Average Debt Service Reduced by a Third
A Letter to the Editor

By Axel van Trotsenburg
Manager
Implementation Unit of the HIPC Initiative
World Bank
and
Mark Allen
Deputy Director
Policy Development and Review Department
International Monetary Fund

Financial Times
September 25, 2000

Sir:

Your Sept. 18 story reporting assertions that current debt relief efforts leave countries "crippled by heavy debt payments" seriously misrepresents the progress made under the HIPC Initiative and its long-term impact on poverty.

The current debt relief initiative has reduced average debt service by a third from what was actually paid previously by the 10 countries that have received assistance this year. The resulting debt service-typically less than the developing-country average as a share of exports-is expected to be sustainable if countries implement measures to stimulate growth and reduce poverty. These surely are not "arbitrary conditions".

We question the basis for Oxfam's assertion that all but 3 of the countries it analyzed will spend more on debt service than on health care and primary education. In fact, social spending will be on average three times as much as debt service due in these countries. We share Oxfam's concern over the fiscal burden of debt service. Oxfam suggests a debt service ceiling of 10 percent of a government's revenue. This is very close to the 11 percent average we project for the first 10 countries, with some countries' levels higher and others lower, reflecting variances in the strength of domestic revenue mobilization efforts.

We appreciate the role Oxfam has played in drawing attention to the need for debt relief, but we believe it necessary to set the story straight. We invite your readers to see how far we've come. Our report: The Enhanced Initiative for Heavily Indebted Poor Countries: Review of Implementation, can be found at the World Bank or IMF websites.