The Multilateral Debt Relief Initiative (MDRI)
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The Multilateral Debt Relief Initiative (MDRI) provides for 100 percent relief on eligible debt from three multilateral institutions to a group of low-income countries. The initiative is intended to help them advance toward the United Nations’ Millennium Development Goals (MDGs), which are focused on halving poverty by 2015. |
What is the Multilateral Debt Relief Initiative?
In June 2005, the Group of 8 (G-8) major industrial countries proposed that three multilateral institutions—the IMF, the International Development Association (IDA) of the World Bank, and the African Development Fund (AfDF)—cancel 100 percent of their debt claims on countries that have reached, or will eventually reach, the completion point—the stage at which a country becomes eligible for full and irrevocable debt relief—under the joint IMF-World Bank enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative).
The HIPC Initiative entailed coordinated action by multilateral organizations and governments to reduce to sustainable levels the external debt burdens of the most heavily indebted poor countries. The MDRI goes further by providing full debt relief so as to free up additional resources to help these countries reach the MDGs. Unlike the HIPC Initiative, the MDRI does not propose any parallel debt relief on the part of official bilateral or private creditors, or of multilateral institutions beyond the IMF, IDA, and the AfDF. However, in early 2007, the Inter-American Development Bank also decided to provide similar debt relief to the five HIPCs in the Western Hemisphere.
Which countries are eligible?
All countries that reach the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative), and those with per capita income below $380 and outstanding debt to the Fund at end-2004, are eligible for the MDRI. To qualify for debt relief, the IMF Executive Board also requires that these countries be current on their obligations to the IMF and demonstrate satisfactory performance in:
• macroeconomic policies
• implementation of a poverty reduction strategy
• public expenditure management.
See Table 1 for a list of eligible countries. The table also lists the 26 countries that have already eceived MDRI relief from the Fund.
How is the IMF implementing the MDRI?
Although the MDRI is an initiative common to several international financial institutions, the decision to grant debt relief is ultimately the separate responsibility of each institution, and the approach to coverage and implementation may vary.
In deciding to implement the MDRI, the IMF Executive Board modified the original G-8 proposal to fit the requirement, specific to the IMF, that the use of the IMF’s resources be consistent with the principle of uniformity of treatment. Thus, it was agreed that all countries with per-capita income of $380 a year or less (whether HIPCs or not) will receive MDRI debt relief financed by the IMF’s own resources through the MDRI-I Trust. HIPCs with per capita income above that threshold will receive MDRI relief from bilateral contributions administered by the IMF through the MDRI-II Trust.
MDRI relief covers the full stock of debt owed to the IMF at end-2004 that remains outstanding at the time the country qualifies for such relief. There is no provision for relief of debt disbursed after January 1, 2005.
How much debt relief will be provided by the IMF?
The estimated total cost to the IMF of MDRI debt relief, excluding remaining HIPC Initiative assistance not yet delivered, is around $4 billion in nominal terms as of May 15, 2009. Of this amount, $3.4 billion has already been delivered. In addition, the cost of the IMF’s debt relief to Liberia—both HIPC and beyond HIPC—was estimated at its decision point at SDR 530 million ($867 million) and would be covered by bilateral contributions.
The G-8 has committed to ensure that proposed debt forgiveness neither undermines the ability of the three multilateral institutions to continue to provide financial support to low-income countries, nor the institutions’ overall financial integrity. In this context, the G-8 has provided SDR 100 million (in end-2005 NPV terms) to the IMF as additional subsidy resources for PRGF-ESF lending in the wake of the MDRI.
Additional contributions will be needed to cover the cost of HIPC Initiative and MDRI debt relief to newly identified HIPCs and to countries with protracted arrears to the IMF. In this context, the G-8 committed that donors will provide the extra resources necessary for full debt relief for these countries.
Follow-up and monitoring
The IMF and the World Bank are cooperating closely in the implementation and monitoring of the MDRI, particularly when it comes to assessing qualification for MDRI relief and monitoring MDG-related spending after debt relief has been provided. The first progress report on the IMF’s implementation of the MDRI was presented to the IMF Board in April 2006. Subsequent reports have been prepared with the World Bank and folded into the regular joint Bank-Fund HIPC Initiative status of implementation report. The fourth report was published in September 2008.