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International Monetary Fund International Development Association The Impact of Debt Reduction under the HIPC Initiative on External Debt Service and Social Expenditures November 16, 2001 As of November 2001, 24 countries had reached their decision points under the enhanced HIPC Initiative. At the decision point, the international community begins to reduce debt service payments owed by qualifying countries. At the same time, it commits to comprehensive debt reduction once the country has introduced certain policies aimed at ensuring that the funds released by debt relief are effectively used for poverty reduction. Some observers have questioned whether the debt relief provided under the enhanced HIPC Initiative is sufficient to make a meaningful contribution to poverty reduction. The World Bank and IMF compile relevant information at the time each country reaches its decision point. With a rising number of decision point countries, enough data is becoming available to make some general observations. The attached tables, which will be updated as more countries reach their decision points, present available country data on external debt service and social spending before and after HIPC relief.

Key features of the data For the 22 countries that reached decision points under the enhanced framework in 2000, interim debt relief was only partially received during that year, as most of them reached their decision points during the second half of the year. For these countries, the impact of the enhanced Initiative will be fully reflected from 2001 onwards. For the 2 countries that have reached their decision points in 2001, the full benefits of the Initiative are evident from 2002 onwards. Under the enhanced HIPC Initiative, the average debt service due in 2001-03 is roughly 30 percent less than the amount paid before HIPC relief in 1998-99 (see Tables 1 and 2; and Chart A). During 2001-03, the World Bank and IMF will reduce debt service payments by 65 and 55 percent, respectively, by providing interim relief. Debt service drops sharply in relation to exports or fiscal revenues over this period. On average these ratios fall by one-half . In all cases, social expenditures are expected to increase in 2001-02 from the levels in 1999 (see Tables 4). Average social spending in 2001-02 is expected to be more than 45 percent higher than in 1999, with HIPC savings accounting for a sizable proportion of this increase. Average debt service during 2001-02 will be US$2 billion; average social expenditure, at about US$6.5 billion, will be more than three times higher than average debt service (see Tables 1 and 3; and Chart B). Average net resource flows (loans + grants - debt service payable) to this group of countries will increase from US$3.8 billion in 1998-99 (1.2 times debt service) to US$7.2 billion (3.7 times debt service) in 2001-2003. On the whole, assistance from the HIPC Initiative is expected to result in substantial reductions in debt service, which will open new possibilities for effective poverty reduction and continued economic growth. Sources and coverage Most of the data used has come from the decision point documents considered by the Executive Boards of the IMF and the World Bank in deciding to grant HIPC relief, as noted below. The data presented are the best available, considering that the Initiative is targeted at some of the poorest countries, where the statistical systems have many limitations. What is more, the coverage of data on social spending and poverty varies considerably across countries. IMF and World Bank staff have assembled the attached tables on the following basis: Debt service for 1998-2005 (Tables 1 and 2; and Chart A): The data for 2000 onwards are based on the decision point documents for the 24 HIPCs that had reached their decision points under the enhanced HIPC Initiative as of November 2001. Where necessary data for debt service paid during 1998-99 is supplemented by other IMF and World Bank country documents. Social expenditures for 1999-2002 (Tables 3 and 4; and Chart B): Figures are mainly based on the decision point documents. In the case of Cameroon, data compiled by the staff teams at the time of the decision point are used because there is only partial information in the decision point document. The coverage of social expenditure data is quite different across countries. In principle, all of the social spending numbers include health and education spending. In addition, social expenditure data includes new programs to be financed partly by HIPC Initiative assistance in Benin, basic sanitary infrastructure in Bolivia, rural development and water supply in Burkina Faso, social affairs in Chad, de-mining and rural development in Guinea-Bissau, funding for the Social Impact Amelioration Program and Basic Needs Trust Fund in Guyana, social safety net and rural development programs in Honduras, poverty reduction programs in Mauritania, other spending including promotion of women in Senegal, water supply in both Tanzania and Uganda, and social safety nets, water and sanitation and disaster relief in Zambia. Local currency figures are converted into U.S. dollars using relevant period average exchange rates. Table 1: Summary Debt Service for 24 HIPCs that Reached Decision Points by November 2001 (In million of US dollars, unless otherwise indicated)   1998 1999 2000 2001 2002 2003 2004 2005 African Countries                 Debt service paid 1 2,102 1,940 1,128           Total debt service due after enhanced     HIPC Initiative relief 2     770 1,400 1,388 1,431 1,664 1,609 Ratio of debt service to    exports (in percent) 3 16 15 13 9 8 8 8 7 Ratio of debt service to    government revenue (in percent) 3 23 20 18 12 11 10 10 9 Ratio of debt service to GDP (in percent) 3 3 3 3 2 2 2 2 2                   Latin American Countries                 Debt service paid 1 1,030 670 126           Total debt service due after enhanced    HIPC Initiative relief 2     427 523 670 701 646 693 Ratio of debt service to    exports (in percent) 3 19 13 13 8 9 9 7 7 Ratio of debt service to    government revenue (in percent) 3 28 18 19 12 14 14 12 11 Ratio of debt service to GDP (in percent) 3 6 4 4 3 4 3 3 3                   Total (24 countries)                 Debt service paid1 3,131 2,609 1,254           Debt service due after enhanced HIPC Initiative relief 2     1,197 1,923 2,058 2,132 2,310 2,303                   Weighted average (24 countries) 4                 Debt service/exports (in percent) 17 14 12 9 8 8 8 7 Ratio of debt service to    government revenue (in percent) 24 20 17 12 12 11 11 10 Debt service/GDP (in percent) 4 3 3 2 2 2 2 2 Sources: HIPC country documents; and World Bank and IMF staff estimates.                                1The debt service figures for 2000 include only those countries that reached their decision points in late 2000 or in 2001. The figures are largely pre-HIPC relief, as these countries received little or no HIPC assistance during 2000. The full impact of relief for these countries will not be felt until 2001 and thereafter. See Table 2 for a detailed breakdown.  2The debt service figures for 2000 include only those countries that reached their decision points early that year. See Table 2 for a detailed breakdown.    3Weighted averages.                4The averages for 2000 are largely pre-HIPC as 14 of the 24 countries did not reach their decision points until late 2000 or later. See Table 2 for a detailed breakdown.  Note: Debt service figures for 1998 and 1999 reflect debt relief already provided to Bolivia, Guyana, Mozambique and Uganda under the original framework. Table 2. Debt Service for Individual HIPCs that Reached Decision Points, by Country, 1998-2005 (In million of US dollars, unless otherwise indicated)   1998 1999 2000 2001 2002 2003 2004 2005 Benin                 Debt service paid 64 66             Debt service due after enhanced HIPC    Initiative relief1     63 46 43 39 39 37 Debt service/exports (in percent) 16 17 17 11 9 8 7 6 Debt service/government revenue    (in percent) 17 18 12 10 8 7 6 5 Debt service/GDP (in percent) 3 3 3 2 1 1 1 1 Bolivia                Debt service paid 390 250             Debt service due after enhanced HIPC    Initiative relief1     260 225 238 234 235 266 Debt service/exports (in percent) 29 20 18 14 14 12 11 12 Debt service/government revenue    (in percent) 19 13 14 11 12 11 10 10 Debt service/GDP (in percent) 5 3 3 3 3 2 2 2 Burkina Faso                Debt service paid 60 53             Debt service due after enhanced HIPC    Initiative relief1     34 30 35 38 40 41 Debt service/exports (in percent) 16 18 12 9 10 9 9 8 Debt service/government revenue    (in percent) 18 14 9 7 7 7 7 6 Debt service/GDP (in percent) 2 2 1 1 1 1 1 1 Cameroon2                Debt service paid3 401 401 312           Debt service due after enhanced HIPC    Initiative relief1       226 242 291 328 347 Debt service/exports (in percent) 18 15 11 8 8 9 9 9 Debt service/government revenue    (in percent) 28 24 18 12 12 13 13 12 Debt service/GDP (in percent) 4 4 3 2 2 3 3 3 Chad                Debt service paid4 38 39 33           Debt service due after enhanced HIPC    Initiative relief1       22 25 25 32 36 Debt service/exports (in percent) 12 16 14 9 9 9 8 2 Debt service/government revenue    (in percent) 29 31 29 16 16 14 15 11 Debt service/GDP (in percent) 2 3 2 1 1 1 2 1 Ethiopia2                Debt service paid 4 104 91 161           Debt service due after enhanced HIPC    Initiative relief1       105 74 85 100 100 Debt service/exports (in percent) 11 9 17 10 7 7 8 7 Debt service/government revenue    (in percent) 9 8 13 7 7 6 5 5 Debt service/GDP (in percent) 2 1 2 2 1 1 1 1 Gambia, The                Debt service paid3 26 16 20           Debt service due after enhanced HIPC    Initiative relief1       16 15 8 9 10 Debt service/exports (in percent) 12 13 16 11 10 5 5 5 Debt service/government revenue    (in percent) 12 20 23 17 15 8 8 9 Debt service/GDP (in percent) 6 4 5 4 3 2 2 2 Guinea                Debt service paid3 128 108 140           Debt service due after enhanced HIPC    Initiative relief1       78 90 99 92 88 Debt service/exports (in percent) 15 14 16 8 9 9 8 7 Debt service/government revenue    (in percent) 34 28 39 18 18 18 15 12 Debt service/GDP (in percent) 4 4 5 3 3 3 3 2 Guinea-Bissau                Debt service paid3 7 6 13           Debt service due after enhanced HIPC    Initiative relief1       5 6 8 5 4 Debt service/exports (in percent) 23 11 18 6 7 8 4 3 Debt service/government revenue    (in percent) 63 15 32 11 12 13 7 5 Debt service/GDP (in percent) 3 3 6 2 2 2 2 1 Guyana                Debt service paid3 131 70             Debt service due after enhanced HIPC    Initiative relief1     74 48 34 39 42 43 Debt service/exports (in percent) 19 10 10 6 4 5 5 5 Debt service/government revenue    (in percent) 65 32 31 19 13 13 14 13 Debt service/GDP (in percent) 18 10 10 6 5 5 5 5 Honduras                 Debt service paid 311 241             Debt service due after enhanced HIPC    Initiative relief     167 134 210 276 247 258 Debt service/exports (in percent) 13 10 6 4 6 7 6 5 Debt service/government revenue    (in percent) 32 23 15 10 14 16 13 12 Debt service/GDP (in percent) 6 4 3 2 3 4 3 3 Madagascar5                Debt service paid3 166 106 105           Debt service due after enhanced HIPC    Initiative relief1       64 56 68 79 82 Debt service/exports (in percent) 21 12 11 6 5 5 6 5 Debt service/government revenue    (in percent) 42 25 21 12 9 10 10 9 Debt service/GDP (in percent) 4 3 3 2 1 1 1 1 Malawi                Debt service paid3 90 87 110           Debt service due after enhanced HIPC    Initiative relief1       59 57 45 45 47 Debt service/exports (in percent) 16 18 23 12 11 8 8 8 Debt service/government revenue    (in percent) 22 30 31 13 11 8 7 6 Debt service/GDP (in percent) 5 5 6 4 3 2 2 2 Mali                Debt service paid 74 84             Debt service due after enhanced HIPC    Initiative relief1     88 64 64 66 67 66 Debt service/exports (in percent) 11 13 14 9 8 8 7 7 Debt service/government revenue    (in percent) 17 18 20 13 12 11 10 9 Debt service/GDP (in percent) 3 3 3 2 2 2 2 2 Mauritania                Debt service paid 88 98             Debt service due after enhanced HIPC    Initiative relief1     87 80 58 49 43 43 Debt service/exports (in percent) 22 24 20 18 13 10 8 8 Debt service/government revenue    (in percent) 35 35 22 20 14 10 8 8 Debt service/GDP (in percent) 10 10 9 9 6 4 3 3 Mozambique                Debt service paid 104 81             Debt service due after enhanced HIPC    Initiative relief1     50 28 67 66 64 68 Debt service/exports (in percent) 19 14 9 3 6 6 3 3 Debt service/government revenue    (in percent) 23 17 9 7 14 12 10 9 Debt service/GDP (in percent) 3 2 1 1 2 2 1 1 Nicaragua                Debt service paid3 198 108 126         Debt service due after enhanced HIPC    Initiative relief16       117 188 153 123 127 Debt service/exports (in percent) 24 13 13 11 17 12 9 9 Debt service/government revenue    (in percent) 37 19 20 16 26 21 13 12 Debt service/GDP (in percent) 9 5 6 5 7 5 4 4 Niger                Debt service paid3 27 28 20           Debt service due after enhanced HIPC    Initiative relief1       49 49 26 29 29 Debt service/exports (in percent) 7 9 8 18 17 8 9 8 Debt service/government revenue    (in percent) 15 16 13 27 24 11 11 10 Debt service/GDP (in percent) 1 1 1 2 2 1 1 1 Rwanda                Debt service paid3 14 21 40           Debt service due after enhanced HIPC    Initiative relief1       16 13 8 11 11 Debt service/exports (in percent) 13 19 31 11 8 4 5 4 Debt service/government revenue    (in percent) 7 11 21 8 6 3 4 3 Debt service/GDP (in percent) 1 1 2 1 1 0 0 0 São Tomé and Príncipe                Debt service paid3 7 8 6           Debt service due after enhanced HIPC    Initiative relief1       2 1 1 1 1 Debt service/exports (in percent) 55 24 24 10 6 6 4 3 Debt service/government revenue    (in percent) 84 44 41 17 10 10 6 6 Debt service/GDP (in percent) 16 17 13 4 3 2 2 2 Senegal                 Debt service paid 222 219             Debt service due after enhanced HIPC    Initiative relief1     173 159 145 143 225 134 Debt service/exports (in percent) 14 15 10 8 7 7 10 5 Debt service/government revenue    (in percent) 27 28 19 16 14 12 18 10 Debt service/GDP (in percent) 5 5 3 3 2 2 3 2 Tanzania2                Debt service paid 224 193             Debt service due after enhanced HIPC    Initiative relief1     154 142 144 148 152 158 Debt service/exports (in percent) 21 16 12 10 8 8 7 7 Debt service/government revenue    (in percent) 29 20 15 12 11 11 10 9 Debt service/GDP (in percent) 3 2 2 1 1 1 1 1 Uganda2                Debt service paid 110 98             Debt service due after enhanced HIPC    Initiative relief1     48 51 56 68 94 103 Debt service/exports (in percent) 15 12 11 6 6 6 6 8 Debt service/government revenue    (in percent) 16 13 11 6 5 5 5 6 Debt service/GDP (in percent) 2 2 1 1 1 1 1 1 Zambia                Debt service paid3 147 136 169           Debt service due after enhanced HIPC    Initiative relief1       158 148 151 211 202 Debt service/exports (in percent) 16 16 16 13 10 10 13