and other diseases, appear to be within reach by 2015. However, achievement o f the remaining MDGs by the target date may be challenging. Debt Sustainability:The latest DSA, completed inDecember 2007, characterized Rwanda's risk o f debt distress as "high". While Rwanda's debt as a share o f GDP remains relatively low at 17% o f GDP (at end-2007), the D S A concludes that exogenous shocks to exports or imprudent borrowing on non-concessional terms could cause a rapid deterioration o f debt dynamics over the medium-term. The authorities have experienced difficulties inmonitoring actual disbursements and reconciling them with budget projections. To guide future borrowing, the authorities are developing a debt management strategy. The Debt Management and Financial Analysis Systems software has been acquired to harmonize public debt records. IMF-SupportedProgram:Rwanda is currently engaged ina PRGF-supported program. The fourth review under the program was completed inJune 2008. Silo Tom6 and Principe ProgressTowards Achievingthe MDGs: S5o Tom6 and Principe currently lacks reliable social indicators, making it difficult to monitor progress towards the MDGs. However, based on available information, the MDGo f universal primary education appears to be within reach by 2015. Achievement o fthe remaining goals by the target date will be difficult based on current trends. 60 Debt Sustainability: The latest DSA, completed inJune 2008, characterized STio Tome and Principe's risk o f debt distress as "high". Despite a significant reduction inthe net present value o f debt at the completion point, the country's public debt will remain vulnerable to shocks to the exchange rate, and to potential volatility o f exports and foreign grants, at least untiloilproductioncomes on line inseveral years. External debt vulnerability would be further exacerbated inthe absence o f sound macroeconomic policies and delays inoil production. IMF-SupportedProgram:STio Tome andPrincipe hasjust completed a PRGF-supported program with the IMF.The sixth and final review under the programwas completed inJune 2008. Senegal ProgressTowards Achieving the MDGs: While Senegal's poverty and social indicators have improved, substantial efforts are needed to meet the MDGs. Maternal and child mortality have been reduced and access to safe water and primary education have improved. However, the poverty reduction agenda remains largely unfulfilled, reflecting the need to increase the focus on the poorest regions o f the country, absorptive capacity constraints, and remaining weaknesses inpublic financial management and procurement. A reorientation of spending will be needed to provide sufficient allocations to priority sectors-particularly health and education inrural areas. Debt Sustainability: The latest DSA, completed inJune 2008, characterized Senegal's risk of debt distress as "low". Debt dynamics have improved substantially owing to HIPC Initiative and MDRIdebt relief. However, debt sustainability remains vulnerable to increased fiscal deficits and negative shocks to real GDP growth. Senegal would benefit from continued fiscal discipline, prudent and limited use of non-concessional borrowing, and strong debt management. IMF-SupportedProgram: Senegal is currently engaged ina PSI-supported program. The first review under the PSI was completed inJune 2008. Sierra Leone ProgressTowards Achievingthe MDGs: The MDGson universal primary education, gender equality, and the empowerment o f women, and combating HIV/AIDS, malaria, and other diseases, appear to be within reach by 2015. Informationis not available regarding the progress and prospects for the remaining MDGs. Debt Sustainability: The latest DSA, completed inJune 2008, characterized Sierra Leone's risk o fdebt distress as "moderate". The main risks to debt sustainability appear to be 61 potentially low output or export growth, and/or large external shocks. Related risks can be reduced through continued reliance on concessional financing, export diversification, a gradual reduction o f the domestic debt stock, and the development o f the domestic debt market. IMF-SupportedProgram: Sierra Leone is currently engaged ina PRGF-supported program. The second review under the program was completed inJuly 2008. Tanzania ProgressTowards Achievingthe MDGs: While increasedaid has contributed to progress toward the MDGs, based on current trends, Tanzania is not likely to achieve all o f the M D G s bythe target date o f2015. Significant progresshas been made inachieving universal primary education and lowering child mortality, but progress has been mixed with regard to reducing poverty and hunger, increasing access to water, and reducing the prevalence o f HIV/AIDS. Debt Sustainability:The latest DSA, completed inApril 2007, characterizedTanzania's risk o f debt distress as "low". Tanzania's external debt sustainability has strengthened further after MDRIdebt relief. All primary indicators o f debt sustainability fall significantly below the thresholds that apply to Tanzania. IMF-SupportedProgram: Tanzania is currently engaged ina PSI-supportedprogram. The thirdreview under the PSIwas completed inMay 2008. Uganda ProgressTowards Achievingthe MDGs: The MDGs for the eradication o f extreme poverty and hunger and universal primary education appear to be within reach by 2015. The authorities have also made moderate progress towards the goals for gender equality and the empowerment o f women, and developing a global partnership for development. However, achieving the remaining MDGs, particularly for the reduction o f child mortality, improving maternal health, and ensuring environmental sustainability, will be challenging. Debt Sustainability:The latest DSA, completed inNovember 2007, characterizedUganda's risk o f debt distress as "low". The authorities finalized their new debt management strategy inDecember of2007. It lays out a comprehensive approachto debt contracting and management. The authorities also work on addressing the accumulation o f domestic arrears. IMF-SupportedProgram:Uganda is currently engaged ina PSI-supportedprogram. The third review underthe PSIwas completed inJuly 2008. 62 Zambia ProgressTowards Achievingthe MDGs: Most o fthe MDGs appear to be within reachby 2015, particularly universalprimary education, gender equality and the empowerment of women, and combating HIV/AIDS, malaria, and other diseases. However, on current trends, it will be difficult for the authorities to achieve the MDGon environmental sustainability. Debt Sustainability: The latest DSA, completed inNovember 2007, characterized Zambia's risko fdebt distress as "low". Zambia's debt sustainability outlook has strengthened substantially, mainly because o f higher copper export receipts and debt relief received under the H P C and MDR Initiatives. The D S A suggests that Zambia's public debt will improve further over the medium term, so long as economic policies remain appropriate. IMF-SupportedProgram:InJune 2008, the IMFBoardapproved a PRGF-supported program with Zambia. 63 Annex 11.Country Coverage,Data Sources, andAssumptions for the HIPC Initiative and MDRICostingExercise Country Coverage 0 The costing analysis for the 33 post-decision-point countries includes:Afghanistan, Benin,Bolivia, BurkinaFaso, Burundi, Cameroon, Central African Republic,Chad, Democratic Republic o f the Congo, Republic o f Congo, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Siio Tome and Principe, Senegal, Sierra Leone, Tanzania, Uganda, and Zambia. 0 The costing analysis for the pre-decision-point countries is basedon 7 HIPCs: Comoros, CBte d'Ivoire, Eritrea, Nepal, Somalia, Sudan, and Togo.55 Data Sources 0 Staff estimates are based on HIPC Initiative decision and completionpoint documents for all 33 post-decision-point countries, and preliminary documents or estimatespresentedin "Heavily IndebtedPoor Countries (HIPC Initiative) - List o f Ring-Fenced Countries that Meet the Income and IndebtednessCriteria at end-2004"56for the 8 pre-decision-point HIPCs. 0 Datawas updated through end-July 2008. Assumptionsfor the HIPC Initiativeand MDRICostingExercise Calculations o f total costs includecosts under the original and enhancedHIPC Initiative frameworks and the MDRI. 0 Cost estimates for the HIPC Initiative are based on debt data after full use o f traditional debt-reliefmechanisms. The following exchange rateshave beenusedfor the MDRIcalculations: o IDA and AfDF. The initial MDRITrust Fundreplenishment rate o f 1.477380 U S dollars per SDR was applied for the periodFY07-08. Cost estimates for FY09 onward are based on the IDA15 foreign exchange reference rate o f 1.524480 U S dollars per SDR. o IMF.The exchange rate o f the date that debt reliefwas delivered, and, incases where debt was not yet delivered, the rate as o f end-December 2007 was used. o IaDB. Currency units inU S dollars at end-2006. 55Kyrgyz Republic is not includedincost estimates, as its indebtednessratio at end-2007 is estimatedat below the HIPC Initiative threshold. 56See IDAlR2006-004112andEBSl06135. 64 Updateof Cost EstimatesinNet PresentValue Terms The cost o f HIPC Initiative assistance calculated inNPV terms at the time o f the decision point i s discounted to end-2007 using the average interest rate applicable to the debt relief. This rate was estimated at 4.9 percent and corresponds to the implicit long-term interest rate of currencies that comprise the SDR basket over the period 2005-2007, calculated as a 6-month average o f the Commercial Interest Reference Rate (CIRR) over this period, weighted by the participation of the currencies inthe SDR basket. The same rate was used to calculate MDRIdebt relief inend-2007 NPV terms. 65 Table 2. Debt Service of 33 Post-Decision-PointHIPCs, 2001-2012 (Inmillions ofU.S. dollars, unless otherwise indicated) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Prel. Projections A. Post-Completion-Point HIPCs Benin Paid 36.2 3 5 . 7 m 35.8 29.1 26.6 28.7 Due afler enhanced HIPC Initiatix relief I/ 753 788 835 876 945 Due after MDRI 415 425 489 513 544 Invercent ofexvort 9.8 9.5 8.0 7.6 5.1 4.9 4.2 5 2 4 7 4 9 4 4 3 9 Inpercent ofGDP 1 4 1 3 0 9 0 9 0 7 0 6 0 5 0 6 0 6 0 6 0 6 0 6 Bolivia Paid 128971 3293 3434 3408 4032 3778 3406 Due after enhanced HIPC Initiativerelief I/ 389.1 366.8 370.2 348.8 341.0 Due afler MDRl 297.7 301.0 310.4 299.7 288.0 Inpercent ofexport 19.1 21.1 17.5 13.3 12.3 8.7 6.9 5.1 5.0 4.9 4.6 4.1 ~n percent o f GDP 3.6 4.2 4.2 3.9 " 4.3 3.4 . 2.6 .. .... 1.8 .. 1.5 1.3 1.1 .... 1.0 Burkina Faso Paid 3 5 . 1 m 48.9 45.7 44.5 41.3 45.9 Due after enhanced HPC Initiativerelief I/ 79.8 96.0 101.7 97.0 I12.3 Due after MDRl 47.8 65.7 73.0 68.9 86.1 Inpercentofexport 135 114 134 8 3 8 3 6 2 6 6 6.3 7.1 6.9 5.6 6.4 In percent o f GDP 1 2 I O 1 1 0 9 0 8 0 7 0 7 0.6 0.8 0.8 0.7 0.8 Cameroon Paid 260.9 240.4 284.8 259.1 406.2)1 56.2 Due after enhanced HIPC Initiativerelief I/ 1226 1243 1057 1089 1072 Due after MDRl 618 688 554 726 737 Inpercentofexport 9 6 a s 8 7 7 2 100 5 1 I O 0 9 I O 0 8 I O I O Inpercent ofGDP 2 8 2 2 2 1 1 6 2 4 1 4 0 3 0 3 0 3 0 2 0 2 0 2 Ethiopia Paid 1013 8 6 5 m 398 41 5 8 6 0 Due afler enhancedHIPC Initiativerelief I/ Due afler MDRI 40.2 30.2 46.0 86.8 130.9 Inpercent of export 20.0 10.3 7.6 5.4 2.1 2.0 3.5 1.3 0.9 1.2 1.9 2.5 The Gambia Paid 18.2 26.9 12.4 22.6 23.2 2 5 , 6 m ... Due afler enhancedHIF'C Initiativerelief I/ ... 23.4 24.9 25.8 28.9 30.8 Due after MDRI II8 123 122 150 167 Inpercent ofexport 1 6 8 239 III 1 7 7 1 7 7 165 171 7 1 6 9 6 5 7 4 7 8 In percent ofGDP 4 3 7 3 3 5 5 6 5 0 5 1 4 1 I 5 1 4 1 3 1 5 1 5 Ghana Paid 4 5 2 . 6 m 4 1 5 . 1 ~ 1529.3 601.6 192.4 Due after enhanced HCPC Initiatiw relief I/ ... 213.0 198.0 195.4 214.5 278.6 Due afler MDRl ... 100.8 85.8 83.2 102.3 166.4 Inpercentofexport 18.7 17.0 13.3 14.3 13.5 11.6 3.1 1.3 1.0 0.9 1.1 1.7 -In percent o f GDP 8.5 7.3 -.4-.2 L 4 9 4.7 12............................................... 0.6 0.5 0.4 0.5 0.7 "._ Guyana " Paid 57.1 4 5 . 2 1 1 45.3 35.3 27.6 19.0 Due after enhancedHIPC Initiative relief I/ ... 29.8 30.2 42.2 50.6 58.9 Due afler MDRI ... 10.4 10.9 22.1 31.3 39.3 Inpercent of export 8.6 6.8 7.6 6.2 5.1 3.7 2.2 1.0 1.0 1.9 2.4 2.8 In percent of GDP 8.2 6.3 6.9 5.8 4.3 3.0 1.8 0.9 0.9 1.8 2.3 2.7 Honduras Paid 189.6 224.6 232.6 l 9 7 , 7 m 160.4 174.2 Due afler enhanced HIPC Initiative relief I/ ... 193.9 180.1 188.9 195.0 208.4 Due afler MDRl ... 109.0 96.5 96.7 95.0 99.2 Inpercent of export 4.8 5.2 5.4 3.8 3.0 2.7 2.7 1.6 1.3 1.2 1.1 1 . i hi percent o f GDP 2.5 2.9 2.9 2.3 1.8 2 5 1.4 0.8 0.6 0.6 0.6 0.6 Madagascar Paid 46.7 54.6 m o m 68.9 81.8 22.3 Due afler enhancedHIPC Initiativerelief I/ ... 63.2 77.1 85.4 101.0 108.2 Due afler MDRl ... 35.3 45.5 50.2 61.6 67.8 Inpercent of export 3.5 7.5 5.5 5.0 5.1 5.0 1.0 1.3 1.6 1.2 1.3 1.4 InpercentofGDP 1.0 1.2 1.3 1.6 1.4 1.5 0.3 0.4 0.4 0.4 0.4 0.4 Malawi Paid 93.7 78.7 94.8 102.7 1 0 3 . 1 ~ 1 13.3 Due after enhanced HIPC Initiativerelief I/ ... 18.1 19.7 19.9 22.9 32.8 Due after MDRI 5.0 6.0 7.0 7.9 13.3 Inpercent ofexport 19.5 17.0 20.0 19.0 18.5 18.1 1.6 0.5 0.5 0.6 0.6 1.0 Inpercent ofGDP 5.5 2.9 3.9 3.9 3.6 3.4 0.4 0.1 0.1 0.1 0.1 0.2 Table 2 (continued).Debt Service of 33 Post-Decision-PointHIPCs, 2001-2012 (Inmillions ofU.S. dollars, unless otherwise indicated) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Mali Paid 79.0 67.3167.21 78.2 57.5 46.9 109.0 Due afler enhanced HIPC Initiativerelief I/ ... 108.7 116.1 123.3 128.1 126.1 Due afler MDRI ... 70.2 76.0 79.9 90.5 98.0 Inpercent of export 9.0 6.3 5.8 6.4 4.2 2.6 5.3 3.3 3.3 3.2 3.4 3.4 Inpercent ofGDP 2.6 2.0 1.5 1.5 1.1 0.8 1.6 0.9 0.9 0.9 1.0 0.9 Mauritania Paid L o n 20.9 25.0 30.5 10.6 12.8 Due afler enhancedHIPC Initiativerelief I/ ... 74.7 107.1 100.1 90.8 99.8 Due afler MDRI .,. 23.6 56.7 62.2 52.3 61.3 Inpercent ofexport 0.2 2.6 5.8 5.1 4.3 0.7 0.8 1.1 2.5 2.8 2.3 1.8 Inpercent of GDP 0.1 0.9 1.6 1.7 1.6 0.4 0.5 0.7 1.4 1.4 /.I 1.0 Mozambique Paid 1 2 7 . 1 1 62.0 71.8 58.1 66.6 23.3 35.1 Due afler enhancedHIPC Initiativerelief I/ ... 81.1 98.6 106.4 114.3 121.8 Due after M D R l 230 343 579 771 974 Inpercent ofexport 2 7 5 2 5 3 3 2 3 1 o s I 2 0 7 I I 1 7 2 2 2 9 Inpercent of GDP 0 7 15 1 5 I O 1 0 0 3 0 4 0 2 0 3 0 5 0 6 0 7 Nicaragua Paid 1533 1580 9 8 3 m 872 983 93 I Due after enhancedHIPC Initiativerelief I/ 1591 I62 I I83 I 1803 211 5 Due after M D R l 1137 1009 1172 1174 I43 I Inpercent ofexport 137 139 7 5 4 6 4 4 4 1 3 5 3 6 2 7 2 8 2 5 2 8 Inpercent of GDP 3 7 3 9 . - L - L 7 - - - 1 8 L9-16 "Ll..---k"- E 15 Niger Paid 32.6 48.8 4 5 , 3 m 31.6 13.8 14.7 Due afler enhanced HIPC Initiativerelief I/ ... 40.7 47.8 52.0 53.7 53.1 Due afler M D R I ... 17.6 19.7 22.3 25.7 28.5 Inpercentofexport 9.9 14.1 10.9 8.3 5.8 2.3 1.8 1.7 1.8 1.7 1.9 1.7 bypercent of GDP 1.8 2.4 1.7 1.5 0.9 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Rwanda Paid 22.2 15.9 15.5 1 9 . 9 1 1 10.2 10.1 Due afler enhanced HIPC Initiativerelief I/ ... 18.7 19.2 18.1 22.5 22.2 Due afler M D R l 7.5 8.4 10.0 11.9 14.0 In percent o f export 14.1 12.0 11.1 9.9 5.9 3.7 3.0 2.1 2.0 2.2 2.3 2.5 Inpercent of GDP I.3 1.0 9._L? L 6 e . 4 0 . 3 .I..____...._._I_._" 0.2 0.2 ."0.2 0.2 0.3 .. Sa0 Tome and Principe 51 Paid 0.7 1.7 3.2 2.3 9.7 5.8)] ... Due afler enhancedHIPC Initiativerelief I/ 2.4 2.0 1.9 1.7 1.5 Due afler M D R I 1.1 1.1 1.0 1.1 0.9 Inpercent ofexport 6.3 11.2 18.2 15.4 61.2 35.9 29.8 7.7 7.1 6.7 6.6 6.1 Inpercent of GDP 0.9 1.8 3.2 2.2 8.5 4.7 2.3 0.7 0.6 0.6 0.5 0.4 Senegal Paid 130.3 145.6 1 5 9 . 6 m 131.3 100.1 115.5 Due afler enhanced HIPC Initiativerelief l/ ... 175.6 212.2 231.1 244.9 259.5 Due after M D R I 795 1155 1354 1491 1677 In percent ofexport 9 3 9 5 8 7 7 4 5 6 4 2 4 4 2 3 3 1 3 3 3 3 3 4 Inpercentof GDP 2 7 2 7 2 3 2 0 15 1 1 I O 0 6 O S 0 9 0 9 0 9 Sierra Leone Paid 9 4 2 m 143 245 259-1 150 Due afler enhanced HIPC Initiativerelief I/ 411 455 526 527 413 Due afler M D R I 119 125 134 133 153 Inpercentofexport 730 8 7 6 2 9 9 a 9 5 2 4 3 9 2 7 6 5 8 5 4 5 2 Inpercent of GDP II 1 4 2 3 _?=- - -1L-O 9- - LL-L?--- 412-- 1 -!? Tanzania 21 I 5 Paid p i 903 832 2417 1511 623 291 Due afler enhanced HIPC Initiativerelief I/ 1985 2299 2204 233 I 2373 Due afler M D R I 345 51 7 563 605 666 In percent o fexport 6 7 6 0 4 8 105 5 4 2 0 0 8 0 8 1 0 I O 1 0 0 9 Inpercent ofGDP 0 9 0 9 0 7 2 0 I I 0 4 0 2 0 2 0 2 0 2 0 2 0 2 Uganda 31 Paid 426 598 597 920 1160 1057 243 Due afler enhanced HIPC Initiativerelief I/ 1448 1339 1370 1197 1138 Due afler M D R I 627 593 468 375 41 0 Inpercent of export 6 3 8 6 7 9 9 3 9 6 6 9 1 2 2 8 2 4 1 8 1 3 1 3 Inpercent ofGDP 0 8 1 0 1 0 1 3 1 3 1 1 0 2 0 4 0 3 0 2 0 2 0 2 Table 2 (concluded). Debt Service of 33 Post-Decision-Point HIPCs, 2001-2012 (Inmillions ofU.S. dollars, unless otherwise indicated) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Prel Piojections Zambia Paid 1385 1227 191.5 373 2-1 660 61 6 Due aRer enhancedHIPC Initiative relief I/ 1567 1727 1855 1844 183 0 Due aRerMDRI 411 413 525 656 80 8 Inpacent of expoit 131 108 152 179 6 5 1 6 13 0 8 0 8 I 1 1 5 19 Inpercentof GDP 3 8 3 3 4 4 6 9 2 3 0 6 0 5 0 3 0 3 0 4 0 5 05 B. Interim HIPCs Afghanistan Pdld 1 1 7 5 7 7 9 2 I I O B Due dRa enhdnced HIPC Initidti\e ielief I/ 3 0 1 1 5 273 351 39 9 DuedRei MDRl 3 0 Ill 265 344 39 I Inpacent o lexpon 4 0 1 9 1 8 1 8 1 7 0 4 II 23 2 7 2 7 Inpacent olCDP 0 2 0 1 0 1 0 1 0 1 0 0 0 1 0 2 0 2 __0 2 Burundi Paid 142 285 236 6 4 8 m 107 5 6 DuedRer enhdnced HlPC hltldtl\e ielief I/ DuedRer MDRl 9 9 5 7 123 155 12 2 Inpacent olexpoil 314 736 472 1019 343 1 1 5 7 0 218 148 245 244 I3 3 InpacentolGDP 2 1 4 5 4 0 9 8 4 0 1 2 0 6 15 0 9 2 1 2 3 I 5 Central African Republic Pdid 1 3 1 2 6 0 4 8 7 II66- DuedRer enhanced HIPC Initiative relief li 324 284 163 285 27 8 Duedher MDRI 324 284 8 1 198 I 9 8 In~acenofexvoit l 8 2 1 6 0 2 5 2 562 129 1 1 5 9 3 2 5 5 5 5 1 Chad Paid 36.4 52.4 45 5 572 698 78 1 Due aRer enhanced HIPC Initiative relief I/ 881 747 664 673 648 Due aRer MDRI 881 673 372 409 410 Inpercent01expon 7 9 144 7 8 2 0 1 8 2 0 2 1 1 8 1 3 0 7 0 8 0 9 Inpacent o lGDP 1 2 18 1 9 I O I O I 1 II I O 0 7 0 4 0 4 0 4 Democratic Republic of the Congo Pdld 342- 1632 I54 I 1380 736 Due dRer enhdncedHIPC Initiative reliel I! 4286 3138 2977 301 1 2369 Due aRer MDRI 4286 153 2 125 2 1286 1260 Inpercentofexpo11 2 9 112 8 2 6 4 4 4 1 6 7 8 2 3 1 6 1 5 13 InpercentofGDP 0 6 2 9 2 5 2 2 1 6 0 7 3 7 II 0 8 0 7 0 6 Republic ofthe Congo Pdld 5179 6149 4727 5292 6084- 6728 Due aRer enhanced HIF'C Initidlireieliel 1i 5280 4104 2701 2731 2983 Due aRer MDRI 5280 4104 2701 2731 2983 Inpercentofexpo11 239 250 167 145 122 137 109 5 1 2 9 1 6 1 8 2 1 Inpercent01GDP 185 204 135 114 100 112 8 8 4 1 2 4 1 4 15 17 Guinea 4/ Pdid 749 884 83 8 827 123 7 124 I 121 6 Due dRer enhanced HIPC Initidtive ielief I/ 1201 1041 1045 1192 1182 Due aRer MDRl 1201 669 600 808 821 Inpercentofexpon 9 3 113 9 7 9 6 130 109 101 8 0 4 0 3 3 4 0 3 7 Inpercentof GDP 2 5 2 8 2 4 2 3 4 2 4 4 2 9 2 7 1 4 12 1 5 1 4 Guinea-Bissau 4/ Pdid 1 1 2 3 5 7 6 2 5 0 6 0 287 Due dRerenhdnced HIPC Initidtive ieliel I/ 279 250 240 210 200 Due dRerMDRl 279 250 8 5 3 5 5 5 Inpercentofexpoit 1 9 3 8 8 0 8 3 5 5 9 9 404 263 217 6 8 2 6 3 8 Inpacent ofGDP 0 5 II 2 4 2 3 1 7 2 0 8 4 7 7 6 6 2 1 0 8 1 2 Haiti Paid 3 6 6 407 670 484 l 0 4 2 m 430 DuedRa enhanced HPC hitidlive lellef I/ 197 228 137 7 9 4 4 DueaRei MDRI 197 1 5 1 112 5 3 5 0 inpercent01expon 8 3 9 3 143 9 5 173 8 4 5 9 2 7 i 8 1 2 0 5 05 inpacent of GDP I O 1 2 2 3 1 4 2 4 I 2 0 7 0 3 0 2 0 1 0 1 01 Liberia Paid 0 6 0 6 0 6 1 2 1 2 Duedeer enhdnced HIPC Iniliatire ielief l i 769 632 424 194 302 DuedRer MDRl 769 632 412 159 109 Inpacentofexpoit 0 3 0 4 0 4 0 6 0 4 167 8 9 3 8 1 1 0 6 InpacentofGDP 0 1 0 1 0 1 0 2 0 2 9 5 6 9 3 8 1 2 0 7 Souices HIPC countrydocuments, and Woild Bdnk and IMF staflestimtes Note Datdconespondingto yedis of decisiondnd completion points under the enhanced HIPC Initiative are inthin dndthick boxes,iespectively I/DebtsmceduedRerthelulluseoftrddltiondldebtreliefandassistanceundertheenhancedHlpCInitialire Foi completion-point HIPCS, figures dit drier additional bilaterdl assistance beyondthe HPC hltldtlve 21 Debt smce reflectssom pdyments lo c o m c i a l crediton andpayments on moratoiium interestnot reflectedin the completionpoint documents 3/ Redchedcompletionpoint in 2000 41 Redcheddecisionpoint in 2000 5 i Post completionpoint the duthontiesdo not monitor the amount due dRer enhanced HIPC Thereforethis datdi s estimatedby stdfl 69 Table 3. Poverty-ReducingExpenditureof 33 Post-Decision-PointHIPCs 2001-2012 1/ (Inmillions ofU.S. dollars, unless otherwise indicated) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Prel Projections A. Post-Completion-PointHlPCs Benin hi millions of US dollars 1610 1 6 2 2 1 1 1658 1990 1862 2642 3722 4166 4638 5174 5776 Inpercent ofgoveninieiit revenue31 418 354 253 249 287 222 215 312 308 311 314 317 hiperceiit ofGDP 6 4 5 8 _-4s. -4L --?S39- 6-0 ... $ 2 ~ _ _ _ _ _ _ _ - - _ _ _ _ _ _ _ I __I--- 4- 3 4 - 1 ....22- Bolivia . 62 Innullions ofUS dollars 1,018 9 941 6 1,041 3 1,183 8 1,5289 1,846 8 2,2866 2,515 12,655 5 2,778 52,841 8 hipercent of govenuiient revenue31 55 1 604 56 I 495 427 407 445 445 429 41 2 406 38 7 InpercentofGDP 121 129 116 118 125 136 140 137 122 11 2 106 100 Burkina Faso himillions of US dollars l 0 9 8 m 201 1 2748 3072 3200 381 6 4373 5175 6094 7172 7842 hipercent ofgovenunent revenue31 354 390 35 6 390 465 405 390 405 42 7 443 45 9 443 hipercent ofGDP 3 9 4 8 4 6 5 5 5 7 5 5 5 6 5 5 6 0 6 5 7 0 7 0 Cameroon 21 hiinillions of US dollars 335 6 365 0 2582 824 1 9 7 4 9 m 1,4420 1,7046 1,8792 2,0794 2,3074 2.5644 Inpercent ofgovenuiient revenue31 205 200 120 356 355 344 368 338 338 356 372 391 IiipercentofGDP 3 6 3 4 1 9 5 2 5 9 6 4 7 0 7 0 7 2 7 5 7 7 7 9 Ethiopia 2/ InnullionsofUS dollars 733 4 884 0 1,001 4-1 1,6186 2,1069 2,542 7 3,387 8 4,0169 4,492 3 4,724 8 5,064 1 Inpercent ofgovernmentrevenue31 478 589 547 568 695 754 739 796 803 824 813 805 Inpercent ofGDP 9.0 11.3 11.7 11.7 13.2 13.9 13.1 13.8 13.8 14.2 14.0 14.1 The Gambia 2/ hinullions ofUS.dollars 19.6 18.4 16.3 21.5 19.7 2 4 . 2 1 1 46.8 48.7 51.9 56.1 60.6 Inpercentofgovenuiieiit revenue31 31.1 30.5 29.5 25.6 21.7 22.5 28.5 29.2 28.8 28.8 29.2 29.4 Inpercent ofGDP 4 1 5 0 4 6 5 4 4 3 4 8 5 9 5 9 5 6 5.6 5 6 5 6 Ghana 21 Inniillioiis of US dollars 241.3 2937 4 9 3 l m 9100 1,3495 1,4085 1,6716 1,6907 1,821.9 1,981 1 2,1784 Inpercent ofgovenuneiit revenue31 25.1 265 31 1 345 329 48 7 42 8 436 406 39.6 380 370 Inpercent ofGDP 4.5 4 8 6 5 7 7 8 5 106 9 3 9 6 9 0 9 0 9 0 9 0 Guyana 21 Innullions ofUS dollars 144.3 151 O m 1572 1738 1923 0 0 0 0 0 0 0 0 0 0 0 0 hipercent of govenunent revenue31 62.5 650 616 537 572 568 0 0 0 0 0 0 0 0 0 0 0 0 Inpercent ofGDP _______ --__209 20.7 214 200 21 1 2 1 - L Honduras 21 InnullionsofUS. dollars 564.9 493 5 5208 6168)j 758 1 9540 9642 1,0086 1,058.7 1,138.2 1,226.8 Inpercentofgovenuneiit revenue31 48,4 409 405 428 4 6 1 304 33 9 298 284 28.0 28.3 29.0 Inpercent ofGDP -.--.-_~_I___-___-._____-. 7.5 6.3 6.4 1.0 7.7 ....................... 7.0 7.8 7.0 6.7 ..........6.6 6.8 6.9 .. Madagascar21 ~ hinullions of U.S.dollars 190.9 190.9 2 0 2 . 9 F I 528.8 604.1 772.6 1,146.8 1,327.0 1,525.2 1,709.7 1,884.1 hipercent ofgovemnient revenue31 41.8 54.3 35.4 25.6 104.0 102.6 92.0 95.6 90.3 86.9 84.3 82.5 hipercent ofGDP 4 2 4 2 3 1 3 1 I 0 5 109 105 116 114 114 114 11.4 Malawi 21 hiiiullioiisofUS dollars 161 9 1897 1825 1649 2 1 8 6 1 1 388 7 551 2 6269 5907 678 7 727 I hipercent of govenunent revenue31 560 63 0 523 373 432 499 57 7 730 142 634 67 1 66 7 hipercent ofGDP 9 4 7 1 7 5 6 3 7 6 8 5 109 135 138 120 127 12 2 Mali 21 hiilullions of US dollars 155.4 l 9 0 . 0 m 3674 3984 4285 560 7 6248 6953 7749 865 6 959 9 hipercent of govenuiient revenue31 39.5 33.5 42.0 42 7 41 3 420 44 1 447 459 486 500 50 6 hipercent ofGDP 5.1 5.7 -7.3_ 7 0 _ _ _7 ~4 7 2 _ _8_ _ _ _ _ _8~ 1 8 3 5 8 9 9 3 9 2 Mauritania 2/ InnullionsofUS dollars 7 9 . l m 214.0 1795 1291 1857 2432 3268 3707 391 2 4189 550 2 hi percent of govenuiient revenue31 35.2 29.7 54.7 390 287 325 351 350 389 380 391 39 0 Inpercent ofGDP -~..-.__.__I_.___._-___ 7.0 9.1 16.6 12.0 7.0 _. ... 6.9 8.6 9.0...... 9.1 9.1 9.1 9 2 70 Table 3 (continued). Poverty-ReducingExpenditureof 33 Post-Decision-PointHIPCs 2001-2012 1/ (Inmillions ofU.S. dollars, unless otherwise indicated) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Prel. Projections Mozambique hiniillioiis of U.S. dollars 642.4 760.2 1,007.0 899.6 1,138.8 1,416.2 1,990.8 2,176.1 2,372.1 2,617.3 2,856.9 hipercent of eovenuiient revenue31 145.5 127.1 123.3 113.0 101.6 109.5 102.0 133.7 128.2 122.3 119.0 111.1 Inpercent ofGDP 14.5 15.3 16.3 17.7 13.7 16.1 18.0 21.2 21.7 21.5 21.5 21.5 Nicaragua21 Innullions of US. dollars 361.5 410.7 467.51- 620.7 632.3 740.7 935.0 1,110.4 1,188.5 1,275.8 1,369.5 Inpercent of govenuiient revenue31 47.4 54.4 56.0 54.0 55.4 49.4 51.1 54.9 59.3 59.3 59.3 59.4 Inpercent ofGDP 8.8 10.2 11.4 12.0 12.7 12.0 12.9 14.1 15.5. IS.S--.!>