International efforts to lighten the debt burden on the worlds poorest countries are failing to provide the expected level of relief, according to a new report, that was discussed Monday by finance ministers from the G7 nations, reports the World Bank press review.
Charity groups are hoping that the annual progress report by the World Bank and International Monetary Fund will add to pressure on wealthy countries to write off 100 percent of the debt of the most impoverished states.
The Highly Indebted Poor Countries Initiative (HIPC) was set up eight years ago with the aim of eliminating 100 billion US dollar of the debt of the poorest countries. So far about a third of the debt has been cancelled and some estimates suggest HIPC countries still have about 90 billion dollar in debt stock.
The latest update provides additional evidence that even those countries that have received HIPC relief have unsustainable debt levels – defined by the initiative as more than 150 percent of annual exports.
The cost of topping up relief to reach this level – estimated last year at 860 million US dollar – is now expected to be more than 2 billion dollar, according to the report.
Last years report estimated that countries entering the process would spend 2,4 billion US dollar servicing their debts last year. In fact they spent 2,8 billion dollar – an average of 15,2 percent of government revenues and higher than the expected 14,6 percent.
The report also produced new forecasts, suggesting that those countries qualifying for relief because of their high debt-to-export ratios would see these ratios fall by less than expected. Instead of emerging from the process with debt-to-export ratios averaging 140 percent, they were now likely to end up with ratios of 171 percent.
Max Lawson, policy adviser to Oxfam, said the research underlined the need for more radical action on debt. Some non-governmental organizations are worried, however, that a more generous debt write-off might be offset by a reduction in new aid.
Meanwhile, World Bank and IMF staff have proposed extending the Heavily Indebted Poor Countries Initiative by two years to the end of 2006 to give more poor countries a chance to qualify for the scheme.
Twenty-seven countries have so far benefited from HIPC. The decision whether to extend HIPCs “sunset clause”, which expires in December, will have to be taken by the two institutions shareholder governments.
– The case for topping up should continue to be considered on a case-by-case basis based on a strengthened analysis at the completion point, including on the impact of discount rate changes and unanticipated new borrowing, where relevant, according to a World Bank document.
Burkina Faso, Niger and Ethiopia are the only countries to have received extra debt relief under HIPC.
Industrialized nations disagree whether the IMF and World Bank should offer additional relief beyond the provisions of HIPC, which was “enhanced” in 1999 to provide broader, faster and deeper debt relief. The disagreement focuses on whether issues outside the control of a country, such as falling commodity prices, warrant topping up debt relief.
According to the report, 14 countries have qualified to receive maximum-permitted debt relief, while 13 others have started to receive some debt write-offs. The World Bank document said maintaining economic stability was a challenge for these 13 countries, with roughly half of them struggling with managing public resources and reforms.
A separate working paper released on Thursday by IMF economist Yan Sun found that, despite qualifying for debt relief under HIPC, many poor countries still lag well behind international standards in debt management practices. Sun said the HIPC countries will continue to need structural reforms and foreign help to support sound macroeconomic policies.
Meanwhile, Liberation (France, 09/11) notes that the US wishes to cancel 95 percent of Iraqs debt, as well as the entire multilateral debt of 37 of the 42 highly indebted countries selected under HIPC. The latter initiative is an effort to persuade France, who does not wish to cancel more than 50 percent of Iraqs debt, to rally behind the former initiative.
During the last G8 meeting, Jacques Chirac, President of France, opposed the US initiative on Iraqs debt, explaining that poor countries would not understand that rich countries did more for Iraq in three months than they had done for them in the past ten years.
Since France refuses to make Iraq an exception, the US is integrating its plan for Iraq into a global debt relief plan, concluded the Paris Club, an informal group of creditor countries in charge of negotiating the debt of countries under the HIPC initiative.
Kilde: www.worldbank.org
