Debt Relief

AT A GLANCE

The Bank provides debt relief to low-income countries through the Debt Relief Initiative for Heavily Indebted Poor Countries (HIPC), created in 1996, and the Multilateral Debt Relief Initiative (MDRI), created in 2006. Thirty countries are receiving debt relief under one or both of these initiatives, with ten other countries potentially eligible. This debt relief is worth over US$63 billion in 2005 net present value terms (NPV) if all creditors participate. For these 30 countries, World Bank debt relief is expected to total about US$25 billion (NPV: US$10 billion under HIPC and about US$15 billion under the MDRI). If all potentially eligible countries qualify, this total could rise to about US$30 billion (NPV). In countries receiving debt relief, debt service has been cut by two-thirds, and annual spending on anti-poverty programs increased from US$4 billion to US$11 billion since 1999. Overview

Following the buildup of foreign debt owed by many low-income countries throughout the 1970s and 1980s, low growth, falling commodity prices, and other economic shocks left many nations with unsustainable debt burdens. By 1992, the 33 most indebted low-income countries faced debts whose present value had more than doubled in ten years to over six times their annual exports. Starting in the late 1980s, the Paris Club and other bilateral creditors rescheduled and forgave many of these debts. But by the mid 1990s, with an increasing share of debt owed to multilateral lenders such as the World Bank, the IMF, and regional development banks, a new debt relief initiative was called for, involving these creditors, to address the concern that poor countries’ debts were stifling poverty reduction efforts.

In response, in 1996 the International Development Association (IDA), which is the World Bank’s concessional lending arm for poor countries, and the IMF launched the HIPC Initiative. The Initiative is comprehensive – it calls for the voluntary provision of debt relief by all creditors, whether multilateral, bilateral, or commercial – and aims to provide a fresh start to countries struggling to cope with foreign debt that places too great a burden on export earnings or fiscal revenues.

The HIPC Initiative was enhanced in 1999 to provide deeper, more rapid relief to a wider group of countries, and to increase the Initiative’s links with poverty reduction. By Jan. 2007, 30 countries had benefited from HIPC debt relief, 22 having reached the completion point, at which debt relief becomes irrevocable. Eight more are receiving some debt relief and a further ten are potentially eligible for HIPC debt relief, pending the agreement of macroeconomic reforms, poverty reduction strategies, or arrears clearance plans.

In 2006, following the 2005 Gleneagles Summit of the G8 group of nations, the World Bank joined the IMF and the African Development Bank in implementing the Multilateral Debt Relief Initiative (MDRI), forgiving 100 percent of eligible outstanding debt owed to these three institutions by all HIPC countries reaching the completion point of the HIPC Initiative. The MDRI will effectively double the volume of debt relief already expected from the enhanced HIPC Initiative

Emmanuel Ayomide Praise Emmanuel Ayomide Praise is a world leading internet entreprenuer and investor. Some of his areas of interest include sport management,merchandise,ownership,internet entreprenuership,investments, media and writing amongst others. Business URL: http://www.emmapraise.blogspot.com,

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