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International Development Association and
International Monetary Fund
Heavily Indebted Poor Countries (HIPC) Initiative--Update on Costing the Enhanced HIPC Initiative
Prepared by the Staffs of the World Bank and IMF
Approved by Masood Ahmed and Jack Boorman

December 7, 1999


  1. Introduction and Purpose

  2. Assumptions and Caveats

  3. Updated Costing under the Enhanced HIPC Initiative Framework

  4. Publication of Preliminary HIPC Initiative Documents

Text Box
  1. The Database

Text Tables
  1. Multilateral Institutions' Outstanding Claims on 40 HIPCs
  2. Possible Timeline of HIPC Initiative Country Documents, Q4 1999 to Q2 2000
  3. HIPC Initiative Estimates of Potential Costs by Creditor
  4. HIPC Initiative Costs by Other Multilateral Creditors
  5. HIPC Initiative Timeline of Costs by Main Creditors


AfDB/AfDF African Development Bank/African Development Fund
AMF Arab Monetary Fund
AsDB Asian Development Bank
BADEA Arab Bank for Economic Development in Africa
BCEAO Banque Centrale des Etats d'Afrique de l'Ouest
BDEAC Banque des Etats de l'Afrique Centrale
BOAD West African Development Bank
CABEI Central American Bank for Economic Integration
CAF Corporación Andina de Fomento
CDB Caribbean Development Bank
CMCF Caricom Multilateral Clearing Facility
EADB East African Development Bank
EU/EIB European Union/European Investment Bank
ECOWAS Fund for Cooperation, Compensation and Development Economic Community of West African States
FADES Arab Fund for Social and Economic Development
FEGECE Conseil de L'Entente
FOCEM Fondo Centroamericano de Estabilizacion Monetaria
FONPLATA   Fund for the Financial Development of the River Plate Basin
IaDB Inter-American Development Bank
IFAD International Fund for Agricultural Development
IsDB Islamic Development Bank
NDF Nordic Development Fund
NIB Nordic Investment Bank
OPEC Fund OPEC Fund for International Development
PTA Bank Eastern and Southern African Trade and Development Bank

I. Introduction and Purpose

1.  In September 1999, the Development and Interim Committees of the World Bank and the International Monetary Fund endorsed - subject to the availability of funding - faster, deeper and broader debt relief under the HIPC Initiative. The enhancements to the framework that were endorsed included a modified debt sustainability target of 150 percent net present value (NPV) of debt-to-exports, and for very open economies,1 of 250 percent NPV of debt-to-revenues. Assistance under the enhanced framework would begin at the decision point. Preliminary costing estimates of these enhancements to the HIPC Initiative were presented in the paper "Modifications to the Heavily Indebted Poor Countries (HIPC) Initiative."2

2.  The purpose of updating the costs of the enhanced Initiative is the need to take into consideration the following factors:

  • Since early this year, when the database for the earlier costing exercises was developed, staffs have undertaken, together with the country authorities, 13 new loan-by-loan debt sustainability analyses (DSAs) (see Box 1);

  • Given the substantial financing challenges for multilateral institutions to cover their costs under the enhanced framework, a disaggregated costing exercise was initiated to provide more accurate information for individual multilateral development banks (MDBs). This information is essential to further the internal deliberations within multilateral institutions with respect to (a) confirming their participation in the enhanced Initiative, and (b) identifying potential financing gaps that may need to be covered through bilateral contributions; and

  • To determine the impact of the shift of decision points for a number of early cases from 1999 to 2000.

Box 1. The Database
  • The costing analysis is based on the most recent country-specific debt sustainability analyses (DSAs) presented to the Boards. These have been supplemented in some cases by more recent information prepared by Bank and Fund staff. Updated DSA information has been incorporated for Burkina Faso, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Mali, Mauritania, Mozambique, Nicaragua, Niger, Tanzania and Uganda. In addition, updated exports and revenues data has been incorporated for these and several other cases.

  • The country-specific DSAs are based on medium-term macro-economic frameworks developed by Bank and Fund staffs with country authorities.

  • The costing analysis is supplemented by multilateral creditor information, which has become available on a loan-by-loan basis, from most multilateral creditors to the HIPCs. This disaggregated data enabled the staff to provide detailed costing estimates for each individual creditor, which, apart from the World Bank, IMF, AfDB and IDB, were previously in a residual category "other multilateral". Some of these disaggregated estimates are still subject to final confirmation.

  • Country coverage for these costing estimates is based on 40 HIPCs: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of Congo, Republic of Congo, Côte d'Ivoire, Ethiopia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Yemen, Zambia.

  • Equitorial Guinea, with a GNP per capita of US$1500, has been removed from the HIPC database as it is no longer IDA-only. Estimates also show that the country's NPV of debt-to-export ratio has fallen below 100 percent.

  • It is assumed that all countries that are potentially eligible for HIPC assistance will request such assistance, unless they have indicated otherwise. Ghana is thus excluded from this costing analysis, as it has recently indicated that it is not seeking relief under the HIPC Initiative.

  • Kenya, Laos, Liberia, Malawi, Somalia, and Sudan have never received a concessional rescheduling from the Paris Club. Countries must first make full use of traditional debt-relief mechanisms to be eligible for debt relief under the HIPC Initiative, and this has been assumed in the estimates.

  • Liberia, Somalia, and Sudan are excluded from creditor-specific costing breakdowns because of the relatively poor database and uncertainty regarding the treatment of their large arrears.

  • As was stated in April 1999, eight countries have not yet met the entry requirement to begin qualifying for the HIPC Initiative by having in place Fund- and Bank-supported adjustment and reform programs in the period since September 1995. There has been no change in this status since the April assessment.

  • Formal DSAs are unavailable or out-of-date for Burundi, Democratic Republic of Congo, Liberia, Myanmar, and Somalia. For these countries information is especially unreliable, and cost estimates involve considerable uncertainty.

  • It is likely that the enhanced HIPC Initiative framework could extend eligibility to countries outside of this group of 40 countries, increasing the costs. However, for now no additional countries have been added to the database, both because the debt data are for the most part poor, and because most other countries have not received concessional reschedulings from Paris Club creditors and in many cases the full use of traditional debt relief mechanisms would be sufficient for debt sustainability.

  • As discussed in the July, 1999 Modifications paper and endorsed by the Boards, the costs of retroactive cases are based on end-1998 data, the latest available at the time of endorsement of the enhanced framework, rather than on the application of retroactivity to historical decision points.

II.  Assumptions and Caveats

3.  As in earlier costing exercises, the data bases rely on the most recent country-specific DSAs prepared by Bank and Fund staff in collaboration with country authorities as well as data provided by multilateral creditors (see below). In the absence of detailed DSAs, the cost estimates rely on aggregated data collected by country teams, and are based on key assumptions with respect to the macroeconomic situation and the debt levels (see Box 1). Many of the country-specific DSAs are based on data that have not been fully reconciled between creditors and debtor governments. The costing estimates need to be interpreted with caution, as they are subject to a wide margin of uncertainty.

4.  In making estimates for the timing of decision/completion points of countries under the enhanced framework, the staffs have aimed to provide realistic but conservative estimates of costs. Where there was some doubt about timing, the earlier timing was assumed - implying a higher cost in most cases. Actual timing will, in large part, be driven by a country's policy performance and the Poverty Reduction Strategy Paper (PRSP) process, and ultimately will have to be decided by the Boards. This exercise is not intended to prejudge the results of the loan-by-loan DSAs nor the Boards' decisions with respect to eligibility for assistance under the HIPC Initiative.

5.  Table 1 provides a summary of the exposure of individual multilateral institutions to the 40 HIPCs. The use of creditor information -- to improve earlier debtor-side information in some of the more tentative DSAs and enable detailed costing breakdowns for all multilateral creditors-- represents a major shift in methodology in the costing database used thus far, which has been based on submissions from individual country desks. This new data is expected to be used in the preparation of new DSAs over the next few months.

Table 1: Multilateral Institutions' Outstanding Claims on 40 HIPCs1
(US$ million, at end-December 1998)
Multilateral development banks     Total outstanding claims
(in %
of total)
and disbursed
of which

World Bank Group 39,247 20,300 746 46.8
   IDA 36,919 17,925 328 41.3
   IBRD 2,327 2,376 418 5.5
IMF 8,192 6,218 1,660 14.3
AfDB 10,275 6,929 997 16.0
IaDB 3,812 2,844 - 6.6
EU 2,373 1,811 209 4.2
CABEI 853 920 - 2.1
FADES 451 738 317 1.7
IFAD 1,237 689 33 1.6
IsDB 405 489 35 1.1
OPEC Fund 533 488 153 1.1
AsDB 892 434 - 1.0
BADEA 437 398 222 0.9
BCEAO 229 194 1 0.4
CAF 178 185 - 0.4
BOAD 183 183 8 0.4
AMF 122 160 - 0.4
FEGECE 10 11 - 0.0
CMCF 108 101 - 0.2
ECOWAS 42 54 9 0.1
BDEAC 51 54 18 0.1
FONPLATA 55 50 - 0.1
NIB 33 32 - 0.1
NDF 96 44 - 0.1
CDB 51 34 - 0.1
EADB 10 11 - 0.0
PTA Bank 1 1 - 0.0
Total 69,878 43,370 4,409 100

Source: Based on HIPC Documents, creditor statements from the MDBs or, in the absense of such information, the Debt Reporting System database of the World Bank.
1Including Ghana, Liberia, Somalia, and Sudan.
2For some MDBs, the NPV of the claims exceeds the nominal value due to the interest rate on these claims being higher than the discount rate.

6.  The possible timing of HIPC Initiative country documents through end-June, 2000 is shown in Table 2. Based on actual performance under reform programs and the pace at which countries are able to advance in their PRSP process, some decision points may be reached later than envisaged. Interim assistance would start at the decision point under the enhanced framework.

Table 2. Possible Time Line of HIPC Initiative Country Documents,
Q4 1999 to Q2 20001
       Q4      Q1       Q2

Countries eligible for reassessment2
Bolivia       2nd D.P.      
Mozambique       2nd D.P.      
Uganda       2nd D.P.      
Benin       2nd D.P.      
Burkina Faso           original C.P.&2nd D.P.
Cote d'Ivoire         2nd D.P.
Guyana           2nd D.P.
Mali         original C.P.&2nd D.P.
Senegal       2nd D.P.      
Possible new country documents
   under the enhanced Initiative
Cameroon       Prel.   D.P.
Chad       Prel.    
Ghana*   DSA    
Guinea       Prel.    
Guinea-Bissau           D.P.
Honduras   Prel.       D.P.
Malawi       Prel.    
Mauritania     D.P.    
Nicaragua         D.P.
Niger           Prel.
Tanzania     D.P.    
Yemen**       DSA    
Zambia       Prel.    

1Earliest possible timing is shown. Actual timing is subject to country circumstances.
2The timing of the 2nd completion points for these countries will need to be decided by the Boards.
 *The Authorities have decided not to pursue HIPC Initiative assistance.
**Yemen appears to be sustainable according to the preliminary results of the DSA undertaken in November 1999.
DSA = debt sustainability analysis
D.P. = decision point
C.P. = completion point
Prel. = preliminary HIPC Initiative document

III.  Updated Costing under the Enhanced HIPC Initiative Framework

7.  Total costs for the HIPC Initiative are now estimated at US$26.6 billion in 1998 NPV terms. These costs exclude the potential costs under the HIPC Initiative for Ghana, as the Ghanaian authorities have decided not to pursue relief under the HIPC Initiative. Had Ghana been included, the costs would be about US$1 billion higher,3 up slightly from the aggregate estimates made in July 1999 (Table 2).4 While in the aggregate these numbers have remained relatively stable, there have been shifts in costs among creditors. The main factors leading to changes in the distribution of costs include:

  • The use of loan-by-loan creditor data for the multilateral creditors, which may be higher or lower than that estimated in previous DSAs.

  • Revised exports and revenues, and revised debt data for several countries where recent DSAs have been completed.

  • Application of the 6-month average interest rates at end-1998 for all multilateral creditors. As these rates were at a low point since the start of the Initiative, this led to increases in the costs of multilateral creditors compared to the higher implicit rate used in previous costings.

  • Variations in disbursement amounts by creditors.

  • The shift of decision points from 1999 to 2000 for a number of HIPCs.

Table 3. HIPC Initiative--Estimates of Potential Costs by Creditor
(US$ billion in 1998 and 1999 NPV terms)
Costing Exercise
(33 countries)1

1998 terms
Costing Exercise
(32 countries)2

  1998 terms 1999 terms

Total costs 27.4 26.6 28.2
Bilateral and commercial creditors 14.2 13.3 14.1
Multilateral creditors 13.3 13.3 14.1
   World Bank   5.1   5.9   6.3
      of which IDA   ...   5.3   5.7
      of which IBRD   ...   0.6   0.6
   IMF   2.3   2.2   2.3
   AfDB/AfDF   2.0   2.1   2.2
   IaDB   1.0   1.1   1.1
   Other   2.9   2.1   2.2

Source: Modifications to the HIPC Initiative IDA/SecM99-475 and EBS/99/138, July 26, 1999; and staff estimates.
1Excluding Liberia, Somalia and Sudan. Based on the application of retroactivity to historical decision points, as discussed in the July 1999 Modifications paper.
2Excluding Ghana, which has not requested HIPC Initiative assistance, and Liberia, Somalia and Sudan. Based on the application of retroactivity to end-1998 data, the latest available at the time of endorsement of the enhanced framework, as discussed in the July 1999 Modifications paper.

8.  The costs are now also shown in end-1999 NPV terms - which are naturally higher due to the discounting factor. In end-1999 NPV terms, the total costs of the Initiative, excluding Ghana, increase to US$28.2 billion, with an equal split between bilateral and multilateral costs.

9.  It is still estimated that 36 countries could potentially qualify for debt relief under the enhanced framework, as described in the modifications paper. Of these, 9 are retroactive cases having already reached a decision point under the original framework. Apart from Ghana, an additional 15 countries are assumed to reach a decision point under the enhanced framework before the end of 2000 (Cameroon, Chad, Ethiopia, Guinea, Guinea-Bissau, Honduras, Laos, Malawi, Mauritania, Nicaragua, Niger, Rwanda, Sierra Leone, Tanzania, Zambia). Two other countries (Vietnam and Yemen) are not expected to qualify for assistance under the Initiative.

10.  Under the enhanced framework, the shares of HIPC Initiative costs for bilateral and multilateral creditors are estimated to shift slightly, with the multilateral costs now matching the bilateral costs. This reflects, in part, a low level of new lending by bilateral creditors, with a shift in bilateral official development assistance towards grant funding. There are also some significant shifts in costs within the multilateral group. In particular, the cost share of the World Bank has increased substantially, that of the AfDB and the IaDB has increased marginally, while that of other multilateral creditors as a group decreased. Detailed costs for other multilateral creditors are shown in Table 4.

Table 4. HIPC Initiative Costs of Other Multilateral Creditors
(US$ millions in end-1998 and end-1999 NPV terms, 32 countries)1
  1998 NPV terms
     1999 NPV Terms
  Total costs Total costs Near-term cases2

Total other multilateral 2,056          2,180          1,834         
   EU/EIB 602          638          469         
   CABEI 370          392          392         
   IFAD 207          219          182         
   BADEA 166          176          132         
   OPEC Fund 137          145          124         
   IsDB          105          112          112         
   AsDB 98          103          41         
   CAF 72          77          77         
   FADES 60          64          64         
   CMCF 51          54          54         
   BCEAO 45          48          48         
   BOAD 41          43          41         
   FONTPLATA 23          24          24         
   CDB 17          18          18         
   BDEAC 15          16          6         
   NDF          14          14          14         
   AMF 10          11          11         
   ECOWAS (CEDEAO) 10          11          11         
   EADB 7          7          7         
   NIB 2          3          3         
   FEGECE 2          2          2         
   FOCEM 1          2          2         
   PTA Bank 1          1          1         

Sources: Creditor statements; and staff estimates.
1Excluding Liberia, Somalia, Sudan, and Ghana.
2Near term cases include retroactive cases (Benin, Bolivia, Burkina Faso, Cote d'Ivoire, Guyana, Mali, Mozambique, Senegal, and Uganda), plus Cameroon, Chad, Ethiopia, Guinea, Guinea-Bissau, Honduras, Laos, Malawi, Mauritania, Nicaragua, Niger, Rwanda, Sierra Leone, Tanzania, and Zambia.

11.  A breakdown of the costs for the early cases - i.e., the retroactive countries, plus all new cases that are assumed to reach their decision point before the end of 2000 - are shown in Table 5 in end-1999 NPV terms. This shows that 3/4 of the costs represent those countries, which are assumed to reach their decision points by end-2000, and could start receiving interim relief in 2000 or early 2001. The retroactive cases alone account for US$7.7 billion of the costs, of which about US$2.8 billion represent the cost of the original framework for the 4 completion point cases (Uganda, Mozambique, Bolivia, and Guyana).

Table 5. HIPC Initiative--Timeline of Cost Commitments by Main Creditors
(US$ billion in 1999 NPV terms)1
  Total Retroactive2 New cases3 Post-2000

Total costs 28.2   7.7 13.9   6.6
Bilateral and commercial creditors 14.1   3.3   6.6   4.2
Multilateral creditors 14.1   4.4   7.3 2.4
    World Bank   6.3   1.9   3.3   1.1
        of which IDA   5.7   1.6   3.1   1.0
        of which IBRD   0.6   0.3   0.3   0.0
    IMF   2.3   0.7   1.3   0.3
    AfDB/AfDF   2.2   0.6   1.0   0.7
    IaDB   1.1   0.6   0.5   0.0
    Other   2.2   0.6   1.2   0.4
Memorandum item: in percent of total cost 100.0    27.2 49.4 23.4

Sources: Modifications to the HIPC Initiative IDA/SecM99-475 and EBS/99/138, July 26, 1999; and staff estimates
1Excluding Liberia, Somalia, Sudan and Ghana.
2Benin, Bolivia, Burkina Faso, Cote d'Ivoire, Guyana, Mali, Mozambique, Senegal, and Uganda.
3Cameroon, Chad, Ethiopia, Guinea, Guinea-Bissau, Honduras, Laos, Malawi, Mauritania, Nicaragua, Niger, Rwanda, Sierra Leone, Tanzania, and Zambia.

IV.  Publication of Preliminary HIPC Initiative Documents

The enhanced framework shifts the determination of assistance under the Initiative from the completion to the decision point. Thus the preliminary HIPC document is the only document indicating likely costs expected for individual creditors before a decision point is reached, at which point the bulk of creditors will need to indicate their willingness to participate in providing debt relief. Also, the enhanced HIPC Initiative has forged closer ties to poverty reduction and, given the movement to a more participatory process to developing poverty reduction strategies in HIPCs, there is a greater need for transparency of data related to debt service as an input into the discussions of the PRSP. Staffs thus propose that all preliminary documents be published on the HIPC websites of the Fund and the Bank after their consideration by both Boards, unless the authorities object to the document's release within working 15 days from the date of issuance of the documents to the Executive Boards.5

1The eligibility thresholds were reduced from 40 percent to 30 percent of exports-to-GDP, and from 20 percent to 15 percent of revenues-to-GDP.
2IDA/SecM99-187/1, July 26, 1999 and EBS/99/138, July 23, 1999.
3See the Ghana External Debt Sustainability Analysis, IDA/Sec99-656, November 17, 1999 and SM/99/273, November 15, 1999.
4Excluding Liberia, Somalia, and Sudan. The total cost, including rough estimates for these three countries, is US$34.5 billion. Potential costs for Liberia, Somalia, and Sudan are not included in the tables as the data and underlying assumptions remain highly uncertain.
5The staff's proposal for the publication and transmittal of preliminary HIPC documents is essentially the same as the policy for Decision and Completion documents set out in EBD/98/64 and IDA/R98-110. Specifically: (i) preliminary documents would be released "as is" but the relevant member, through its Executive Director, would be allowed 15 working days from the date of issuance to the Executive Boards to delete any data it deemed confidential or object to the document's release; (ii) a country found not to qualify for assistance would be asked through its Executive Director whether it agrees to disseminate this information through publication of the relevant debt sustainability analysis of the Fund; and (iii) special transmittal procedures for HIPC documents whereby they are made available to individual bilateral and multilateral creditors involved in the HIPC Initiative at the same time they are circulated to the Executive Boards.