## _082106 ## Source details **Canonical URL:** [_082106](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_082106.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_082106.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_082106.pdf.json) --- ### Executive Summary — Overview and Key Outcomes - The report reviews implementation of the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and implementation of the Multilateral Debt Relief Initiative (MDRI) by IDA, the IMF, and AfDF. - Conclusions: - Volume of debt relief increased significantly since 1996, reducing HIPCs’ debt service burdens and allowing increased financing of poverty reduction efforts. - Updated costs of debt relief under the HIPC Initiative and the MDRI are provided. - Creditor participation and delivery are reviewed, with challenges highlighted to increase participation by non–Paris Club official bilateral and commercial creditors. ### Progress in HIPC Implementation - Country counts and status: - Total identified HIPCs: 40. - 29 have reached the decision point and are receiving HIPC debt relief. - 19 have reached the completion point. - 10 HIPCs in the interim period (between decision and completion point): - five are advancing with IMF-supported programs, - six have completed a full PRSP. - 11 pre-decision-point HIPCs met income and indebtedness criteria at end-2004; three of these are making progress toward decision points. - Timelines and averages: - Under the enhanced HIPC Initiative, HIPCs have spent 2.9 years on average between decision and completion points. - Interim periods lengthened from 0.2 years (Uganda early 2000) to 5.5 years in 2006 (Cameroon). - Sunset clause and eligibility timing: - Under current extension, countries need to start implementing a qualifying IMF- and IDA-supported program by end-2006 to become eligible. - Five countries potentially affected: Comoros, Eritrea, Liberia, Somalia, Sudan. - IDA and IMF Boards expected to discuss options in September 2006. ### MDRI Implementation and Coverage - MDRI launched in 2005. - All 19 post-completion-point HIPCs have qualified for MDRI debt relief from IDA, the IMF, and the AfDB. - These 19 countries have already benefited from MDRI debt relief from IDA and the IMF and are expected to receive AfDB MDRI assistance shortly. - The other 21 HIPCs will qualify for MDRI once they reach HIPC completion points. - MDRI characteristics: - IDA, IMF and AfDF provide 100 percent debt relief on eligible debts to countries having completed the HIPC process. - MDRI is not comprehensive in creditor coverage: does not involve official bilateral or commercial creditors, nor multilateral institutions other than IDA, IMF, and AfDF. - IMF provides MDRI debt relief to non-HIPCs with income per capita below US$380. ### Impact on Debt Stocks, Debt Service, and Poverty-Reducing Expenditures - Debt stock reductions and projections: - Debt relief under HIPC Initiative and MDRI expected to reduce debt stocks of the 29 post-decision-point HIPCs by almost 90 percent. - Traditional debt relief and HIPC assistance projected to reduce these countries’ total pre-decision-point debt stock to US$37 billion from about US$88 billion (end-2005 NPV terms). - Voluntary additional bilateral debt relief and MDRI expected to lower debt stocks further to US$10 billion. - For the 19 post-completion-point countries: - Debt stock expected to decline by an average of 55 percent, from US$69 billion to US$31 billion (end-2005 NPV terms) due to traditional and HIPC relief. - After additional bilateral and MDRI relief, debt stock expected to decline to US$8 billion. - Note: debt stocks refer to the year prior to the decision point and exclude new borrowing after decision point. - Debt service and exports ratios: - Debt-service-to-exports ratios for the 29 post-decision-point HIPCs declined from about 14 percent one year prior to decision point to about 6 percent five years after decision point. - Cumulatively, total debt service reduced by about US$600 million over six years because of interim and completion-point relief. - Between 2005 and 2011 (when most HIPCs expected to reach completion points), average debt-service-to-exports ratio of the 29 post-decision-point HIPCs projected to decline by more than half. - After 2011, post-MDRI debt service-to-exports ratios projected to increase again but remain 1.5 percentage points lower by 2025 relative to pre-MDRI ratios after HIPC relief. - Poverty-reducing expenditures: - Poverty-reducing expenditures increased from about 7 percent of GDP in 1999 to over 9 percent in 2005. - In absolute terms, poverty-reducing expenditures amounted to US$14.8 billion at end-2005. - Debt service paid by the 29 post-decision-point HIPCs declined from about 4 percent of GDP in 1999 to about 2 percent in 2005. - Authorities of most post-MDRI countries indicated plans to expand poverty-reducing expenditures by about the equivalent of MDRI debt-service savings in 2006, which amounts to around half a percentage point of GDP, on average. - Examples of intended MDRI uses include social, infrastructure and agricultural sectors; timeframes differ (Ghana: three years; Mozambique: four years; Madagascar: 10 years). ### Costs of Debt Relief (end-2005 NPV terms and related figures) - HIPC Initiative costs: - Total cost for 40 HIPCs: US$63.2 billion (end-2005 NPV terms). - This is US$4.1 billion higher than the estimate presented in August 2005. - Of the US$63.2 billion: - US$41.3 billion represents the cost committed to the 29 decision-point countries. - HIPC Initiative relief irrevocably delivered or being delivered to the 19 completion-point countries: US$28.8 billion. - Distribution by creditor type (HIPC total cost): - Multilateral creditors: 46 percent of total cost (IDA: 20 percent; IMF: 9 percent). - Paris Club creditors: 36 percent. - Non–Paris Club (Other Official Bilateral): 13 percent. - Commercial creditors: 5 percent. - Cost committed to the 10 interim countries: US$12.5 billion. - Estimated cost to the 11 pre-decision-point countries: US$21.9 billion (of which US$15.3 billion correspond to Liberia, Somalia, and Sudan). - MDRI costs: - Total cost of MDRI debt relief to IDA, IMF, and AfDF: US$24.9 billion (end-2005 NPV terms; equivalent to US$48.9 billion in nominal terms). - IDA responsible for almost 70 percent: US$17.3 billion (end-2005 NPV terms). - IDA delivered US$12.8 billion to the 19 post-completion-point countries. - IMF MDRI cost: US$4.0 billion (end-2005 NPV terms); US$3.0 billion disbursed to the 19 post-completion-point countries. - AfDF projected MDRI cost: US$3.6 billion (end-2005 NPV terms); US$2.5 billion to be delivered retroactively once financing assurances are obtained. - Breakdown in end-2005 NPV terms (qualifying countries / post-completion / interim / pre-decision point): - Total MDRI costs: 18.3 / 3.9 / 2.7 / 4.0 / 24.9 (table-format figures as presented). - IDA (NPV): 12.8 / 2.5 / 1.9 / 17.3. - IMF (NPV): 3.0 / 0.6 / 0.4 / 4.0. - AfDF (NPV): 2.5 / 0.7 / 0.4 / 3.6. - Nominal MDRI totals (table-format): Total nominal: 35.5 / 7.6 / 5.8 / 4.8 / 48.9. ### Creditor Participation, Delivery, and Litigation - Multilateral and Paris Club participation: - Most multilateral creditors participate in the HIPC Initiative; 23 out of 31 multilateral creditors indicated intention to participate and account for over 99 percent of multilateral debt relief committed to the 29 decision-point HIPCs. - Paris Club estimated cost of providing HIPC relief to the 29 post-decision-point countries: US$15.2 billion (end-2005 NPV terms). - Paris Club creditors provided US$6.4 billion in additional debt relief to the 19 post-completion-point HIPCs (about a 66 percent increase relative to their HIPC commitments). - Non–Paris Club official bilateral creditors: - Participation has been limited; the Initiative is voluntary and not legally binding on other creditors. - Staff contacted large and smaller non–Paris Club creditors to increase participation and requested information from HIPCs on relief received. - Based on available information, six countries provided full HIPC Initiative debt relief: Czech Republic, Jamaica, Republic of Korea, Slovak Republic, South Africa, and Trinidad and Tobago — amounting to US$52 million (end-2005 NPV terms), or 1.4 percent of expected non–Paris Club relief. - Staff estimates of debt relief delivered by non–Paris Club creditors to the 29 decision-point HIPCs range between US$1.1 and US$1.4 billion (end-2005 NPV terms), or 27 to 37 percent of total assistance costs attributable to these creditors. - Significant uncertainty exists for individual creditors (e.g., China range 43 to 76 percent; India range 28 to 90 percent; Saudi Arabia range 21 to 56 percent). - Case study — Nicaragua: - 23 non–Paris Club creditors; expects about 40 percent of total debt relief from this group (versus average 9 percent). - Signed agreements with 12 creditors, accounting for less than 40 percent of expected relief from non–Paris Club creditors. - Obstacles: refusal by some creditors (China, Iran, Libya, Taiwan Province of China), litigation (Libya against Nicaragua), methodology understanding, legal/institutional constraints in creditor countries. - Commercial creditors and litigation: - Commercial creditors account for about 4 percent of total HIPC costs to the 29 post-decision-point countries; share has almost doubled since mid-2005. - Commercial creditor shares vary by country from zero to 35 percent (Republic of Congo). - Very few commercial creditors have provided their share of HIPC relief. Survey indicates commercial creditors provided relief in only three cases (Democratic Republic of the Congo, Guyana, Madagascar), amounting to 5.5 percent of total commercial creditor assistance expected to the 29 decision-point HIPCs. - IDA Debt Reduction Facility (DRF) operations extinguished about US$3.8 billion of external commercial debt principal for HIPCs. - Litigation data: - 24 respondents reported being targeted with lawsuits by 44 litigating creditors; three reported new legal actions since mid-2005. - HIPCs most targeted: Republic of Congo (8 lawsuits), Guyana (7), Uganda (6). - Litigating creditors concentrated in the United Kingdom, British Virgin Islands, and the United States. - Lawsuits filed mainly in London (9), Paris (7), and New York (6); another 15 cases filed in local HIPC courts. - Of 44 litigations, 26 creditors obtained court judgments in their favor against seven HIPCs, amounting to about US$1 billion. - Sierra Leone, Uganda, and Zambia paid a cumulative US$30 million to litigating creditors, including out-of-court settlements. - Total reported claims under litigation amount to about US$1.9 billion (about 22 percent higher than total HIPC commercial creditor relief). - Claims under litigation can represent a significant fraction of HIPC GDP (Republic of Congo litigated debts ≈ 15 percent of GDP; São Tomé and Príncipe ≈ 13 percent of GDP). - Implications: - Low commercial creditor participation and litigation could hinder some HIPCs’ access to IMF debt relief due to insufficient financing assurances (example: IMF had not received sufficient assurances to start disbursing interim assistance to Republic of Congo as of end-July 2006). ### Free-riding, Debt Management, and Capacity Constraints - Free-riding concerns: - Low delivery by commercial creditors and requests for debt-service payments or court awards undermine equitable burden-sharing and can prevent HIPCs from using all freed resources for poverty reduction. - Distinct from free-riding via new borrowing; here arises from creditors’ lack of participation and litigation. - Debt management capacity and policy responses: - Strengthened management of external and domestic debt necessary to prevent unsustainable debt burdens again. - Capacity constraints in HIPCs’ debt-management offices often severe (examples: Rwanda, Zambia, Mali making progress; Ethiopia lacks comprehensive legal framework or publication of debt data; Burundi slow on completion point trigger). - IDA Board approved a two-pronged package to address free-riding: - Creditor side: enhance creditor coordination around a mechanism possibly based on the LIC Debt Sustainability Framework (LIC DSF). - Borrower side: disincentives on unwarranted new non-concessional borrowing by reducing volumes and/or hardening assistance terms, on a case-by-case basis. - IMF will continue to monitor non-concessional borrowing and raise awareness through LIC DSF in surveillance and program contexts. - Suggested external measures: - Stronger international community support needed to encourage creditor participation and limit free-riding. - Example: member countries could consider laws to protect HIPCs from lawsuits/seizure of assets under their jurisdictions (noted as difficult and with broader ramifications). ### Public Financial Management (PFM) and Use of MDRI Resources - PFM improvements and monitoring: - Debt relief has encouraged reforms in public financial management; progress most advanced in post-completion-point countries. - PEFA program introduced: common performance measurement framework with 28 indicators; PEFA assessments conducted in eight HIPCs. - Examples of PFM actions in post-MDRI countries: new laws (Ghana, Guyana, Rwanda, Nicaragua), computerization/networking of expenditure databases (Mali), improved cash management (Ethiopia), new FMIS (Guyana, Honduras), integration of donor-financed projects (Mozambique), improved reporting on budget execution (Zambia). - Quantitative outcomes: - Poverty-reducing expenditures increased by almost 3 percent of GDP between 1999 and 2005. - Poverty-reducing expenditures amounted to US$14.8 billion at end-2005, more than five times debt-service payments after expected HIPC Initiative relief. - Use of MDRI resources in 2006 (selected country entries, reported as in source): - Benin — 15.6 0.3 percent of GDP (health, education, cotton sector, small-holder agriculture projects). - Bolivia — 40.9 0.4 percent of GDP (no earmarked expenditure). - Burkina Faso — 17.6 0.3 percent of GDP (education, health, rural infrastructure). - Cameroon — 29.8 0.2 percent of GDP (infrastructure, social sector, governance reforms). - Ethiopia — 13.8 0.1 percent of GDP (poverty-reducing expenditures in authorities' medium term framework). - Ghana — 57.9 0.5 percent of GDP (energy, water, highways, education, health, ICT). - Guyana — 6.4 0.8 percent of GDP (drainage, irrigation, farm roads, education and health materials). - Honduras — 27.6 0.3 percent of GDP (anti-poverty program, elimination of school fees). - Madagascar — 34.3 0.7 percent of GDP (priority spending ministries in PRS). - Mali — 27.0 0.5 percent of GDP (water supply and roads). - Mozambique — 28.8 0.4 percent of GDP (priority pro-poor spending). - Nicaragua — 17.7 0.3 percent of GDP (housing, water, medical supplies). - Niger — 9.3 0.3 percent of GDP (education, health, rural sector). - Rwanda — 9.7 0.4 percent of GDP (food imports, Lake Kivu methane gas project). - Senegal — 48.5 0.6 percent of GDP (social services). - Tanzania — 82.3 0.6 percent of GDP (energy projects and food imports). - Uganda — 57.9 0.6 percent of GDP (urgent electricity needs). - Zambia — 23.8 0.3 percent of GDP (small-holder irrigation, livestock disease control). - Aggregate MDRI 2006 stats (as presented): - Total — 559.4... - Simple average — 29.4 0.4 - Note: "Debt service savings in 2006 1/" refers to additional debt service savings freed up by the MDRI. ### Operational Challenges, Country Examples, and Remaining Priorities - Operational challenges slowing HIPC progress: - Extended interruptions to PRGF-supported program implementation (mainly fiscal slippages and primary expenditure overruns). - Weak budget execution and poor policy implementation slowing achievement of completion triggers. - PRSP preparation delays due to institutional and human resource constraints. - Internal conflict, governance issues, and protracted arrears hinder progress in several pre-decision-point countries. - Country-specific highlights (selected): - Three interim countries (Malawi, São Tomé & Príncipe, Sierra Leone) could reach completion points by end-2006. - Comoros: macro stability in 2005; PRGF negotiations possible later in year; decision point could be mid-2007 if PRGF concluded before end-2006. - Côte d’Ivoire: fragile political stability; decision point expected mid-2007. - Kyrgyz Republic: full PRSP completed; decision point expected by end-2006. - Liberia: SMP approved April 26, 2006; earliest decision point mid-2007; protracted arrears to IMF a precondition. - Somalia: no PRSP process; IMF arrangement unlikely in near term. - Sudan: I-PRSP scheduled for completion Oct/Nov 2006; decision point timing uncertain due to arrears and track record requirements. - Remaining priorities: - Help interim and pre-decision-point countries progress to decision and completion points. - Increase creditor participation, especially non–Paris Club and commercial creditors. - Strengthen debt-management capacity and public financial management. - Prevent unsustainable new non-concessional borrowing and address free-riding and litigation risks. *Source: IMF/IDA staff analysis and supporting annexes in content unit _082106.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Overview - The report reviews progress and issues in implementing the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and reports on the implementation of the Multilateral Debt Relief Initiative (MDRI) by IDA, the IMF, and AfDF. - It concludes that the volume of debt relief has increased significantly since the inception of the HIPC Initiative in 1996, reducing HIPCs’ debt service burdens and allowing increased financing of poverty reduction efforts. - The report provides updated information on the costs of debt relief under the HIPC Initiative and the MDRI and reviews creditor participation and delivery, highlighting challenges to increase participation by non–Paris Club official bilateral and commercial creditors. ### Progress in the Implementation of the HIPC Initiative - Forty countries have either already qualified or are currently considered eligible or potentially eligible for debt relief under the HIPC Initiative. - Of these, 29 have reached the decision point and are receiving debt relief under the HIPC Initiative. - Nineteen HIPCs have reached the completion point. - Of the 10 HIPCs in the interim period (the period between decision and completion point): - five are advancing with the implementation of their IMF-supported programs, - six have completed a full PRSP. - Barring unforeseen circumstances, three are expected to reach their completion points by end-2006. - There are currently 11 pre-decision-point HIPCs that have been assessed to meet the Initiative’s income and indebtedness criteria at end-2004 and might wish to be considered for debt relief. - Three of these pre-decision-point countries are making progress toward reaching their decision points. ### Progress in the Implementation of the MDRI - The MDRI was launched in 2005. - To date, all 19 post-completion-point HIPCs have qualified for MDRI debt relief from IDA, the IMF, and the AfDB. - These 19 countries have already benefited from MDRI debt relief from IDA and the IMF and are expected to receive MDRI assistance from the AfDB shortly. - The other 21 HIPCs would qualify for debt relief under the MDRI once they reach their completion points under the HIPC Initiative. ### Impact of HIPC Initiative and MDRI Debt Relief - Debt relief under the two initiatives is expected to reduce the debt stocks of the 29 HIPCs that have reached the decision point by almost 90 percent. - Debt service paid by these countries has already declined by about 2 percent of GDP between 1999 and 2005, and is expected to decline further in the medium term as a result of MDRI debt relief. - Poverty-reducing expenditures have increased by almost 3 percent of GDP between 1999 and 2005. - Debt relief has encouraged reforms in public financial management, with progress most advanced in post-completion-point countries. ### Challenges for the HIPC Initiative and MDRI - Helping other interim and pre-decision-point countries move through the HIPC Initiative process has become increasingly challenging. - Access to debt relief for some pre-decision-point HIPCs could be curtailed if the Initiative’s sunset clause is to take effect at end-2006, as currently scheduled; the Executive Boards are expected to take a decision on this issue before the Annual Meetings. - Major challenges remain in ensuring that debt burdens do not become unsustainable again; strengthened management of debt and public finances will be needed to prevent debt burdens from increasing again in the long run. - “Free-riding” concerns could arise if creditors increase lending to post-MDRI HIPCs, taking advantage of the fiscal and balance-of-payments space created by debt relief. ### Cost of Debt Relief under the HIPC Initiative and the MDRI - The total cost of the HIPC Initiative for the 40 HIPCs identified above is estimated at US$63.2 billion in end-2005 NPV terms, US$4.1 billion higher than the estimate presented in August 2005. - Of the US$63.2 billion total, US$41.3 billion represents the cost of HIPC Initiative debt relief committed to the 29 countries that have reached their decision points. - HIPC Initiative debt relief that has been or is being delivered irrevocably to the 19 countries that have reached the completion point amounts to US$28.8 billion. - Of the total committed assistance under the HIPC Initiative, about half of the cost is borne by multilateral creditors—23 percent by IDA and 8 percent by the IMF. - The cost of MDRI debt relief to the 40 HIPCs is estimated at US$24.9 billion in end-2005 NPV terms (equivalent to US$48.9 billion in nominal terms), of which almost 70 percent is borne by IDA and 16 percent by the IMF. - Of MDRI assistance, US$12.8 billion and US$3.0 billion, respectively, have already been delivered by IDA and the IMF to the 19 post-completion-point countries. ### Creditor Participation - Most multilateral creditors participate in the HIPC Initiative. - IDA, the IMF, and AfDF also provide debt relief to HIPCs under the MDRI. - Paris Club creditors have continued to grant HIPC Initiative debt relief and, on a voluntary basis, additional debt relief beyond the HIPC Initiative. - Delivery of relief by non–Paris Club official bilateral and commercial creditors has been limited. - Most commercial creditors have not provided their share of debt relief to HIPCs, and creditor litigation has been on the rise. - Stronger efforts will be called for to discourage further litigation and encourage commercial creditor participation in the Initiative. *Executive Summary, _082106 - Executive Summary (IMF)_* ### 3. The HIPC Initiative was enhanced in September 1999 to provide broader, deeper, ### 3. The HIPC Initiative was enhanced in September 1999 to provide broader, deeper, and faster debt relief ### Enhancement features and objectives - Enhancement followed a comprehensive review by IDA and the IMF and public consultations emphasizing the need to deepen and accelerate the Initiative. - Key changes: - Debt-burden thresholds were adjusted downward to enable a larger group of countries to qualify for more debt relief. - Many creditors, including multilateral institutions, began providing early assistance in the form of interim relief. - Introduction of “floating completion points” contingent on outcome-based assessment of country performance rather than a fixed track record. - Intended effects: - Provide incentives to implement reforms quickly. - Speed up delivery of debt relief. - Develop country ownership of reforms. ### Link to poverty-reduction strategies - Debt relief was linked to progress in preparing and implementing Poverty Reduction Strategies (PRSs): - PRSs designed to be country driven and developed with broad participation of civil society. - Emphasis on comprehensive poverty reduction strategy focused on strengthened institutional capacity, higher growth, and better targeted social programs. ### Multilateral Debt Relief Initiative (MDRI) - MDRI launched in 2005 to further reduce debts of HIPCs and provide additional resources to help meet the Millennium Development Goals. - MDRI characteristics: - Proposed by the G8; separate from but operationally linked to HIPC Initiative. - IDA, IMF and AfDF provide 100 percent debt relief on eligible debts to countries having completed the HIPC Initiative process. - Implementation modalities vary across the three institutions. - Debt relief under MDRI is provided once a country reaches the HIPC completion point. - Compensatory financing for IDA and the AfDF is a key aspect. - Annual allocations from IDA and AfDF to MDRI beneficiary countries will be reduced by the amount of MDRI debt service relief in that year. - MDRI is not comprehensive in creditor coverage: does not involve official bilateral or commercial creditors, nor multilateral institutions other than IDA, IMF, and AfDF. - IMF special treatment: - IMF provides MDRI debt relief to non-HIPCs whose income per capita is below US$380 to ensure uniformity in use of IMF resources. - Consequence: Cambodia and Tajikistan received MDRI debt relief from the IMF (not covered in remainder of paper). ### Comparative characteristics (HIPC Initiative vs MDRI) — selected items - Country coverage: - HIPC Initiative: IDA-only, PRGF-eligible countries with debt indicators above the HIPC Initiative thresholds engaged in qualifying IMF- and IDA-supported programs; HIPC countries having reached completion point. - Participating creditors: - HIPC Initiative: All multilateral, official bilateral and commercial creditors of external public and publicly guaranteed debt to HIPCs. - MDRI: IDA, IMF and AfDF only. - Debt relief provided: - HIPC Initiative: External public and publicly guaranteed debt is reduced to the HIPC Initiative thresholds as calculated at time of the decision point; in exceptional cases topping up at completion point. - MDRI: Debt disbursed before end-December 2004 (IMF and AfDF) and end-December 2003 (IDA) and still outstanding at qualification is reduced to zero. - Modality of delivery: - HIPC Initiative: Different modalities; most multilateral and Paris Club creditors also provide interim debt relief. - MDRI: Stock-of-debt operation at or shortly after completion point. - Total costs of committed debt relief (end-2005 NPV terms): - HIPC Initiative: US$41.3 billion. - MDRI: US$18.3 billion. ### Implementation progress and timelines - Early implementation: - Under the original HIPC Initiative only six countries reached decision point and four reached completion point between 1996 and end-1999. - After enhancement: - 22 countries reached their decision points in 2000; all but five of those have reached completion points. - Since 2000, one to two countries per year reached decision points, and on average three countries per year reached completion points. - Interim period lengths: - HIPCs have spent 2.9 years on average between decision and completion points under the enhanced HIPC Initiative. - Interim periods have lengthened over time from 0.2 years in early 2000 (Uganda) to 5.5 years in 2006 (Cameroon). - Average interim period under the original HIPC Initiative was 1.6 years. - Some countries (Malawi, São Tomé and Príncipe, Guinea, Guinea-Bissau, and the Gambia) expected to take longer to reach completion points, in part because better-performing countries qualified first. ### Country counts and status (as of dates in source) - Total identified HIPCs referenced: 40. - By mid-August 2006: - Post-completion-point countries: 19 (have reached completion points and received or are receiving irrevocable HIPC Initiative debt relief committed at decision point; have received MDRI debt-stock reductions from IDA and IMF and are expected to receive AfDF MDRI relief soon). - Interim countries (between decision and completion point): 10. - Pre-decision-point countries (may wish to avail themselves): 11 (meet income and indebtedness criteria based on end-2004 data, list closed April 2006 but may be amended). - Historical timing examples: - Cameroon reached its completion point in April 2006. ### Lists of countries by HIPC status (as presented) - Post-Completion-Point Countries (19) - Benin, Bolivia, Burkina Faso, Cameroon, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, Zambia - Interim Countries (Between Decision and Completion Point) (10) - Burundi, Chad, Republic of Congo, Democratic Republic of the Congo, The Gambia, Guinea, Guinea-Bissau, Malawi, São Tomé & Príncipe, Sierra Leone - Pre-Decision-Point Countries (11) - Central African Republic, Comoros, Côte d’Ivoire, Eritrea, Haiti, Kyrgyz Republic, Liberia, Nepal, Somalia, Sudan, Togo ### Operational challenges and country-specific notes - General challenges slowing progress: - Extended interruptions to PRGF-supported program implementation, mainly due to fiscal policy slippages (most commonly primary expenditure overruns). - Weak budget execution and poor policy implementation slowing achievement of agreed triggers. - Preparing fully participatory PRSPs has taken longer due to lack of institutional and human resources. - Internal conflict, governance issues, or protracted arrears have hindered progress in several pre-decision-point countries. - Interim country situations: - Five of the 10 interim countries are advancing macroeconomic program implementation; three (Malawi, São Tomé & Príncipe, Sierra Leone) have been satisfactorily implementing programs, finalized PRSPs, and made substantial progress on completion triggers and could reach completion points by end-2006. - Burundi and Republic of Congo reached decision points only recently. - Five interim HIPCs experiencing difficulties: Chad, Democratic Republic of the Congo, The Gambia, Guinea, Guinea-Bissau — assistance continued, especially for public resource management. - Chad: IDA suspended project disbursements in Q1 2006 due to dispute over pipeline revenue framework; interim debt relief disbursements not suspended; full project disbursement resumed after July agreement; supplementary 2006 budget agreed with IMF and IDA. - Democratic Republic of the Congo: pursuing corrective fiscal measures that could lead to a new IMF-supported program. - The Gambia, Guinea, Guinea-Bissau: interruptions led to staff-monitored programs; expect to resume IMF-supported engagement though risks remain (political tensions; internal/external imbalances). - PRSP completion among interim countries: - Six interim countries have completed a full PRSP; remaining four expected to complete by end-2006. - Countries with full PRSPs and implementation begun: Malawi, São Tomé & Príncipe, Sierra Leone, Chad, The Gambia, Guinea; Democratic Republic of the Congo recently completed a full PRSP. - Burundi’s PRSP preparation delayed by security tensions and political instability. - Guinea-Bissau’s capacity constraints hindered PRSP preparation. - Pre-decision point cases: - Eleven countries met income and indebtedness criteria (end-2004 data). - Three pre-decision HIPCs satisfy all eligibility criteria and are making progress toward decision points: Haiti (EPCA-supported since October 2005; I-PRSP first draft completed), Kyrgyz Republic (progressing IMF program; completed full PRSP), Central African Republic (EPCA-supported program, arrears clearance, resumed PRSP preparation). - Three satisfy criteria but need to step up efforts: Nepal (engaged in IMF-supported program but policy implementation weakened; completed full PRSP; authorities undecided about HIPC participation), Côte d’Ivoire (reached original decision point in 1998 but security deteriorated; progress toward peace in 2006 and EPCA could lead to IMF-supported program in 2007; full PRSP not completed), Togo (no IMF-supported arrangement since 1998; authorities intend to take steps; full PRSP not completed). - Five not yet eligible: Comoros, Eritrea, Liberia, Somalia, Sudan — have not started IDA- and IMF-supported reform programs after October 1996 and thus do not meet policy eligibility criterion. Comoros, Liberia, Somalia, Sudan have protracted arrears requiring concerted international arrears-clearance efforts. - Some progress: Comoros, Liberia and Sudan have seen arrears progress that could pave way for IDA- and IMF- supported programs. - Eritrea has expressed interest in steps leading to IMF-supported program; I-PRSP process: Comoros completed an I-PRSP; Liberia, Sudan, Eritrea finalizing I-PRSPs. - Somalia: situation remains fragile; engagement in IDA- and IMF- supported programs and PRSP preparation unlikely in near future. *Source: IMF/IDA HIPC Initiative and MDRI implementation discussion as presented in the supplied content.* ### 17. The sunset clause of the HIPC Initiative is set to take effect at end-2006, which ### _082106 - 17. The sunset clause of the HIPC Initiative is set to take effect at end-2006, which ### Sunset clause, eligibility, and policy timing - Under the current extension of the HIPC Initiative’s sunset clause, countries need to start to implement a qualifying IMF- and IDA-supported program of adjustment and reform by end-2006 to become eligible for HIPC Initiative debt relief. - If they do not start such a program by this date, the five (and possibly more) countries may not be able to benefit from debt relief under the HIPC Initiative and eventually the MDRI. - The five countries are Comoros, Eritrea, Liberia, Somalia and Sudan. - The IDA and IMF Boards are expected to discuss in September 2006 options to deal with the countries that are not likely to meet the policy eligibility criterion by the time the sunset clause takes effect at end-2006. ### Impact of HIPC Initiative and MDRI on debt stocks - Debt relief under the HIPC Initiative and the MDRI is expected to reduce the debt stocks of the 29 post-decision-point HIPCs by about 90 percent. - Traditional debt relief and HIPC Initiative assistance are projected to reduce the total pre-decision-point debt stock of these countries to US$37 billion from about US$88 billion, in end-2005 NPV terms. - Voluntary additional bilateral debt relief and assistance under the MDRI are expected to further lower debt stocks to US$10 billion. - Debt stocks in the 19 post-completion-point countries are expected to decline by an average of 55 percent, from a total of US$69 billion to US$31 billion (in end-2005 NPV terms), due to traditional and HIPC Initiative debt relief. - After additional bilateral and MDRI debt relief, their debt stock is expected to decline to US$8 billion. - Note: Debt stocks referred to here are the debt stocks in the year prior to the decision point. They do not include new borrowing after the decision point. ### Impact on debt service and short- to medium-term projections - Debt-service-to-exports ratios of the 29 HIPCs that have reached their decision points have declined from about 14 percent one year prior to the decision point to about 6 percent five years after the decision point. - In cumulative terms, these countries’ total debt service has been reduced by about US$600 million over six years, as a result of interim and debt relief after the completion point. - Analysis based on nine post-completion-point countries suggests that the NPV of debt-to-exports ratios at completion point was on average almost 40 percentage points higher than projected at decision point, mainly on account of exogenous changes in discount and exchange rates rather than new borrowing. - Between 2005 and 2011, when most HIPCs are expected to reach their completion points, the average debt-service-to-exports ratio of the 29 post-decision-point HIPCs is projected to decline by more than half. - The reduction is even larger for African HIPCs, which will benefit from MDRI relief from IDA and the IMF, and also from AfDF. - After 2011, post-MDRI debt service-to-exports ratios are projected to increase again, although they are projected to remain significantly below the pre-MDRI ratios after HIPC Initiative debt relief (namely 1.5 percentage points lower by 2025). - Caveat: MDRI debt relief affects mostly the NPV of existing debt; long-term debt dynamics will be increasingly dominated by new borrowing. Long-run projections are sensitive to assumptions on new borrowing and growth. ### Boxed findings on evolution of debt ratios (Decision to Completion) - At completion point, HIPCs’ NPV of debt-to-exports ratios were, on average, 38.9 percentage points higher than expected at decision point. - On average, unexpected changes in the discount rate accounted for 25.3 percentage points of the increase. - Exchange rate changes added an additional 6.8 percentage points. - Lower than expected exports increased debt burden indicators by 4.7 percentage points. - New borrowing was, on average, lower than projected at decision point, decreasing debt ratios by 7 percentage points, on average. - Lower than expected grant elements of disbursements raised the debt ratios by 6.3 percentage points. - Other factors (such as revisions in data or completion point dates) reduced the debt ratios by 8.5 percentage points, on average. - Completion Point countries considered in this analysis were Cameroon, Ethiopia, Honduras, Madagascar, Nicaragua, Niger, Rwanda, Senegal, and Zambia. ### Debt management, free-riding, and capacity constraints - Strengthened management of both external and domestic debt will be necessary to prevent debt burdens from becoming unsustainable again. - Capacity constraints in HIPCs’ debt-management offices are often severe (Annexes II-IV). Examples: - Rwanda, Zambia, and Mali are making progress in strengthening debt management, often with support from IDA and the IMF. - The Democratic Republic of the Congo implemented new debt management software with support from UNCTAD. - Ethiopia has yet to establish a comprehensive legal framework for debt management, and there is no formal publication of debt data. - Burundi has made slow progress in meeting its debt management completion point trigger. - “Free-riding” concerns: creditors could increase lending to post-MDRI HIPCs, thereby “free riding” on the fiscal and balance-of-payments space created by debt relief. - IDA's Board approved a two-pronged package to address “free riding” on future borrowing by IDA grant-recipient countries as well as post-MDRI countries: - On the creditor side: proposes enhancing creditor coordination around a mechanism to be developed and agreed – possibly based on the debt-sustainability framework for low-income countries (LIC DSF). - On the borrower side: provides disincentives on unwarranted new non-concessional borrowing by reducing volumes and/or hardening the terms of assistance, on a case-by-case basis. - The IMF is expected to continue to monitor and raise awareness about the consequences of non-concessional borrowing through the use of the LIC DSF in surveillance and program contexts, including under the Policy Support Instrument and the exogenous shock facility. ### Poverty-reducing expenditures and public financial management (PFM) - Poverty-reducing expenditures of HIPCs have continued to increase since 1999, while debt-service payments have been declining. - Debt service paid by the 29 post-decision point HIPCs has declined from about 4 percent of GDP in 1999 to about 2 percent in 2005. - Poverty-reducing expenditures increased from about 7 percent of GDP in 1999 to over 9 percent in 2005. - In absolute terms, poverty-reducing expenditures amounted to US$14.8 billion at end-2005, more than five times as high as debt-service payments after expected HIPC Initiative debt relief. - Poverty-reducing expenditures are expected to increase further in 2006 as a result of debt relief under the MDRI: - Authorities of most post-MDRI countries have indicated plans to expand poverty-reducing expenditures by about the equivalent of MDRI debt-service savings in 2006, which amounts to around half a percentage point of GDP, on average. - MDRI resources are intended to support pro-poor growth, mainly in the social, infrastructure and agricultural sectors, and are often consistent with priority areas in PRSPs. - Supplementary budgets will be issued in most countries to reflect the additional spending. - Arrangements have been reached in all countries between central banks and governments regarding the transfer to the budget of HIPC/MDRI resources provided by IMF debt relief. - Examples of use/timing: two cases deviate from general pattern—Rwanda (restock food / methane gas project) and Uganda (urgent energy needs). - Timeframes for use of MDRI resources differ across countries (e.g., three years for Ghana, four years for Mozambique, and 10 years for Madagascar). - Resources freed by debt relief will need to be managed effectively: - Improvements in PFM systems are necessary to ensure debt-service savings are targeted toward poverty-reducing activities and used efficiently. - Post-completion-point countries typically have improved PFM systems; pre-completion-point HIPCs need to speed up efforts. - Box 2: PFM strengthening highlights and monitoring - Post-MDRI countries have taken steps: new laws (Ghana, Guyana, Rwanda, Nicaragua), computerization and networking of expenditure databases (Mali), improvement of cash management (Ethiopia), new financial management information systems (Guyana, Honduras), integration of donor-financed projects into financial management (Mozambique), improved reporting on budget execution (Zambia). - PEFA program: a common performance measurement framework based on 28 indicators. PEFA assessments have been conducted in eight HIPCs; baselines remain to be established in the remainder. ### Overall assessment and remaining challenges - Significant progress has been made in the implementation of the HIPC Initiative and the MDRI: - The volume of debt relief has increased significantly because of MDRI implementation and progress toward HIPC milestones. - Debt relief has substantially reduced debt stocks and debt service of beneficiary countries and appears to have been additional to other resource transfers to HIPCs. - Provision of debt relief has been accompanied by increased poverty-reducing efforts and has encouraged some reforms in debt management and public financial management through conditionality. - Remaining challenges: - Helping the remaining pre-decision-point countries progress through the HIPC Initiative process. - Increasing creditor participation in the Initiative. - Strengthening debt-management capacity and PFM, and preventing unsustainable new non-concessional borrowing. *Source: IMF/IDA staff analysis in the chapter on the HIPC Initiative and MDRI (content unit: _082106 - 17).* ### Box 3. The Impact of Debt Relief after Ten Years of Implementation ### Box 3. The Impact of Debt Relief after Ten Years of Implementation ### Overview of impact findings - After ten years, the HIPC Initiative has become a significant vehicle for delivering debt relief to poor countries (World Bank Independent Evaluation Group: “Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative”). - Net resource transfers to HIPCs doubled from US$8.8 billion in 1999 to US$17.5 billion in 2004, while transfers to other developing countries grew by only one-third. - Measuring additionality is complex: creditors use a variety of methods to account for debt relief, some data are not very reliable, and assessing additionality requires an assumption about resources that would have been transferred in the absence of debt relief. ### Effects on debt sustainability and debt stocks - The Enhanced HIPC Initiative has contributed to reducing the debt stocks of the 19 post-completion-point HIPCs. - This reduction alone has not been sufficient to ensure long-run debt sustainability in these countries (exogenous factors beyond the authorities’ control have mainly contributed to the increase in debt ratios between decision and completion points). - Long-term sustainability depends on further efforts to improve export diversification, fiscal and public debt management, and to obtain new financing on more concessional terms. ### Policy, institutional, and governance outcomes - HIPCs that performed better in improving policies, institutions, and governance appear to have completed the HIPC process faster. - Post-completion-point countries have had higher scores on key policy and institutional ratings compared to other low-income countries, and they continue to score higher. - Countries not yet at completion point have, on average, the lowest ratings of all low-income countries, with pre-decision point HIPCs having the worst governance indicators. ### Poverty reduction and social outcomes - Debt relief under the enhanced HIPC Initiative has been closely linked to Poverty Reduction Strategies (PRSs). - PRSs have tended to emphasize social sector spending rather than more balanced approaches to growth and poverty reduction; accordingly, the Initiative’s approach has leaned toward channeling additional resources to social expenditures. - Limited data indicate debt relief appears to have helped post-completion-point HIPCs advance toward achieving the MDGs: - Progress reported in improving gender equality and reducing child mortality. - Some steps taken in encouraging primary education and ensuring environmental sustainability. - No measurable changes documented in combating poverty and infectious diseases, and in improving maternal health (data very limited). ### Public financial management (PFM) - Efforts were made to upgrade PFM systems and capacity in HIPCs and to monitor progress against explicit indicators and benchmarks. - These efforts have resulted in some improvements in PFM, although much remains to be done. ### Creditor participation and limitations - The HIPC Initiative attempted comprehensive sharing of the debt reduction burden between all creditors, but remains voluntary; full creditor participation has been difficult to achieve. - Multilateral and Paris Club creditors have generally honored their commitments, but participation of non–Paris Club and commercial creditors has been limited. ### Estimated costs of HIPC Initiative debt relief (end-2005 NPV terms) - Total cost for the 40 identified HIPCs: US$63.2 billion. - Debt relief irrevocably delivered or being delivered to the 19 post-completion-point countries: US$28.8 billion. - Cost committed to the 10 interim countries: US$12.5 billion. - Estimated cost to the 11 pre-decision-point countries: US$21.9 billion, of which US$15.3 billion correspond to the three protracted arrears cases (Liberia, Somalia, and Sudan). - Distribution of total cost by creditor type: - Multilateral creditors: 46 percent of total cost (of which IDA: 20 percent; IMF: 9 percent). - Paris Club creditors: 36 percent. - Non–Paris Club (Other Official Bilateral): 13 percent. - Commercial creditors: 5 percent. ### Changes and drivers of cost estimates - Total cost of HIPC Initiative debt relief increased by US$4.1 billion, or almost 7 percent, relative to last year. - Just under half of this increase due to data revisions at decision and completion points (Republic of Congo, Burundi, Cameroon). - Updating costs from end-2004 to end-2005 NPV terms led to an increase of almost 4 percent. - The current cost of debt relief for the 29 HIPCs that have reached their decision points is about 63 percent higher than the initial projection of total HIPC Initiative cost in 2000. - Note: discount rates used to calculate costs have declined from 5.5 in 2000 to 4.4 percent in 2006; current costs in 2006 have been compounded over six years compared to costs in 2000. ### Participation of multilateral creditors and the MDRI - Twenty-three out of 31 multilateral creditors have indicated intention to participate in the HIPC Initiative; these account for over 99 percent of multilateral debt relief committed to the 29 HIPCs that have reached decision points. - Eight small multilateral creditors have not indicated willingness to participate, primarily due to financial constraints; their costs represent an estimated 0.5 percent of total costs. - Total cost of HIPC assistance to be provided by IDA: US$12.5 billion in end-2005 NPV terms. - Of this, US$9.4 billion is committed to the 29 post-decision-point HIPCs. - IMF total cost of HIPC assistance to the 40 HIPCs: US$5.6 billion in end-2005 NPV terms. - US$3.1 billion represents debt relief committed to the 29 post-decision-point HIPCs. - IMF has disbursed the entire amount committed to the 19 completion-point countries: US$2.3 billion in end-2005 NPV terms. - Estimated cost to the 11 pre-decision-point countries: US$2.5 billion in end-2005 NPV terms. - The IMF needs to secure additional financial resources prior to newly identified HIPCs and protracted arrears cases reaching decision points, as no provision was made for these in existing financing. ### MDRI estimated costs (end-2005 NPV terms) - Total cost of MDRI debt relief to IDA, IMF, and AfDF: US$24.9 billion. - IDA delivered US$12.8 billion and is responsible for almost 70 percent (US$17.3 billion) of the total cost in end-2005 NPV terms. - IMF total MDRI cost: US$4.0 billion, of which US$3.0 billion has been disbursed to the 19 post-completion-point HIPCs. - AfDF projected MDRI cost: US$3.6 billion, of which US$2.5 billion would be delivered to post-completion-point countries retroactively to January 1, 2006, once financing assurances are obtained. - MDRI implementation detail: - The remainder of HIPC Initiative debt relief for the 19 post-completion-point HIPCs, which was to be given on a flow basis, was provided as stock relief on July 1, 2006. - The annual amount of MDRI debt relief will be deducted from HIPCs’ annual IDA allocation; additional donor compensation to IDA will be allocated according to IDA's performance based allocation system. - For IDA and AfDF, nominal vs NPV differences reflect lost reflows over several decades; for the IMF, costs were incurred upfront for qualifying countries. - MDRI nominal and NPV figures (qualifying countries / post-completion / interim / pre-decision point): - Estimated Costs in nominal terms — Total nominal: 35.5 / 7.6 / 5.8 / 4.8 / 48.9 (table format in source). - Estimated costs in end-2005 NPV terms — Total costs: 18.3 / 3.9 / 2.7 / 4.0 / 24.9 (table format in source). - Of which IDA (NPV): 12.8 / 2.5 / 1.9 / 17.3; IMF (NPV): 3.0 / 0.6 / 0.4 / 4.0; AfDF (NPV): 2.5 / 0.7 / 0.4 / 3.6. ### Paris Club participation and additional debt relief - Paris Club estimated cost of providing HIPC debt relief to the 29 post-decision-point countries: US$15.2 billion in end-2005 NPV terms. - Paris Club stock-of-debt reductions to the 19 post-completion-point countries: US$9.6 billion in end-2005 NPV terms. - Estimated additional cost of providing debt relief to the 11 pre-decision-point countries: US$7.1 billion in end-2005 NPV terms. - Paris Club creditors have provided US$6.4 billion in additional debt relief to the 19 post-completion-point HIPCs, representing an increase of about 66 percent relative to the total HIPC Initiative debt relief provided by these creditors to the 19 HIPCs. - Paris Club practices vary by creditor and HIPC stage: at decision point some creditors provided stock-of-debt reductions in addition to interim relief; at completion point most creditors cancelled 100 percent of pre-cutoff debt and some cancelled part or all of post-cutoff debt. *Source: Box 3. The Impact of Debt Relief after Ten Years of Implementation (IMF PDF content provided).* ### 35. The voluntary nature of the HIPC Initiative has contributed to the low ### 35. The voluntary nature of the HIPC Initiative has contributed to the low ### Participation of non–Paris Club official bilateral creditors - The HIPC Initiative was adopted by broad international consensus at the Boards of IDA and the IMF, but participation by non–Paris Club official bilateral creditors has been low because participation is voluntary and there is no legal basis requiring creditors to participate or to provide debt relief on comparable terms. - Refusal by a member country to reschedule claims on HIPCs is neither a breach of a contractual commitment to the IDA or IMF, nor a breach of the obligations under the Articles of Agreement of these institutions. - In practice, many non–Paris Club creditors (as well as commercial creditors) have not participated in the HIPC Initiative; this has been repeatedly noted in prior Status of Implementation Reports. ### Staff efforts to increase creditor participation and information - Directors recommended intensified moral suasion, more explicit attention to creditor participation issues in Article IV consultations, creditor education on the HIPC Initiative methodology, and enhanced transparency of creditor participation. - Staffs actions taken: - Sent letters and questionnaires to nine large creditors and four smaller creditors that indicated willingness but had not yet delivered HIPC Initiative debt relief. The large creditors contacted were: Algeria, Bulgaria, China, Honduras, Kuwait, Libya, Saudi Arabia, United Arab Emirates, and Venezuela. The four smaller creditors were: Hungary, Poland, Romania, and the Slovak Republic. - Requested more detailed information from the 29 post-decision-point HIPCs on debt relief they have received. - Continued to discuss low participation in Article IV consultation discussions. - Plan to notify non–Paris Club creditors whether they provided debt relief on HIPC Initiative terms, continue to share technical notes on methodology, disseminate delivery information on the IDA and IMF websites, and consider preparing a note for the Boards to be published externally acknowledging individual creditors’ progress or lack thereof. ### Responses received and creditors that delivered debt relief - Partial responses were received from seven creditors: Bulgaria, Kuwait, Saudi Arabia, Hungary, Poland, Romania, and the Slovak Republic. - Debtor responses: 16 post-completion-point HIPCs and five interim HIPCs provided information. - Based on available information to date, staffs determined that six countries have provided full HIPC Initiative debt relief: Czech Republic, Jamaica, Republic of Korea, Slovak Republic, South Africa, and Trinidad and Tobago. - This amounted to US$52 million in end-2005 NPV terms, or 1.4 percent of the total relief to be granted by non–Paris Club creditors to HIPCs. - Several other creditors (Algeria, Bulgaria, Burundi, China, Hungary, India, Kuwait, Libya, Poland, Romania, and Saudi Arabia) have provided some debt relief to their HIPC debtors, including through new agreements since August 2005. - China and Libya have notified staffs that they provide debt relief to HIPCs through their own initiatives but did not share details on amounts delivered. ### Estimated amounts of debt relief delivered by non–Paris Club creditors - Staffs could not determine the precise amount of partial debt relief provided to the 29 post-decision-point HIPCs and provided a range of estimates. - Estimated debt relief delivered ranges between US$1.1 and US$1.4 billion in end-2005 NPV terms, or 27 and 37 percent of total HIPC Initiative assistance costs attributable to these creditors. - Even under the most optimistic scenario, delivery is still less than half of the debt relief expected to be delivered by non–Paris Club official bilateral creditors. - Complicating factors in estimation include varied modalities of delivery (flow rescheduling, buyback operations, debt reprofiling, debt cancellation) and significant uncertainty for individual cases (e.g., China with a range of 43 to 76 percent, India range of 28 to 90 percent, Saudi Arabia range of 21 to 56 percent). ### Case study — Nicaragua (Box 4) - Nicaragua has 23 non–Paris Club creditors (more than double the average HIPC’s number of creditors, which is 10) and expects about 40 percent of its total debt relief from this group, compared to the average of 9 percent for other HIPCs. - Two and a half years after reaching its completion point, Nicaragua has signed agreements with 12 of its non–Paris Club creditors, accounting for less than 40 percent of the total relief expected from these creditors. - Obstacles faced by Nicaragua: - Some creditors refuse to participate fully (China, Iran, Libya, Taiwan Province of China). China has not provided its share citing lack of diplomatic relations; Libya initiated litigation against Nicaragua; Taiwan Province of China delays led to NPV of outstanding debt becoming smaller than expected debt relief. - Limited understanding of the HIPC Initiative methodology among some creditors complicated agreements (principles of burden sharing and comparability of treatment, and methodology to calculate relief). - Legal or institutional constraints in creditor countries (e.g., Ecuador and Venezuela citing legal restrictions; Poland requiring Cabinet approval; Bulgaria and India cancel sovereign debt but not claims held by public enterprises). - HIPC-to-HIPC debt relief complications: e.g., Honduras indicated willingness to provide relief but had not delivered; cost of relief to be provided by Honduras equals seventeen percent of the HIPC Initiative debt relief it expects to receive. ### Participation of commercial creditors and litigation - Commercial creditors now account for about 4 percent of the total costs of HIPC Initiative debt relief to the 29 post-decision-point countries; their share has almost doubled since mid-2005 (mainly due to Republic of Congo reaching its decision point). - Commercial creditor shares vary by country from zero (Burkina Faso, the Gambia, Mauritania, São Tomé and Principe) to 35 percent (Republic of Congo). Pre-decision HIPCs with large commercial debt burdens include Côte d’Ivoire, Liberia, and Sudan with commercial debt shares of 21, 21, and 13 percent, respectively. - Very few commercial creditors have provided their share of HIPC Initiative debt relief. Survey results indicate some commercial creditors provided debt relief in only three cases (Democratic Republic of the Congo, Guyana, Madagascar), amounting to 5.5 percent of total HIPC Initiative assistance to be provided by commercial creditors to the 29 post-decision-point HIPCs. - The IDA Debt Reduction Facility (DRF) has been used to reduce exposure to commercial creditors; since 1989 the DRF has supported operations and provided technical assistance to 13 of the 19 countries now past completion point; three of the 10 countries now in the interim stage; and two of the 11 pre-decision-point countries. About US$3.8 billion of external commercial debt (principal only) owed by HIPCs was extinguished using IDA’s DRF. - Litigation by commercial creditors and distressed debt funds is growing: - Twenty-four respondents to the staff survey reported being targeted with lawsuits by a total of 44 litigating creditors; three reported legal actions are new since the survey in mid-2005. - HIPCs most targeted: Republic of Congo (8 lawsuits), Guyana (7), Uganda (6). - Litigating creditors concentrated in the United Kingdom, British Virgin Islands, and the United States (home to six, six, and five litigating creditors, respectively). - Lawsuits filed mainly in London (9), Paris (7), and New York (6); another 15 legal disputes filed in local HIPC courts. - Outcomes and costs of litigation: - Of 44 litigations, 26 creditors have obtained court judgments in their favor against seven HIPCs (Cameroon, Democratic Republic of the Congo, Republic of Congo, Nicaragua, Sierra Leone, Uganda, Zambia), amounting to about US$1 billion. - Sierra Leone, Uganda, and Zambia have already paid a cumulative US$30 million to some litigating creditors, including through out-of-court settlements. - Staffs are aware of international commercial arbitration proceedings involving four HIPCs (Cameroon, Democratic Republic of the Congo, Republic of Congo, São Tomé and Príncipe). - Fourteen lawsuits (against Cameroon, Guyana, Honduras, Sierra Leone, Zambia) are still pending. - Total reported claims under litigation amount to about US$1.9 billion, and are about 22 percent higher than the total HIPC Initiative debt relief to be provided by commercial creditors. - Claims under litigation can represent a significant fraction of HIPCs’ GDP (Republic of Congo litigated debts equivalent to about 15 percent of GDP; São Tomé and Príncipe about 13 percent of GDP). - Implications for IMF assistance: - Low participation of commercial creditors could hinder some HIPCs’ access to IMF debt relief. Minimum thresholds for financing assurances have been established by the IMF to foster fair burden sharing and encourage HIPCs to approach all their creditors promptly. - HIPCs with significant commercial debt (Republic of Congo, Côte d’Ívoire, Liberia) could find it difficult to get financing assurances required to access interim relief from creditors such as the IMF. - As of end-July 2006, the IMF had not received sufficient financing assurances to start disbursing interim assistance to the Republic of Congo, which reached its decision point in April 2006. ### Staff follow-up and planned actions - Continue efforts to obtain and reconcile information from non–Paris Club creditors and HIPC debtors and provide technical assistance as needed. - Notify non–Paris Club creditors whether they provided debt relief on HIPC Initiative terms and continue to share technical notes on the HIPC Initiative methodology. - Disseminate more widely information on the delivery of HIPC debt relief on the IDA and IMF websites. - Consider preparing a note for the Boards to be published externally acknowledging individual creditors’ progress or lack thereof in providing debt relief to HIPCs. - Staff will monitor litigation developments closely (e.g., Libya’s litigation against Nicaragua). *Source: IMF staff report excerpt — “The voluntary nature of the HIPC Initiative has contributed to the low”* ### 48. The low delivery of debt relief by commercial creditors also raises “free-riding” ### _082106 - 48. The low delivery of debt relief by commercial creditors also raises “free-riding” ### Free-riding concerns and impact - The payment of commercial debt on more favorable terms than those granted to most bilateral and multilateral creditors undermines the Initiative’s goal of equitable burden-sharing among creditors. - Such differential treatment "prevents HIPCs from using the totality of resources freed by debt relief for poverty-reducing spending, as initially intended." - Footnote clarification: "Free-riding" concerns in this case arise not from new borrowing (as discussed in paragraph 22), but from creditors’ lack of participation in the Initiative and their request for debt-service payments or court awards from HIPC debtors. This type of "free riding" is not subject to IDA’s policies mentioned in paragraph 22. ### Box 5 — The Debt Reduction Facility (DRF) for IDA-Only Countries: purpose, operations, and outcomes - Purpose: Established in 1989 to reduce the stock of external commercial debt owed to commercial creditors by IDA-only countries; provides grant funding to buy back commercial debts at deep discounts. - Justification: Settlement of arrears with commercial creditors often enables countries to avoid expensive legal cases and penalty interest awards. - Initial and subsequent funding: - Initially funded with a US$100 million transfer from IBRD’s FY89 net income. - Replenished by US$100 million each from IBRD’s net income in FY93 and FY95. - Replenished with US$50 million from IBRD’s net income in 2004. - Administration and eligibility: - IDA administers the Facility; funds are available on a grant basis to recipient member countries. - Eligible debt: medium- and long-term commercial debt that is public, external, non-collateralized and un-guaranteed; and short-term debt of similar type that has been in arrears for some time where such debt is likely to impair access to short-term credit on reasonable terms. - Under current guidelines, all highly indebted IDA-only countries are eligible provided: (i) satisfactory performance under a medium term adjustment program; and (ii) the government is implementing a satisfactory strategy for debt management that comprehensively addresses commercial debt, provides substantial relief from official bilateral creditors, and enhances growth and development prospects. - Note: Although established before the HIPC Initiative, to date all but three supported operations have been in current HIPCs (exceptions: Yemen, Vietnam, and Albania). - Achievements since establishment: - Supported 22 operations in 21 IDA-only countries. - About US$4.5 billion of external commercial debt principal extinguished. - More than US$3.5 billion of associated interest arrears and penalties extinguished. - Resources utilized: about US$637 million, comprising: - IBRD net income transfers of US$218 million, - donor funding of US$207 million, - about US$212 million from beneficiary countries’ own resources, IDA credits, and IMF financing. - Typical modality: Debt reduction largely through cash buy-backs at significant discounts. ### Commercial creditor participation, litigation, and empirical snapshot (Table 7 notes) - Table 7 presents commercial creditor participation and lawsuits by country (status at end-2005); survey responded by 24 countries out of 29 HIPCs. - Survey and table caveats: - Countries that did not respond are indicated with an asterisk. - No response or insufficient information shown with three dots. - NPV of debt and cost figures are reported "At the Decision Point." - Delivery of debt relief figures are "As reported by the authorities of HIPCs." - Commercial creditors' lawsuits against HIPCs are reported without assessing the merits of these disputes. - Some litigations are pending or in arbitration. - Footnotes: A supplier provided an additional assistance amount of $18.6 million for one case; for some countries commercial debt is reported nominally where NPV terms not available. - Aggregates cited (as shown in Table 7): - I. Completion Point Countries (19) — TOTAL 3102688927762390 (table format preserved in source; detailed country rows show many missing entries or three dots). - II. Decision Point Countries (10) — TOTAL 381584472191101629. - HIPC countries (I + II) — 69171532814618631018. - Additional table columns and metrics in source include: NPV of Debt with Commercial Creditors at the Decision Point; Expected Debt Relief under HIPC; Delivery of Debt Relief; Number of litigating Creditors; Claims of Litigating Creditors; Court Awards; Commercial Creditor Lawsuits; Commercial Creditor Participation — all reported in units "(In units)", "(In millions of US dollars)", "(In percent of GDP)" and noted "(In millions of US dollars in 2005 NPV terms)". ### IDA and IMF limitations, responses, and proposed measures - Legal and institutional constraints: - The HIPC Initiative is not legally binding on other creditors. - In accordance with their Articles of Agreement and policies, IDA and the IMF must operate with neutrality and impartiality in disputes among members. - Institutional actions and proposals: - Boards discussed a proposal to create and manage a trust fund financed by donors to help HIPCs get legal advice against creditor litigation, but the proposal was dropped. - Boards have encouraged staff to continue using moral suasion while maintaining neutrality in disputes. - Planned and ongoing staff actions: - Staffs will continue to make use of moral suasion. - Staffs will continue to monitor and discourage non-concessional borrowing by countries in the context of surveillance and programs, in order to limit "free-riding" concerns. - Staffs will make further efforts to raise public awareness, including in contacts with NGOs, by tracking and releasing data on lawsuits, litigators, and settlements/awards against HIPCs in the context of their annual reports on the implementation of the HIPC Initiative. - Suggested external measures (from source discussion): - "Stronger support from the international community would be needed to encourage creditor participation in the Initiative and limit 'free-riding' concerns." - Example measure: Member countries could consider enacting laws that protect HIPCs from lawsuits or seizure of assets under their jurisdictions in the wake of litigation — though the source notes such legal changes may be difficult to obtain and may have broader ramifications for creditor-debtor relations. ### Conclusions and remaining challenges (summary of paragraphs 51–52) - Progress: - Almost three quarters of the countries identified as potentially eligible for the HIPC Initiative have already reached their decision points. - Almost half of the total have also reached their completion points. - HIPC Initiative and MDRI debt relief to these countries is expected to reduce their debt stocks by about 90 percent. - As a result of debt relief, debt service has declined by about 2 percent of GDP between 1999 and 2005, and is expected to decline further in the medium term as a result of MDRI debt relief. - Poverty-reducing expenditures in these countries have increased significantly and are now more than five times as high as debt-service payments. - Conditionality attached to debt relief has encouraged some reforms in debt and public financial management. - Remaining challenges: - Helping interim and pre-decision-point countries to get through the HIPC Initiative process. - Half of HIPCs in the interim period have been experiencing difficulties in implementing their macroeconomic programs and will need more time to reach completion points. - Several pre-decision-point countries need to step up efforts to attain decision points. - Limited provision of debt relief by non–Paris Club official bilateral and commercial creditors; some have resorted to litigation. - Staffs will continue moral suasion to encourage participation of non–Paris Club official bilateral and commercial creditors and will report to the Boards on progress. *Source: _082106 - 48. The low delivery of debt relief by commercial creditors also raises “free-riding” (PDF).* ### 2006. The third staff review and extension of the SMP were conducted in February 2006. ### _082106 - 2006. The third staff review and extension of the SMP were conducted in February 2006. ### Comoros - Negotiations for a PRGF-supported arrangement could be conducted later this year, with a view to submitting the PRGF-supported program for Board approval before year-end, although significant hurdles remain, including the need to establish a track record of policy implementation and multilateral arrears clearance. - Macroeconomic status: Macroeconomic stability was maintained in 2005, growth slowed down and public finances deteriorated sharply in the run up to the presidential elections. - Decision Point: If Comoros concludes a PRGF-supported arrangement before the end of 2006, the decision point could be reached toward the middle of 2007. ### Côte d’Ivoire - Recent Political Developments: In 2006, significant progress toward peace; new transition government includes rebels controlling northern half; fragile political stability maintained; implementation started of Disarmament, Demobilization, and Reintegration roadmap, redeployment of the civil service nationwide, and preparation of presidential elections by October 2006. - PRSP Status: An I-PRSP was endorsed in March 2002, conflict delayed full PRSP completion. Since May 2005, a new and strengthened institutional framework for PRS management is in place. A new I-PRSP could be prepared by early 2007. - IMF Program and Macroeconomic Status: - Last PRGF arrangement approved in March 2002, went off track later that year. - A mission in May 2006 reached broad agreement on a program that could be supported by an EPCA, expected to be considered by the Board at end-August 2006. - Satisfactory EPCA-supported policy implementation could lead to a new PRGF-supported arrangement. - Economy resilient due to sharply increasing oil production, sustained strong exports, and buoyancy in the informal sector. - Growth is estimated at 1.8 percent in 2005 and a similar rate is foreseen for 2006. - 2005 fiscal situation: expenditure overruns financed by accumulation of external arrears. - Q1 2006: slight improvement in expenditure control, allowing a reduction in domestic payment arrears. - Decision Point: The decision point is expected to be reached in mid-2007. ### Eritrea - Recent Political Developments: Diplomatic relations with Sudan upgraded to “ambassador level” in June 2006; talks with Ethiopia over the border dispute in May and June 2006 were inconclusive. - PRSP Status: An I-PRSP had been drafted in June 2003, but has not yet been finalized. - IMF Program and Macroeconomic Status: - Government discussing with the IMF the implementation of an SMP. - Initiation of an EPCA-supported program in 2007 is possible, but contingent upon successful implementation of the SMP. - Macroeconomic indicators: inflation in double digits; 2 percent growth is expected in 2006. - Large fiscal deficits causing unsustainable debt burden, high inflation, widespread administrative controls, and declining donor support. - Decision Point: The date of the decision point is undetermined. ### Haiti - Recent Political Developments: Presidential and parliamentary elections in February and April 2006; Prime Minister nominated; new coalition government formed and received almost unanimous parliamentary approval. - PRSP Status: Authorities completed a first draft of an I-PRSP. The I-PRSP, together with a JSAN, is expected to be presented to the Boards of the IDA and IMF in October 2006. Authorities committed to complete the full PRSP by end-September 2007. - IMF Program and Macroeconomic Status: - A PRGF-supported program approved in October 1996, but a review was never completed. - A new PRGF arrangement under preparation expected to be discussed by the IMF Board in October 2006. - October 2005: Executive Board approved new EPCA-supported program (covering October 2005 to September 2006), following a previous EPCA-supported program approved in January 2005 (covering October 2004 to September 2005). - Performance under the EPCA-supported program expected to count towards the track-record for a future PRGF-supported arrangement. - 2004-06: significant progress toward strengthening macroeconomic stability. - GDP growth: expected to increase to 2.5 percent in FY2006 from 1.8 percent in FY2005. - Progress in implementation of structural and economic governance measures. - Decision Point: The expected decision point date is in October 2006. ### Kyrgyz Republic - Recent Political Developments: New government since March 2005; consideration of move toward a parliamentary system possibly put to referendum in late 2006; large demonstration in April 2006 demanding delivery on election promises including tackling corruption; presidential Cabinet reshuffle. - PRSP Status: Full PRSP completed and endorsed in February 2003. April 2006: second annual progress report and JSAN sent to the Boards. Authorities plan to issue an NPRS-II in fall 2006 (renamed the Country Development Strategy, CDS), extending the poverty reduction strategy to 2010. - IMF Program and Macroeconomic Status: - Staff expects successful completion of current PRGF-supported program, which expires in 2008. - Board completed second review under the arrangement in May this year on a lapse-of-time basis; third review tentatively scheduled for Board consideration later this year. - Authorities are likely to request a successor arrangement. - 2005: 0.6 percent output contraction due to transitory factors and uncertain business climate after March political events. - 2006: economic activity rebounded during first half; a 5 percent growth rate in GDP is expected for the current year. - Inflation expected to reach 5.7 percent by year's end. - Fiscal: progress through improved tax collection, but quasi-fiscal deficit of the electricity sector remains a significant burden. - External current account deficit has widened over past 18 months, despite a surge in workers' remittances. - Decision Point: The Kyrgyz Republic is expected to reach the decision point by end-2006. ### Liberia - Recent Political Developments: Post-conflict transition government conducted elections regarded as free and fair. New President inaugurated on January 16, 2006; endorsed donor-supported GEMAP, leading to significant improvement in fiscal revenue performance. Government elaborated a "one hundred and fifty day Action Plan" for priority actions. - PRSP Status: Ministry of Planning and Economic Affairs coordinating preparation of an I-PRSP, currently named the National Agenda for Reconstruction and Development (NARD). Draft expected by end-June for a mid-July donors' conference. A full PRSP by late 2007 is possible if early effort is maintained and funding is found. - IMF Program and Macroeconomic Status: - A 6-month SMP was approved by the IMF Board on April 26, 2006. - A follow-up program after the current SMP could be another SMP or a Rights Accumulation Program (RAP). - A RAP arrangement is conditioned on (i) sufficient financing assurance from donors to clear arrears and to provide debt relief, and (ii) satisfactory performance under the current SMP. - Economy expected to continue to recover during 2006, supported by donor activities and improvements of security in rural areas. - Real GDP growth is projected at about 8 percent. - Inflation expected to remain in the single digits. - Current account expected to widen mostly due to increases in donor-funded imports. - Fiscal management improved via strengthening tax and customs administration and implementation of the new commitment control system. - Decision Point: The earliest possible date of reaching the decision point is mid-2007. The issue of protracted arrears to the IMF is a precondition for reaching the decision point. ### Nepal - Recent Political Developments: Political situation fluid; restoration of democracy in May 2006; peace talks with Maoist insurgents began in May 2006 and a ceasefire is in place. A UN team arrived in late July to assist monitoring. - PRSP Status: Full PRSP completed and endorsed in November 2003. JSAN of the second PRSP Progress report provided to the Boards in December 2005. - IMF Program and Macroeconomic Status: - PRGF-supported arrangement approved in November 2003; first review completed in October 2004. The second and third reviews have not yet been completed. - PRGF-supported arrangement scheduled to expire on November 18, 2006. Alternatively, Nepal could move to a staff monitored program. - Macroeconomic deterioration in 2005/06 amidst political turmoil. - Inflation: 9 percent as of mid-June, mainly due to increases in food and international oil prices. - GDP growth for 2005/06 is projected to decline to 2 percent as security disruptions affected manufacturing, tourism, and transportation. - Revenue expected to fall short of the budget target due to weak activity. - Current account remained in surplus. - International reserves stood at 6 months of imports of goods and services in mid-May, buoyed by continued strength in remittances. - HIPC Decision Point: Expected Decision Point is uncertain. If the reform program gains momentum, participation is possible, but the Nepalese authorities have not yet made any decision regarding their participation in the Initiative. ### Somalia - Recent Political Developments: Political situation remains fragile. Union of Islamic Courts (UIC) gained effective control over much of south and central Somalia including Mogadishu, leaving the Transitional Federal Government (TFG) isolated in Baidoa. TFG weakened by mass cabinet resignations; prime minister barely survived a vote of no-confidence in late July. Relations with Ethiopia complicate prospects for peace. Puntland and Somaliland in the north remain relatively stable. - PRSP Status: No PRSP process in place. Given lack of a fully functional national authority and continued domestic conflict, Somalia is not expected to proceed with PRSP preparation in the near term. - IMF Program and Macroeconomic Status: - No IMF-supported arrangement since 1987; prospects for an arrangement in the foreseeable future are minimal. - To re-establish formal relations with the IMF, Somalia needs to deal with its overdue obligations to the IMF and demonstrate sufficient capacity and improvement in data reporting to qualify for a formal IMF-supported program. - Decision Point: Undetermined. ### Sudan - Recent Political Developments: Comprehensive Peace Agreement signed in January 2005 establishing GNU and Government of Southern Sudan. Further work needed to operationalize government commissions. Situation in Darfur remains critical; Darfur Peace Agreement signed on May 5, 2006 between the GNU and one Darfur rebel group. UN negotiating with government on a peacekeeping force in Darfur. - PRSP Status: An I-PRSP is being prepared and is currently scheduled for completion in October/November 2006. Prospects for a full PRSP will be discussed upon completion of the I-PRSP. - IMF Program and Macroeconomic Status: - Review of the 2005 SMP completed in May 2006; performance assessed as satisfactory. - Macroeconomic stability and rapid growth expected to prevail in the near term. - To realize full economic potential, authorities need to minimize non-concessional borrowing, ensure effective operations of North-South commissions, and resolve the crisis in Darfur. - Decision Point: Timing of HIPC decision point is uncertain, given need for arrears clearance and establishment of a track record under a RAP or a PRGF-supported program. ### Togo - Recent Political Developments: New government took office in late June 2005. National political dialogue between government and opposition resumed on April 24, 2006. Successful dialogue could lead to a government of national unity, free and fair legislative elections, and resumption of donor support. - PRSP Status: An I-PRSP approved by the Council of Ministers in November 2004 but not submitted to the Boards of the IDA and IMF. Togo will update and file its I-PRSP when the DSA and an arrears clearance plan are in place. PRSP expected to be completed at the beginning of 2008. - IMF Program and Macroeconomic Status: - 1994 ESAF-supported arrangement went off track in 1998; no IMF arrangement since then. - Authorities eager to enter into a new SMP; initial discussions took place in June 2006 and are expected to continue. - Satisfactory performance under an SMP and an arrears clearance plan could pave the way for a possible new PRGF. - Macroeconomic outlook: growth projected to reach about 3 percent in 2006, driven by rebound of cotton production and continued strong growth in transportation and clinker sectors. - Inflation projected to return to the authorities’ target of 3 percent in 2006 after a spike in 2005. - External current account deficit projected to increase to 17.7 percent of GDP in 2006, largely due to higher imports of petroleum products and lower production and exports of cotton. - Decision Point: Togo may reach the decision point in late 2007 at the earliest. *Source: IMF staff report content excerpt.* ### Annex III: Enhanced HIPC Initiative: Implementation Status of HIPCs ### Annex III: Enhanced HIPC Initiative: Implementation Status of HIPCs (As of end-July 2006) ### Burundi - PRSP Status: - I-PRSP completed in November 2003 and discussed by the Boards of IDA and IMF in January 2004. - JSAN and PSR prepared in July 2005. - PRSP delayed because of difficulties in consultations in some provinces with poor security; a draft of a complete PRSP expected in mid-2006. - Social indicators weakened over the past decade; some slight progress since return to peace, but remain among the weakest in sub-Saharan Africa. - IMF Program and Macroeconomic Status: - Satisfactory track record under EPCA (2002-03) and the PRGF (2004-2007). - PRGF-supported arrangement for 2004-07 remains on track; privatization and coffee sector reforms lagged in mid-2005 during the political transition. - Third and fourth PRGF reviews approved by the IMF Board on July 14, 2006. - Macroeconomic developments in 2005 were in line with the program, although growth was lower than expected (by about 1 percent). - In 2006, GDP growth is projected to recover to 6 percent with continued vigor in the service sectors and coffee output. - Inflation is expected to decelerate further to around 3 percent. - HIPC Completion Point: - Burundi could reach completion point by mid-2007. - Status of Completion Point Triggers: - Budgetary allocations for priority spending targeting pro-poor activities and projects have increased markedly. - Elimination of primary school fees in September 2005 increased first grade enrollment; primary school enrollment rate rose from an estimated eighty percent in 2003/04 to close one hundred percent in 2005/06. - Little progress achieved so far on debt management. ### Chad - PRSP Status: - PRSP completed in June 2003 and discussed at the Boards of IDA and IMF in November 2003. - First annual PRSP progress report circulated to the Boards in June 2005; second annual Progress Report prepared in December 2005. - Update of the PRSP to be conducted in the second half of 2006, with a view to be completed in 2007. - IMF Program and Macroeconomic Status: - PRGF-supported arrangement approved in January 2000 and extended to January 2004; successor PRGF-approved by the Board in February 2005. - First review delayed by more than six months due in part to break in relations with IDA associated with the Chad-Cameroon pipeline revenue management arrangements, as well as poor overall performance under the program. - Comprehensive agreement reached with IDA on a new framework for Chad-Cameroon pipeline revenue management; a supplementary budget for 2006 has been agreed with the IMF. - These developments pave the way for restoration of macroeconomic stability. - HIPC Completion Point: - Chad could reach the completion point by end-2007. - Status of Completion Point Triggers: - Triggers on basic infrastructure, water access, and education enrollment were met. - Health-related triggers have largely been met; significant progress on HIV/AIDS and sexually transmitted diseases trigger. - Some progress made in education on reducing the repetition rate; data for 2004 and 2005 will need review as it becomes available. - Governance progress: PETS undertaken; procurement code adopted in 2003; Governance Strategy and Action Plan adopted in 2002, with implementation now underway. - Work remains to complete the rural development triggers. ### Democratic Republic of the Congo - PRSP Status: - JSA of the I-PRSP sent to the IDA Board on June 24, 2004. - Full PRSP completed, adopted officially, and transmitted formally to development partners on July, 17 2006. - Fund and World Bank staffs preparing a joint staff advisory note. - IMF Program and Macroeconomic Status: - PRGF-supported agreement approved by the Board on June 12, 2002, expired on March, 31 2006 prior to completion of the last review due to fiscal slippages and delays in implementing structural reforms. - IMF staff agreed with the authorities on a staff monitored program (SMP) for April-December 2006 to maintain macroeconomic stability through the elections and reestablish a track record of policy implementation. - Strong performance under the SMP would pave the way for a successor PRGF arrangement. - Growth is expected to continue at around 6-8 percent. - Very low levels of official reserves and high dollarization limit authorities' tools to buffer economic shocks. - HIPC Completion Point: - Expected to reach the completion point in the second half of 2007. - Status of Completion Point Triggers: - Budget execution system operational; quarterly budget execution reports produced, albeit with some delay. - Additional efforts needed to ensure timely and comprehensive transmission of information; government has recently started to publish its treasury operation plans on its website. - No budget-tracking exercise on health, education, rural development and infrastructure expenditure has yet been carried out. - A simplified double-entry accounting system is being introduced. - New procurement code under preparation. - Some progress towards adoption of satisfactory sectoral development strategies: Sector Country Status reports for Education (2004) and Health (2005) completed; agricultural sector review completed in May 2006. - New public debt management software (DMFAS) acquired with UNCTAD support; full system expected to be operational by December 2006. ### Republic of Congo - PRSP Status: - PRSP not yet finalized; expected by end-December 2006. - JSAN for the I-PRSP approved by the IDA Board in December 2004. - IMF Program and Macroeconomic Status: - Three-year PRGF-supported program approved in December 2004. - First and second reviews completed in August 2005 and late June 2006, respectively. - Program expected to remain on track, notwithstanding some potential risks. - International environment in 2006 with strong increase in oil prices expected to remain favorable for growth (projected at 4.8 percent) and the fiscal position (primary budget surplus expected at 12.6 percent of GDP). - Structural and governance reforms to cover oil, electricity and banking sectors, and corruption issues. - HIPC Completion Point: - Expected completion point date is end-2009 at the earliest. - Status of Completion Point Triggers: - Joint IMF-World Bank mission visited Brazzaville in mid-June to discuss an action plan to implement triggers and key Terms of Reference. - Poverty survey completed; sector strategies under preparation; plan to strengthen participatory process available to be implemented. - IMF Technical Assistance mission planned for August 2006 to help establish a functional classification system for government expenditures. - Combined CFAA and CPAR underway to provide an action plan to reform procurement and the financial management system. ### The Gambia - PRSP Status: - Full PRSP completed in April 2002 and presented to World Bank and IMF Boards in July 2002. - Authorities preparing the second PRSP. - First Annual Progress Report JSAN prepared in April 2005; second Annual Progress Report JSAN submitted to the Boards in June 2006. - IMF Program and Macroeconomic Status: - PRGF-supported arrangement approved in July 2002 went off-track due to fiscal and monetary policy slippages, misreporting and governance issues. - Six-month SMP spanning October 2005–March 2006 completed; first preliminary assessment finalized in March 2006. - Macroeconomic performance strengthened in the last 18 months, although uncertainties about the 2006 budget cloud the short-term outlook. - Possibility of a new PRGF-supported program by the end of 2006. - After a failed coup plot in March 2006, political tensions have been on the rise. - Presidential and parliamentary elections scheduled for September 2006 and early-2007, respectively. - HIPC Completion Point: - Completion point could be reached at the earliest in mid-2007. - Status of Completion Point Triggers: - Governance triggers need clarification or have not been met. - Social sector reform triggers were met, but some need confirmation. - Structural reform triggers are in progress and have partially been met. ### Guinea - PRSP Status: - First PRSP presented to the Boards in July 2002. - Authorities working on a new PRSP which could be ready by end-2006. - First JSAN discussed by the Boards in August 2004; a JSAN on the second annual progress report will be sent to management of IDA and the IMF shortly. - IMF Program and Macroeconomic Status: - PRGF-supported arrangement approved in May 2001 went off track in December 2002. - Implementation of an SMP covering April 2005-March 2006 was broadly satisfactory. - Discussions on a new PRGF-supported arrangement are taking place, but no formal program yet in place. - Political situation remains fragile; reformist Prime Minister Diallo dismissed in April 2006; new government confirmed commitment to a program with the IMF. - HIPC Completion Point: - Completion point expected by mid-2007. - Status of Completion Point Triggers: - New microfinance law adopted in 2005, establishing revised and adequate framework for micro-credit institutions. - Progress in structural reform under the SMP mainly in exchange market, tax and customs administration, electricity and water sectors, and privatization. - Since decision point, institutional set-up for governance and anti-corruption revised by creating National Agency for the Fight against Corruption (ANLC); country about to transform ANLC into an Agency for Good Governance with a wider mandate. - Education sector triggers generally surpassed, especially improved gross enrollment ratios, including for girls; sustainable progress depends on improved financing. - On health, immunization objectives met early in the decade but success not maintained due to weak macroeconomic policies and budget execution; similar outcome for consultations for pregnant women. - Inadequate mobilization of public resources has undermined progress. ### Guinea Bissau - PRSP Status: - Preparation of full PRSP delayed due to political instability and capacity constraints. - In March 2006, a draft PRSP discussed informally with IDA and IMF staffs and donor representatives. - Final PRSP expected by end-August 2006; JSAN expected to be finalized by end-2006. - IMF Program and Macroeconomic Status: - PRGF–supported program went off-track after inception at the end of 2000 reflecting fiscal policy slippages; successive SMPs engaged thereafter. - Latest SMP approved in July 2006 covers April-December 2006; first review of progress under the SMP planned for September 2006. - SMP could be followed by an EPCA-supported program by end-2006 (covering 2007-08) and eventually by a PRGF-supported arrangement (covering 2009-11). - Fiscal situation remains difficult; support needed to solve internal and external imbalances. - HIPC Completion Point: - Completion point could be reached in 2009. - Status of Completion Point Triggers: - Progress being made in public finance management: since 2003 a Treasury Committee established to control revenue collection and ensure expenditure commitments consistent with financial resources; Parliament still lacks capacity to control the budget process effectively. - Primary school fees eliminated since 2002, allowing increase in gross enrollment rate above the 61 percent target. - In health, the 40 percent target for proportion of children fully vaccinated per year was exceeded largely thanks to donor assistance. - Demobilization program completed in March 2006 reintegrated more than 7,000 ex-combatants into their communities through small scale businesses. ### Malawi - PRSP Status: - Full PRSP completed and presented to the Boards in August 2002. - Second APR and JSAN (covering July 2003-June 2004) submitted to the Boards in June 2005. - Third APR (covering July 2004-Dec. 2005) submitted in May 2006; accompanying JSAN prepared and planned to be presented in conjunction with the HIPC Completion Point document at end of August 2006. - New PRSP (Malawi Growth and Development Strategy) submitted to Cabinet on May 30, 2006; Cabinet adopted strategy in principle subject to finalization of a human-resource and capital-needs assessment; formal Cabinet approval expected by end-August 2006. - IMF Program and Macroeconomic Status: - PRGF-supported arrangement approved in December 2000 expired in 2004 after completing one review in 2003. - Satisfactory implementation under SMP covering July 2004-June 2005 allowed move to new PRGF approved in August 2005 (to expire in August 2008). - First review completed in February 2006; second review undertaken in February and May 2006 and scheduled to be discussed by the IMF Board at end-August 2006. - Performance under the program satisfactory, with government adhering to key objective of reducing domestic debt and moving toward a more flexible exchange rate system. - HIPC Completion Point: - Malawi expected to reach HIPC completion point at end-August 2006, when the second review under the new PRGF-supported arrangement is completed. - Progress toward completion point being closely followed at the highest political level; President publicly indicated government will do everything possible to fulfill requirements. - Status of Completion Point Triggers: - Malawi has satisfied all HIPC completion point triggers except two, for which waivers will be needed: - Share of health expenditure of at least 13 percent of discretionary recurrent budget. - Yearly enrolment of 6,000 students for teacher training and institution of in-service training for primary teachers. - Despite unmet triggers, effectiveness of health expenditures has increased and additional capacity to train teachers is being created. ### São Tomé and Príncipe - PRSP Status: - Full PRSP adopted in December 2002; JSAN discussed by Boards of IDA and IMF in April and August of 2005, respectively. - Newly-elected government updated and resubmitted a first annual progress report to IDA and the IMF in July 2006. - JSAN on the revised first APR under preparation and to be circulated for information to the Executive Boards in the coming months. - IMF Program and Macroeconomic Status: - PRGF-supported arrangement approved in July 2002 went off track due to fiscal and monetary policy slippages and misreporting and governance issues. - New PRGF-supported program approved in August 2005; first review completed in March 2006 showing broadly satisfactory performance; second program review completed in July 2006. - Expenditures during early 2006 higher than expected due to legislative elections and increases in water and electricity costs; government plans to control them while increasing tax revenues. - HIPC Completion Point: - Completion point expected in December 2006. - Status of Completion Point Triggers: - Progress achieved and government very committed to reaching the HIPC completion point. - Substantial progress in strengthening public financial management and use of HIPC Initiative assistance. - Implementation of social sector triggers satisfactory. - Only pending trigger is establishment of the tribunal for arbitration in business and contract matters, expected to be met in the third quarter of 2006. ### Sierra Leone - PRSP Status: - Final version of a full PRSP circulated to IDA, the IMF, and donors in spring 2005. - Latest JSAN approved by the Board in April 2005. - IMF Program and Macroeconomic Status: - Satisfactory progress under PRGF-supported arrangement approved in September 2001, which expired in June 2005 and was fully disbursed. - Fourth Economic Rehabilitation and Recovery operation approved by the IDA Board in June 2005 to support updated agenda for post-conflict reconstruction and poverty reduction. - New PRGF-supported arrangement approved by the IMF Board in May 2006. - First program review expected in the fourth quarter of 2006; a good outcome for macroeconomic performance under the PRGF-supported program is expected in the near term. - HIPC Completion Point: - Completion point expected by end-2006. - Status of Completion Point Triggers: - As of end 2005, triggers on education and health were largely or fully met. - Triggers on use of budgetary savings and governance were substantively or partially met. - A full report on the status of triggers expected by November 2006. *Annex III: Enhanced HIPC Initiative: Implementation Status of HIPCs (As of end-July 2006).* ### Annex IV: Enhanced HIPC Initiative: Status of Post-Completion-Point HIPCs ### Annex IV: Enhanced HIPC Initiative: Status of Post-Completion-Point HIPCs (As of end-July 2006) ### Benin - PRSP Status: - Benin adopted its Poverty Reduction Strategy in December 2002. - PRSP Progress Reports prepared in December 2004 and September 2005. - Third progress report is under preparation and is expected in shortly. - Government has launched work and set up thematic groups charged with developing PRSP II. - Some progress achieved in sustaining economic growth in a stable macroeconomic framework and improving some social indicators (in particular with regard to non-monetary poverty indicators, including maternal and child health and an increase in socio-community investments). - Progress in reducing poverty has been slow as stated in the PRSP progress reports. - According to the latest data available, the incidence of monetary poverty remained almost constant at 29 percent between 2000 and 2003. - IMF Program and Macroeconomic Status: - A PRGF-supported program was approved in August 2005. - The first review of the program began in December 2005, but has not yet been completed. - Growth forecasts remain largely unchanged after the elections. - Economic activity continued to slow down in 2005 owing to a sharp drop in cotton production. - In 2006, GDP growth is expected to rebound by more than one and half percentage point. - Fiscal policy has been conservative under the new government and unpaid obligations from the previous administration have been audited and plans made to settle them. - Public Financial Management: - Reforms initiated in 1998 are continuing: budget coverage is more comprehensive, treasury general ledgers have been produced regularly, the integrated financial information system is improving, and program budgeting is gradually taking hold in some line ministries. - The 2004 HIPC AAP showed no deterioration in PFM relative to 2002, with 8 out of 16 benchmarks met. - New government is tightening expenditure control by restricting the use of exceptional expenditure procedures and has undertaken the audit of all spending ministries and the treasury. - Remaining weaknesses: unrealistic budget forecasts, extra-budgetary expenditure, inadequate budget classification, insufficient appropriation of program budgeting by line ministries, lack of basic functionalities for the software used by the treasury and proper interface with the budget execution software, inadequate accounting resources, untimely reconciliation of government accounts, inaccurate accounts and treasury ledgers, etc. - Progress in eliminating these deficiencies is essential to improving Benin’s PFM. ### Bolivia - PRSP Status: - The 2001 PRSP sets out poverty reduction policies and targets for the period through 2015, based on the National Dialogue of 2000. - There have been no formal updates of the PRS; implementation has been difficult in recent years largely due to an uncertain political situation. - The new government has prepared a national development plan, which includes policies to reduce poverty and income inequality. - It is likely that many of the MDGs will be met, or very close to being met, by 2015. - If current trends continue, the goals of universal primary education and gender equality in primary education are likely to be met. - Goals on reducing child mortality; improving maternal health; combating HIV/AIDS, malaria and other diseases; and increasing access to safe drinking water could also be reached. - The objectives of reducing poverty to 34 percent and extreme poverty by half by 2015 are, most probably, not going to be met. - IMF Program and Macroeconomic Status: - Bolivia is in surveillance mode at present. - The sixth review of the latest PRGF-supported arrangement was completed in October 2005, and the last Stand-By Arrangement was concluded in March 2006. - New administration inherited a favorable macroeconomic situation boosted by favorable external conditions, gas exports and a new hydrocarbon law. - Growth has concentrated in the hydrocarbon sector, and private investment remains low mainly due to deterioration of the investment climate because of political uncertainty and government policies. - The economy is expected to continue to benefit from the favorable external environment. - Medium-term prospects will be affected by structural policy decisions—notably in the hydrocarbons and land reform areas—whose implementation will depend on possibly difficult and protracted negotiations among the parties involved. - Public Financial Management: - Bolivia met four of the 16 expenditure management benchmarks in the 2004 HIPC Assessment and Action Plan (AAP). - Continuing challenges in budget classification, formulation, internal controls and external audit; still lacks a mechanism to track local government spending. - Since 2004, government implementing initiatives following recommendations of the June 2004 Country Financial Accountability Assessment and August 2004 HIPC Assessment and Action Plan. - Strengthening the financial management information system (SIGMA), including integration of a functional classification; improved FMIS to be gradually expanded to sub-national governments. - A system to track public employment expenses better has been put in place. - A draft law in Congress would establish, inter alia, a framework to improve budget formulation, including a medium-term budget framework; and minimum reporting requirements—including economic and functional classifications based on international standards to improve capacity to track poverty-reducing spending. - New government supports transparency in public financial management, but have not yet proposed actions in this area. ### Burkina Faso - PRSP Status: - The second PRSP and the fourth APR on the implementation of the first PRSP were issued in 2005. - A fifth and sixth PRSP progress reports are awaiting transmission to the Boards and a JSAN is currently being prepared. - IDA staff estimates that the poverty headcount fell by 8 percentage points between 1998 and 2003. - School enrollment and literacy programs have exceeded PRS targets since the completion point, and dropout rates have declined. - Progress achieved in raising immunization coverage rates, lowering infant and child mortality rates, and reducing the transmission of HIV/AIDS. - In health and education, more needs to be done in ensuring that financial resources are used efficiently towards reaching MDG targets. - IMF Program and Macroeconomic Status: - The PRGF-supported arrangement is underway and the sixth and final review is expected to be completed by September 2006. - IMF Board completed the fifth review of the PRGF arrangement on March 13, 2006. - Real GDP grew by 7.1 percent in 2005, driven mainly by a record cereal and cotton production. - Inflation was 6.4 percent in 2005, up from -0.4 percent in 2004. - Excluding food items and transportation, price level remained flat in 2005. - Burkina Faso was hit hard in 2005 by a massive deterioration in its terms of trade. - Monetary policy is implemented by a supranational Central Bank and is consistent with the peg to the Euro. - Public Financial Management: - Burkina Faso’s PFM system performance has improved since the completion point. - Burkina Faso met nine of the 16 PFM benchmarks in the 2004 HIPC assessment, up from eight in 2001. - Budget coverage is generally complete and extra-budgetary expenditures are negligible. - The budget is a reliable implementation guide. - Ability to track spending has improved with adoption of a new budget nomenclature and implementation of annual surveys on service delivery. - The medium-term expenditure framework and annual budget laws are aligned with PRS priorities. - Internal budget reports and the entry of transactions into the accounts are timely. - Internal control is enforced – though limited by weak capacity and procedures – and the external audit of budget execution is submitted to the National Assembly. - A reform program is addressing remaining procurement system shortcomings, including institutional framework and capacity. - Government is working on identifying priority social spending in the budget and will report spending on priority social sectors separately (this includes the spending financed by MDRI relief and remaining HIPC Initiative funds). ### Cameroon - PRSP Status: - PRSP was discussed by the IDA and IMF Boards in July 2003. - First PRSP APR completed in April 2004; JSAN submitted to the two Boards in May 2005. - JSAN of the second APR (covering January 2004-March 2005) issued in March 2006; third APR (covering 2005) discussed by the Boards in April 2006. - Before preparing the new PRSP, government intends to: (i) finalize sector strategies including urban, telecoms, electricity and water; and (ii) launch a household survey. - New PRSP could be prepared in the course of the second semester of 2007. - Most recent household survey dated 2001 indicates poverty rate fell from 53 percent in 1996 to 40 percent in 2001. - Over the 2002-05 period, achievements in reducing poverty expected to be lower, due to a slowing down of growth in 2004-05. - IMF Program and Macroeconomic Status: - PRGF-supported arrangement approved in October 2000 went off-track in 2004 due primarily to slippages in fiscal policy implementation. - Fiscal situation improved markedly in 2005 under the new PRGF-supported arrangement approved in October 2005. - First review concluded in April 2006; second review scheduled for early September 2006. - Macroeconomic objectives of the program: (i) achieving annual real GDP growth of about four percent on average during 2006-08; (ii) keeping inflation below 3 percent, consistent with the regional convergence criterion; and (iii) keeping the external current account deficit below 3 percent of GDP, while allowing for increased investment related imports. - Increase in non-oil real GDP growth expected in part from easing of electricity constraint on manufacturing, a recovery in the forestry sector, and increased public investment. - Public Financial Management: - PFM system still faces many challenges, but reforms undertaken over the years have resulted in improvements. - In HIPC AAP reviews, Cameroon progressed from achieving benchmark ratings in four out of 15 areas in 2001 to seven out of 16 areas in 2004. - Budget allocation to priority sectors of the PRSP have progressively increased since 2000. - An integrated public finance information system is in place and functioning, improving monitoring of flow of resources and timeliness of fiscal reporting. - A supreme audit body (la chambre des comptes) has become operational. - Foundations for introduction of a Medium-Term Expenditure Framework (MTEF) are in place, with development of sector strategies and expenditure plans consistent with the strategy. - Government has defined criteria to guide resource tradeoffs in budget allocations and is revising budget preparation calendar to make the MTEF the cornerstone of budget preparation. ### Ethiopia - PRSP Status: - Ethiopia completed its PRS, the Sustainable Development and Poverty Reduction Program (SDPRP), in July 2002. - Followed by two annual progress reports in December 2003 and July 2005. - A new PRS (Plan for Accelerated and Sustained Development to End Poverty, PASDEP) has been formulated and recently presented to Parliament. - Recent Poverty Assessment suggests a decline in rural and a slight increase in urban income poverty over the period 1995-1999. - Although new survey results should become available shortly, available quantitative and qualitative evidence suggest the impact of recent economic growth on poverty is likely to have been muted by the long-lasting effects of the repeated droughts. - Ethiopia has continued to make progress in most of the areas initially targeted in completion point triggers, and implementation of the PRS has been broadly satisfactory. - Ethiopia has continued to make progress towards achieving the MDGs (particularly regarding education-related goals). - IMF Program and Macroeconomic Status: - Ethiopia is not engaged in an IMF-supported program, and announced it does not intend to be in the foreseeable future. - The last PRGF-supported program expired in October 2004, after the final review was completed in September 2004. - Real GDP grew by 8.8 percent in 2004/05 on the back of a strong performance in agriculture. - Indications of another good harvest suggest growth may exceed the staff projection of 5 percent in 2005/06. - Public Financial Management: - Ethiopia’s PFM systems have steadily improved since the HIPC completion point, although there have been setbacks. - The 2004 Assessment and Action Plan concluded Ethiopia met seven out of the 16 expenditure management benchmarks. - Authorities are working to strengthen cash management, roll out budget and accounting reforms to additional sub-national governments, and pass new procurement legislation. - Government proceeding with an initiative to implement performance-based budgeting that will strengthen the medium-term expenditure framework. - Reforms are underway to improve internal control and audit. - Backlog of federal accounts to be audited has been reduced to one year compared to 3-4 years a few years ago. - Government needs to ensure timely and regular consolidation of extra budgetary funds in fiscal reporting and reconciliation of the fiscal and monetary accounts, both of which were triggers for the completion point. - There is no formal dissemination of debt data to the public and information on the debt situation is not published in the annual budget proclamation. ### Ghana - PRSP Status: - The Ghana Growth and Poverty Reduction Strategy (GPRS II) was completed in October 2005 and presented to the Boards in June 2006, covering the period 2006-09. - New strategy updates the first GPRS, aiming the focus on (i) accelerating private sector-led growth; (ii) promoting vigorous human resource development; and (iii) encouraging good governance and civic responsibility. - Next update of the GPRS is expected in 2008-09. - Poverty headcount has declined by 7 percentage points between 1997 and 2003, reaching 35 percent in 2003. - Current real GDP growth projections suggest Ghana could reach the MDG of halving the 1990 poverty rate before 2015. - Total poverty-related spending has risen during the past few years, reaching 8.5 percent of GDP by end-2005. - Further progress in poverty reduction will gain from sharpening focus of poverty interventions and greater coordination across sectors, such as strengthening links between interventions in health and nutrition to reduce infant and under five mortality rates. - IMF Program and Macroeconomic Status: - A three-year PRGF-supported arrangement in support of Ghana’s GPRS was approved in May 2003 and is set to expire in October 2006. - The fourth and fifth reviews under the PRGF were completed on June 12, 2006. - Recent macroeconomic performance has been strong, supported by continued strengthening of macroeconomic policy implementation and a favorable external environment. - Estimated 5.9 percent real GDP growth in 2005. - Inflation stood at 15 percent at end-2005, and declined gradually to 9.5 percent in April 2006. - External position has strengthened considerably; medium term macroeconomic outlook is favorable, with sustained growth and declining inflation. - Public Financial Management: - Ghana meets eight of the 16 HIPC public financial management benchmarks, up from seven in the 2004 HIPC AAP assessment, and one benchmark in 2001. - Areas of specific progress include: (i) broadening the coverage of the budget; (ii) preparing timely external audit reports of the consolidated fund account; and (iii) reducing arrears to public sector service providers. - Budget coverage broadened to include more information on internally generated funds and donor grants. - External audit reports expedited and now submitted within twelve months of the closing of the accounts. - Stock of arrears declined by 60 percent between end-2004 and June 2005. - Progress in implementing the new public procurement law, with increased coverage provided by entity tender committees and tender review boards. - Under new internal audit agency law, increase in number of ministries, departments and agencies submitting internal audit reports. - Recent strengthening of payroll management and control; introduction of a new computerized personnel and payroll database is scheduled to be completed later this year. ### Guyana - PRSP Status: - Guyana's 2001 PRSP was discussed by the Boards of IDA and the IMF in September 2002. - Two PRSP Progress Reports were prepared in 2004 and 2005. - Of a total of 25 poverty reduction targets identified in 2001, Guyana successfully met or exceeded 14. - Shortfalls in targets relating to access to treated water and adequate sanitation, distribution of house lots and land titles, percentage of trained teachers in secondary schools, and HIV/AIDS. - 2005 PRSP Progress Report indicates significant risk that Guyana may not attain all the Millennium Development Goals by 2015. - IMF Program and Macroeconomic Status: - Current PRGF arrangement was approved by the IMF Board in September 2002. - Arrangement was extended twice and will expire in September 2006. - Fifth review completed in January 2006; completion of the sixth and last review expected in September 2006. - Real GDP declined by 3 percent in 2005 as a result of the closure of a major gold mine and record flooding, but is projected to recover by 3.5 percent in 2006. - Notwithstanding higher oil prices, inflation is projected to remain low. - Current account deficit is increasing dramatically, reflecting high capital imports for a large public sector investment program and higher fuel prices, but is expected to be broadly covered by foreign direct investment and official disbursements. - Public Financial Management: - PFM system has improved since the completion point in December 2003. - Guyana met 10 of the 16 expenditure management benchmarks in the May 2004 HIPC assessment. - Improvements include timely presentation of budgets of 10 statutory bodies with the national budget (February 2005) and extension of the computerized Integrated Financial Management System (IFMAS) to all central government agencies. - Limitations remain: inability to track end-use of actual spending; weaknesses in managing cash; and lack of enforcement of legislation. - Legal framework for the budget, external audit, and public procurement was strengthened during 2003–05; legal provisions to enforce the new laws are still lacking due to delays in parliamentary proceedings. ### Honduras - PRSP Status: - Honduras PRSP was completed in August 2001 and discussed by the Boards shortly thereafter. - Two PRSP Progress Reports completed in December 2003 and January 2005. - A third Progress Report is scheduled to be completed by mid-2006. - A new PRSP is not planned at this time. - Since 2003, public spending on poverty-reduction programs has been maintained at the planned levels, but impact on poverty indicators has been modest so far. - Newly elected government took office in February 2006 and is developing its policy agenda. - New government does not count on a Congressional majority, which may make it more difficult to implement all reforms contemplated in the PRSP. - IMF Program and Macroeconomic Status: - A three-year PRGF arrangement was approved in February 2004, and the third program review was completed in December 2005. - Discussions are ongoing for the fourth review. - Economic prospects are good, boosted by the recent approval of CAFTA and external debt reduction under the MDRI. - Growth remains strong, and annual inflation has fallen to below 6 percent. - Fiscal pressures are mounting, and the financial sector, although recovering, remains fragile. - Key fiscal challenges include: keeping teacher salaries under control (previous agreement to contain wage growth expiring at the end of 2006); returning to a flexible domestic fuel pricing mechanism and limiting fuel subsidies; adopting measures to compensate for fiscal impact of telecom reform and implementation of CAFTA; and containing losses of the public electricity utility. - Public Financial Management: - Honduras met seven of the 16 HIPC PFM benchmarks in *Annex IV: Enhanced HIPC Initiative: Status of Post-Completion-Point HIPCs (As of end-July 2006).* ### 2004. There has been notable progress made in the public financial management system since ### _082106 - 2004. There has been notable progress made in the public financial management system since ### Madagascar — PRSP Status - PRSP completed in July 2003; JSAN presented to the Boards in November 2003. - First APR (July 2003–June 2004) completed in July 2004 and went to the Board in October 2004. - Second APR (January–December 2005) published in June 2006; associated JSAN issued in July 2006. - Overall incidence of poverty declined from crisis highs of around 80 percent in 2002 to 68.7 percent in 2005, slightly lower than the level in 2001 (69.7 percent). - Rural poverty in 2005: 73.5 percent (2001: 77.2 percent). - Urban poverty in 2005: 52 percent (2001: 44 percent). ### Madagascar — IMF Program and Macroeconomic Status - IMF Executive Board approved a new three-year PRGF-supported arrangement and activation of the Trade Integration Mechanism on July 21, 2006. - First review expected in September 2006. - Last PRGF arrangement expired in March 2005. - 2006 real GDP growth projected at 4.7 percent. - Inflation projected at 11 percent for 2006. - Real GDP growth projected around 5.6 percent, with inflation declining to 5 percent during 2007-11. ### Madagascar — Public Financial Management - Guided by 2004 and follow-up 2005 Priority Action Plans (PAP). - Priority objectives: strengthen budget preparation, align budget with PRSP priorities, improve capacity for controlling expenditure commitments and payments. - An integrated financial management system operational in the central treasury and five regional treasuries; being expanded to 13 ministries. - Auditor-General has made strong efforts to clear backlog of audited accounts. - Key recommendations of the independent audit of the Treasury are being implemented. - Implementation regulations for the new procurement code have been issued. - Slower progress in other areas: recurrent expenditures continue to be under-budgeted and domestic arrears remain. - Internal control mechanisms and institutions are weak. - Public finance system challenged by introduction of program budgeting in 2005. - Madagascar met four of the 16 HIPC PFM benchmarks in 2004. - A draft assessment using the new PEFA indicators shows some progress over the last year. --- ### Mali — PRSP Status - PRS adopted in May 2002. - Second APR adopted in August 2005. - Government working on PRSP for 2007-2011, hoped to be approved by the National Assembly by end-2006. - Data partial, but poverty, health and social indicators generally show signs of continued modest improvement. - Latest data (from 2001) indicate poverty fell significantly between 1989 and 2001, and income inequality decreased. - Strong growth since 2001 suggests poverty and inequality have likely continued to decline. - Health and education indicators tracked under the PRS improved between 2002 and 2004. - Structural reform implementation has progressed, albeit slowly. ### Mali — IMF Program and Macroeconomic Status - Under a three-year PRGF-supported arrangement approved on June 23, 2004. - Second and third reviews concluded on December 19, 2005. - Preliminary estimates: real GDP growth was 6.1 percent in 2005 due to stronger gold and agricultural production. - Medium term outlook assumes average GDP growth of 5.7 percent through 2010. - Stable inflation at 2.5 percent per year from 2007. ### Mali — Public Financial Management - PFM improved since completion point; core systems work reasonably well. - Mali met 11 of the 16 expenditure management benchmarks in the 2004 HIPC AAP, up from eight in 2001. - Tracking of poverty-reducing expenditures is good. - Key weaknesses: procurement, internal controls, timely audits of budget execution, tracking of grant-financed activities and extra budgetary funds. - Ongoing three-year action plan to strengthen PFM includes computerization and networking of expenditure databases, improvements in public procurement processes, and increasing resources for ex post controls. - Debt management assessed and found satisfactory. - Some delays in plans to enhance internal controls and audits, but progress continues. --- ### Mauritania — PRSP Status - PRSP prepared in February 2001 (covering 2001-2004). - Two PRSP Progress Reports prepared and discussed by the Boards in June 2002 and July 2003. - 2004 progress report not published because of ongoing data issues; supplemented original PRSP with action plan for 2005. - Second PRSP (2006-2010) shared with IDA and IMF in May 2006; expected to be completed by September 2006. - Staffs consider implementation since HIPC completion point broadly satisfactory. - Incidence of poverty declined from 51 percent in 2000 to 46.7 percent in 2004. - Progress in primary school enrolments, child vaccination rates, and access to maternal health care; little progress in reducing child and infant mortality rates. ### Mauritania — IMF Program and Macroeconomic Status - SMP covering first six months of 2006 is on track; a PRGF-supported arrangement is in the pipeline. - Beginning of oil production in February 2006 has boosted growth prospects and credibility of stabilization program. - Disinflation expected to continue in 2006. - Macroeconomic outlook benign if authorities manage wealth from non-renewable resources. - Oil production and FDI-driven non-oil mining developments expected to raise annual real GDP growth in 2006–10 to 10 percent on average. ### Mauritania — Public Financial Management - IDA and IMF Boards assessed MDRI eligibility for eighteen post-completion point HIPC countries in March 2006. - At that time, Boards decided Mauritania did not qualify for MDRI eligibility pending remedial actions on macroeconomic and PFM criteria; eligibility to be reassessed upon successful implementation. - Remedial actions taken; in June 2006 staffs advised Boards that Mauritania now meets MDRI criteria because: - Examination of budget execution during the first quarter of 2006 shows no indication of extra-budgetary spending. - Arrears clearance target for the first quarter of 2006 has been largely surpassed. - Periodic reconciliation of data between the Treasury and the BCM is now established; Treasury now produces routinely the monthly balance. - Authorities adopted a new functional classification of the budget and reclassified the 2006 budget on its basis. - Authorities updated the global MTEF (2007-2009), reflecting joint IDA-IMF staff comments. - Updated assessment of the MDRI approved by the Boards in June 2006. --- ### Mozambique — PRSP Status - Government implemented Action Plan for Reducing Absolute Poverty (PARPA) presented to the Board in 2001. - Most recent Progress Report prepared in March 2005; new PRSP expected to be finalized by September 2006. - A number of MDGs are within reach; achieving the remainder requires continued policy reforms, additional investment, and international assistance. ### Mozambique — IMF Program and Macroeconomic Status - On July 6, 2004, Board approved a three-year PRGF-supported arrangement to consolidate macroeconomic stability and deepen structural reforms. - Program on-track; fourth review completed on June 19, 2006. - 2005: growth remained strong, inflation moderated, external position comfortable though current account deficit widened and exchange rate volatility increased. - Prospects for 2006: continued strong macroeconomic performance with some downside risks from exogenous shocks. ### Mozambique — Public Financial Management - Met four out of the 16 expenditure management benchmarks in the 2004 Country Assessment and Action Plan. - PFM has not deteriorated substantially since completion point. - Progress in implementation of integrated financial management information system (e-SISTAFE). - Ministries of Finance, Planning, and Education undertaking a pilot. - Plans to roll out full functionality to main spending ministries in the second semester of 2006, strengthening tracking of poverty-reducing expenditure. - Budget coverage, execution, and reporting improved. - Fiscal information in official reports covers 95 percent of the GFS definition of general government. - Actual current expenditures often very close to originally approved budget law. - Execution of investment expenditures often at least fifteen percent lower than budgeted amounts. - Budget reporting improved via publication of quarterly budget execution reports. - Strong ex-ante control in place, though technical and human resource inadequacies hinder effective internal and external control systems. - Decentralization: regulations to LOLE approved, conferring central role to districts in planning and local development, including introduction of an investment budget. - New public procurement code approved in line with international standards. - Need to strengthen internal and external audit capacity to reinforce fiscal integrity. --- ### Nicaragua — PRSP Status - First PRSP completed in July 2001. - New PRSP completed in November 2005 and presented to the Boards at the turn of the year. - Two PRSP Progress Reports under the old PRSP completed in November 2002 and November 2003. - Preliminary draft of third Progress Report covering 2005 with reference to new PRSP completed. - Poverty-reducing spending maintained on target since 2003; amounts to over 13 percent of GDP in 2005. - Indicators in education and water sectors improved; targets under PRSP-I exceeded in 2004. - PRSP implementation less successful in health sector. ### Nicaragua — IMF Program and Macroeconomic Status - Three-year PRGF-supported arrangement approved on December 13, 2002, went off-track at end-2004. - Significant progress in second half of 2005 permitted completion of pending reviews on January 18, 2006 and extension of arrangement through December 12, 2006. - Latest program review completed in January 2006. - Growth prospects boosted by approval of CAFTA and external debt reduction under MDRI. - Risks include rising energy prices, high internal public indebtedness, legally mandated public resource transfers from central government to municipalities and other public bodies. ### Nicaragua — Public Financial Management - Met six of the 16 HIPC PFM benchmarks in 2004. - PFM system performance has improved since completion point. - In 2005 authorities passed a Fiscal Administrative Law that: - Strengthened the budgetary process by eliminating all off-budget transactions. - Improved coverage of fiscal accounts and transparency in fiscal reporting. - Within-year budget reporting (administrative, economic and functional) available quarterly, enabling active management of spending. - Poverty-reducing expenditures clearly defined in the budget and tracked during execution. - Remaining challenges: - Internal audit units lack qualified staff and financing; a capacity strengthening plan is being implemented. - Procurement system still weak (in process of modernization). - Budget provides limited information on budgets of local governments and autonomous public entities involved in non-commercial activities. - Devolution of expenditures to municipalities ongoing; equivalent of 50 percent of the revenues transferred to these entities. - Authorities committed in 2006 to further devolution of expenditure to municipalities. --- ### Niger — PRSP Status - Full PRSP completed in January 2002. - PRSP Progress Reports issued in July 2003 and August 2004. - Final draft of the third progress report submitted to the Council of Ministers for approval. - First draft of government planned new PRSP expected around October 2006. - Significant progress expanding poor people's access to education and clean water during 2003-2005. - Health sector progress slow in 2003-2004 but improved in 2005. - Income poverty broadly unchanged since first full PRSP; share of population living in poverty estimated at around 65 percent in 2005. ### Niger — IMF Program and Macroeconomic Status - On January 31, 2005, IMF Board approved a third three-year PRGF-supported arrangement. - First and second reviews concluded on November 14, 1005, and June 19, 2006, respectively. - Overall macroeconomic performance improved in 2005: real GDP growth rebounded to 7 percent compared to -0.6 percent in 2004 (following favorable rainfalls and strong agricultural recovery). - For 2006, real GDP growth projected at 3.5 percent and inflation at about 1 percent. - Macroeconomic objectives for 2006-2008 generally remain in line with PRSP objectives. - Economic growth expected to be driven by increased agricultural output, new gold mining activities, prudent government financial policies, and infrastructure investments including telecommunications. ### Niger — Public Financial Management - Niger met five of the 16 expenditure management benchmarks in the 2004 HIPC PFM assessments, up from three of the fifteen benchmarks in 2001. *Source: _082106 - 2004. There has been notable progress made in the public financial management system since* ### 2001. Niger’s PFM system has continued to improve since the country reached the HIPC ### 2001. Niger’s PFM system has continued to improve since the country reached the HIPC Completion Point in April 2004 ### Budget preparation and medium-term frameworks - Progress strongest in budget preparation, with medium-term public expenditure frameworks (MTEFs) being integrated into the budget preparation process. - The government has committed to integrate all HIPC resources into line ministry budgets based on their performance on budget management and reforms. - Integration into line ministry budgets was done for the Ministry of Health and the Ministry of Education (both accounting for sixty percent of HIPC resources in 2006). ### Budget execution and reporting - Delays in the preparation of budget execution reports have been substantially reduced. - Budget coverage has improved over the past four years. - The government has made significant progress with improving the reporting system, including: - Formal closing of accounts. - Regular submission of budget execution laws to the “Chambre des comptes.” ### Remaining problems and fiduciary risks - Over-budgeting of capital outlays. - Difficulties in tracking spending. - Weak internal and external controls. ### Reforms, institutional measures, and ongoing actions - Authorities adopted the Public Financial Management and Financial Accountability Review (PFMFAR) in July 2005 (conducted with IDA support). - Continued strengthening of the computerization program for central and provincial treasury offices. - Enhancing internal and external controls of government financial operations, including: - Reactivation of the “Chambre des comptes.” - Strengthening parliament oversight of government finances. *Source: IMF content unit titled "2001. Niger’s PFM system has continued to improve since the country reached the HIPC Completion Point in April 2004."* ### Annex V: Use of MDRI Resources in 2006 ### Annex V: Use of MDRI Resources in 2006 ### Use of MDRI resources by country (2006) - Benin — 15.6 0.3 percent of GDP - In health and education, in the cotton sector, as well as for funding small-holder projects in agriculture. - Bolivia — 40.9 0.4 percent of GDP - There is no earmarked expenditure to be covered with MDRI debt relief. - Burkina Faso — 17.6 0.3 percent of GDP - In education, health, and rural infrastructure programs. - Cameroon — 29.8 0.2 percent of GDP - For pro-poor spending in line with PRSP priorities including infrastructure, social sector, and governance reforms. - Ethiopia — 13.8 0.1 percent of GDP - MDRI resources may provide financing for poverty-reducing expenditures already envisaged in the authorities' medium term macroeconomic and fiscal framework, given cutbacks in donor support. - Ghana — 57.9 0.5 percent of GDP - In energy and water, rehabilitation of essential major highways and feeder roads in main agricultural areas, education, health, and development of information and communication technology. - Guyana — 6.4 0.8 percent of GDP - Rehabilitation of drainage and irrigation infrastructure and farm to market roads, maintenance of education and health facilities, and acquisition of materials and supplies for education and health. - Honduras — 27.6 0.3 percent of GDP - For anti-poverty program including the elimination of fees for public schools. - Madagascar — 34.3 0.7 percent of GDP - For priority spending ministries in line with their Poverty Reduction Strategy. - Mali — 27.0 0.5 percent of GDP - Targeted at water supply and roads. - Mauritania — 10.8 0.3 percent of GDP - To finance social spending. - Mozambique — 28.8 0.4 percent of GDP - To finance "priority" pro-poor spending. - Nicaragua — 17.7 0.3 percent of GDP - On poverty reduction expenditures in the housing and water sectors and in the provision of medical supplies. - Niger — 9.3 0.3 percent of GDP - For programs in education, health and rural sector development. - Rwanda — 9.7 0.4 percent of GDP - Food imports and spending for the Lake Kivu methane gas project (to generate electricity). - Senegal — 48.5 0.6 percent of GDP - For priority needs in the social services sector. - Tanzania — 82.3 0.6 percent of GDP - To meet the foreign exchange cost of growth critical energy projects and food imports. - Uganda — 57.9 0.6 percent of GDP - Given Uganda's acute electricity shortage, the government is considering using the resources freed up by the MDRI to help meet Uganda's urgent electricity needs. - Zambia — 23.8 0.3 percent of GDP - MDRI savings will be used to increase spending on agricultural projects on small-holder irrigation and livestock disease control. ### Aggregates and summary statistics (2006) - Total — 559.4... - Simple average — 29.4 0.4 - Note: "Debt service savings in 2006 1/" — only refers to the additional debt service savings freed up by the MDRI. ### Debt service, poverty-reducing expenditures, and weighted ratios (selected figures from tables) - Debt service paid/due after enhanced HIPC Initiative relief (selected entries shown as series): - Paid/due after enhanced HIPC Initiative relief: 3,695; 3,177; 3,043; 2,336; 2,298; 2,400; 2,620; 2,620; 2,828; 2,689; 2,833; 2,875 (series across years shown in table). - Due after MDRI (selected annual figures shown in table): - Example entries include 1,828; 1,434; 1,549; 1,606 (shown in the source table). - Debt service savings from MDRI (selected figures shown in table): - 999; 1,255; 1,284; 1,269 (series shown in table). - Poverty Reducing Expenditures (selected annual totals from table): - ...5,940; 6,004; 6,787; 7,702; 9,361; 11,192; 14,821; 16,701 (series shown in table). - Weighted average ratios (in percent) — Debt service/exports 2/ 4/ (series): - 18.0; 15.1; 14.0; 10.2; 9.7; 8.6; 7.4; 6.5; 3.9; 3.1; 3.2; 3.2 - Weighted average ratios (in percent) — Debt service/GDP 2/ 4/ (series): - 4.1; 3.5; 3.3; 2.5; 2.3; 2.1; 2.0; 1.8; 1.2; 0.9; 0.9; 0.9 - Poverty-reducing expenditure/government revenue (selected series): - 41.6; 43.3; 45.8; 47.4; 45.6; 46.0; 49.9; 50.3 - Poverty-reducing expenditure/GDP (selected series): - 6.7; 6.5; 7.1; 7.3; 7.5; 7.9; 9.3; 10.2 ### Key programmatic and delivery highlights (from IMF/IDA/AfDB/Paris Club tables) - MDRI assistance has been delivered in full to the post-completion-point countries by IDA and the IMF. AfDF is expected to deliver the assistance retroactively as of January 1, 2006. MDRI Assistance from the IMF presented in the tables does not include assistance to two non-HIPCs. - Table excerpts (status of committed/delivered assistance to multilateral creditors, end-2005 NPV terms): - Total (listed across creditors) — 20,779 (Total delivering or committed to deliver debt relief: 20,697) with major entries: - World Bank Group — 9,781 - African Development Bank (AfDB) — 3,573 - International Monetary Fund (IMF) — 3,103 - Inter-American Development Bank (IaDB) — 1,391 - European Union/European Investment Bank (EU/EIB) — 838 - Have not indicated intentions to provide relief under the HIPC Initiative — 82 (listed small institutions and amounts). - Paris Club delivery (selected summary): - Table 10 indicates Paris Club debt relief committed and delivered to the 29 HIPCs (status as of mid-July 2006) with country-level committed vs delivered amounts (table detailed by debtor country). - Non-Paris Club creditors (Table 12) — status as of end-July 2006: - Grand Total costs and delivery: Grand Total (I+II+III) — 3,820.8 (NPV terms), with HIPC Debt Relief Delivered reported as 1,022.3 (26.8 percent) and upper-bound delivery 1,411.1 (36.9 percent). - Memo item: Costs pertaining to the 19 post-completion-point HIPCs — 3,205.8 (83.9 percent), delivered 1,231.9 (38.4 percent). - Commercial creditor lawsuits against HIPCs (Table 13 — survey response summary): - Multiple cases listed by debtor and creditor with original claim amounts and status (judgment to pay, pending, in arbitration, settlements). Examples include Cameroon claims (Winslow Bank: 9.9 / 19.9), Congo, D.R. (ENERGOINVEST: 55.8 / 1.7), Congo, Rep. of (FG Hemisphere Associates LLC: 35.9 / 151.9), Nicaragua (LNC Investments: 26.3 / 87.1), Zambia (Fap Famos Belgrade out-of-court settlement 26.0 / 26.0). (Amounts and statuses reported as provided in the table; three dots denote lack of response or insufficient information.) *Sources: Finance Departments of IMF and World Bank; African Development Bank staff estimates; and HIPC authorities.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_082106.pdf_