Beyond HIPC: Debt cancellation and the millennium development goals
HIPC and Beyond Debt Sustainability in Low-Income Countries HIPC and Beyond World Bank, Economic...
-
Upload
ursula-gordon -
Category
Documents
-
view
217 -
download
0
Transcript of HIPC and Beyond Debt Sustainability in Low-Income Countries HIPC and Beyond World Bank, Economic...
Debt Sustainability in Low-Income CountriesHIPC and BeyondHIPC and Beyond
World Bank, Economic Policy and Debt Department, 2005
Presentation Outline
1. What led to debt distress in the 1990s?
2. What is HIPC and what has it achieved?
3. How do we avoid debt distress?
What led to debt distress in the 1990s?
Debt Burdens in Some Low-Income Countries Rose Dramatically from 1973 to 1993
4
0%
50%
100%
150%
200%
250%
1970 1974 1978 1982 1986 1990 1994 1998 2002
HIPC Countries
Low-Income Countries
The Share of External Debt to GDP (in NPV terms)
Governments Don’t Go Bankrupt –However, They Can End Up in Debt Distress
Governments do not go bankrupt, but they can default on payments to creditors – in which case debts can be rescheduled as part of an agreement with creditors
We use the term “debt distress” to describe a situation with significant risks of government default
Debts are “sustainable” when a government is likely to have enough income and foreign currency to pay back its loans
5
With Solid Growth, Most Countries Would Not Have Experienced Debt Distress
“Growth in the productive sectors are needed for Tanzania to meet the MDGs.”Abbas Beriya, Deputy Director, Bank of Tanzania
Note: Source: World Bank Global Development Finance Statistics. The graph shows the actual unweighted average of debt-to-GDP ratios across LICs versus the simulated ratio had all countries grown at 5% in dollar terms, a performance achieved by just over one in three LICs during the period.
“The government has not done enough to create an environment for growth.”Robert Kabushenga, Corporation Secretary, New Vision (newspaper), Uganda
“I have not seen a lot of productivity increase, but I have seen more importation.”Siapha Kamara, Executive Director, SEND Foundation, Ghana
Historical
5% Growth
0
20
40
60
80
100
120
140
160
180
1980 1985 1990 1995 2000
Alternative Debt Scenarios for LICs
6
Developing Countries are Highly Dependent on Commodities – And Prices are Declining
“Our debts in Ghana started accumulating after the 1973 oil crisis and with the tipping of the cocoa prices”Samuel Sallas-Mensah, Member of Parliament, Ghana
7
Notes: The table includes examples of countries highly dependent on commodities. Numbers are an average for the period 1998-2000. In the graph, the numbers are indexed commodity prices deflated by Manufactures Unit Value Prices (1970=100) .
Many Countries Depend Heavily on CommoditiesCommodities’
Share of ExportsCommodities’Share of GDP
Major Commodity
Zambia 99.8% 23.4% Copper
Mauritania 99.5% 39.4% Iron Ore
Guinea Bissau 97.7% 23.7% Cashew Nuts
Benin 93.7% 16.1% Cotton
Uganda 90.5% 11.1% Coffee 0
50
100
150
200
250
300
350
400
1970 1975 1980 1985 1990 1995 2000
Crude oil
Cotton
Copper
Coffee
Commodity Prices are Declining
Local Voices: Debts and Government Funds Were Poorly Managed
8
“An ambassador or junior minister could borrow on behalf of the government. If somebody had financing for a project, it was easy to get it accepted.”Fred Matayama, Principal Economist, Ministry of Finance (Uganda)
“During the mid 1990s a lot of donor funds were being lost through the process. One study found that only 30% of every dollar reached the poor.”John Okidi, Executive Director, EPRC (Uganda)
“There is a need to increase the transparency and effective management of government funds.”Ngunga Tepani, Policy Officer, Tanzania Association of Non-Governmental Organizations
“Prior to HIPC, Ghana had a problem with revenue mobilization.”Samuel Sallas-Mensah, Member of Parliament, Ghana
Donor Governments Have Forgiven Increasing Amounts of Debts Owed to Them
9
50%
67%80%
33%
90%
Toronto (1988)
London (1991)
Naples (1994)
Lyon (1996)
Cologne (1999)
Proportion of Grant Element in Paris Club Forgiveness
Note: The forgiveness listed is the reduction in the NPV of the rescheduled debts owed to the Paris Club members.
Traditional Debt Relief Reduced Bilateral and Commercial Debt - Not Multilateral Debt
0%
5%
10%
15%
20%
25%
30%
35%
40%
1970 1974 1978 1982 1986 1990 1994 1998 2002
Note: “Traditional Debt Relief” includes that of the Paris Club (bilateral debt owed to donor governments) and the London Club (commercial debt). Source: World Bank Global Development Finance 2005.
10
Share of Multilateral Debt of Overall External Debt
Conclusion
Some Low-Income Countries experienced a debt crisis in the 1990s
11
1
2
3
Low growth led to unsustainable debt burdens, fueled by poor policies, inadequate debt management and shocks
International consensus was reached on the need for a comprehensive debt relief mechanism to reduce all debts – including multilateral debts – based on good policies
“Traditional debt relief” reduced bilateral and commercial debt, but was not designed to reduce multilateral debts
What Is HIPC and What Has It Achieved?
HIPC Was the First Comprehensive Global Debt Reduction Initiative to Include Multilateral Debt
Rationale The “HIPC Initiative” funds debt relief for all Highly Indebted Poor
Countries (HIPCs)
Objectives Reduce external debts owed by HIPC governments Finance increase in government spending on poor people
Design Eligibility is based on external debts and income per capita Requires government to formulate a poverty reduction strategy paper
(PRSP) through local consultation Requires satisfactory performance based on an IMF program Then irrevocably provides debt relief
13
Multilateral Institutions Have Provided Half of All HIPC Debt Relief Committed
Total Amount of Debt Forgiven (USD bn)
Note: The figures of committed debt relief are current as of April 2005 measured in end-2004 NPV terms, and includes the 38 HIPCs. 14
13.8
3.6
0.93.0
7.69.2
Paris Club Other Bilaterals Commercial World Bank IMF OtherMultilaterals
Local Voices: HIPC Produced Meaningful Debt Reduction
“There is no doubt that the HIPC Initiative reduced Uganda’s debt to a sustainable level.”Daniel Lukwago, Policy Officer, Uganda Debt Network
15
“Thanks to HIPC, the level of debt service was reduced.”Kwasi Osei, Director-General, Social Security and National Insurance, Ghana
“HIPC brought quite a bit of relief that the government invested in the social sector.”Siapha Kamara, Executive Director, SEND Foundation, Ghana
“Participation in HIPC contributed toward a reduction of Tanzanian debt by forcing us to rethink how we did business”Singi Madata, Assistant Commissioner, Ministry of Finance, Tanzania
Statistics Show That Debt Levels Are Much Lower After the Relief Provided by HIPC
Note: The figures encompass the debt stocks of 28 decision point countries measured in USD billion 2004 in NPV terms (April 2005).
16
30
36
71
84Before Traditional Relief
After Traditional Relief
After HIPC Relief
After Add. Bilateral Debt Relief
Local Voices: HIPC Financed Pro-Poor Water, Health Care and Education Services
“HIPC savings provided for 88,000 new classrooms, 123,000 teachers, and the child-to-textbook ratio has declined from 20:1 to 4:1…
Ms. Hyuha Dorothy, Chairman, Social Service Committee, Parliament (Uganda)
“A lot of schools have been built, but it is going to take a long time before we know what the impact will be.”Kwasi Osei, Director-General, Social Security and National Insurance, Ghana
“
“HIPC focused on increasing social spending for Ugandans.”John Okidi, Executive Director, EPRC (Uganda)
17
“HIPC provided greater access to education and health services in districts.”Ngunga Tepani, Policy Officer, Tanzania Association of Non-Governmental Organizations
Ghana: HIPC Financed the Upgrading of Sarpeiman School
18
AfterBefore
Ghana: HIPC Funds Helped Increase School Enrollment in the Amansaman District
19
2003 2004
Boys 164 190
Girls 139 192
Total 303 382
Enrollment in HIPC Funded Schools
The building of a nurse’s home brought the first public nurse to the village
Only options were an out-of-town clinic or paying thousands of cedis up front at a private clinic
Typical problems relate to malaria and maternal health
This day by noon, the nurse had treated seven patients
20
Ghana: HIPC Financed the Nurse’s Quarters in the Amansaman District
28 Countries are Receiving Debt Relief, But 10 Countries have Yet to Benefit
Zambia
Post-HIPC
Uganda
Tanzania
Senegal
Rwanda
Niger
Nicaragua
Mauritania
Madagascar
Guyana
Ethiopia
Bolivia
Mozambique
Mali
Honduras
Ghana
Burkina Faso
Benin18
Interim-HIPC
Sierra Leone
Sao Tome & Principe
Malawi
Guinea-Bissau
Guinea
The Gambia
Chad
Congo DRC
Cameroon10
Pre-HIPC
Togo
Sudan
Somalia
Myanmar
Liberia
Lao PDR
Congo, Republic of
Comoros
Cote d’Ivoire
Central African Rep.10
Causes Conflict Arrears Weak governance
21
Burundi
HIPC Has Substantially Reduced Debts And Pro-Poor Spending Has Increased
Notes: 1) Debt stocks of 28 decision point countries, USD billion 2004 NPV terms. 2) Projected debt service obligations of 28 decision point countries. 3) Debt service to government revenue for 28 decision point countries. 4) Ratio of poverty-reducing expenditures to government revenue. 22
Debts have been reduced1…
30
84Before Traditional Relief
After Add. Bilateral Debt Relief
and so have payments to creditors2…
1
2
3
4
5
6
2001 2002 2003 2004 2005 2006
USD
Billio
ns
Before HIPC Relief
After HIPC Relief
and increasing pro-poor spending4.
40.9%47.6%
1999 2003
reducing budget spent on debt payments3…
21.8%
13.4%
1999 2003
Local Voices: HIPC Promoted Transparency and Accountability
“After 1992, there has been much more transparency. Loans are scrutinized. We decided in Parliament, e.g., to stop a $5m IDA loan for studies.”Samuel Sallas-Mensah, Member of Parliament, Ghana
“We go and ask the ministers: ‘How come you have spent the money in this way, why have you not done anything about that.’ We put them on the carpet and ask questions. Even if I am from the same party.”Hyuha Dorothy, Chairman of the Social Service Committee in Parliament (Uganda)
23
“I get the information I need from the government to monitor what they do. This came about with the HIPC Initiative - it is a major result.”Siapha Kamara, Executive Director, SEND Foundation, Ghana
“The HIPC Initiative made us take greater responsibility and accountability for our actions.”Singi Madata, Assistant Commissioner, Ministry of Finance, Policy Debt and Strategy
“With the implementation of HIPC, we outside the government have increased access to learn about projects as a result of HIPC savings.”Daniel Lukwago, Policy Officer, Uganda Debt Network
“We are paying more attention to monitoring social programs.”Ngunga Tepani, Policy Officer, Tanzania Association of Non-Governmental Organizations
Local Voices: HIPC Promoted Economic Reform and Strengthened Debt Management
“I don’t think anybody believes that HIPC reduced the government’s commitment to reform. The govern-ment initially did not want to accept HIPC. I can say that the government is genuinely committed to reform.”Samuel Sallas-Mensah, Member of Parliament, Ghana
“
24
“HIPC led to efforts to improve revenue collection.”Abbas Beriya, Deputy Director, Bank of Tanzania
“An ambassador or junior minister can no longer borrow on behalf of the government. It is only the Minister of Finance.”Mr. Fred Matayama, Principal Economist, Ministry of Finance
“Although there is room for improvement, we are doing a better job at debt management through increased coordination among internal and external partners.” Singi Madata, Assistant Commissioner, Ministry of Finance, Policy Debt and Strategy
Statistics: Institutions and Policies Are Better in Countries That Have Gone Through HIPC
Note: Post, interim and pre-HIPC refer to the countries that are at the pre-decision point (10 countries), decision point (10 countries) and completion point (18 countries). The first bars refer to 1998, the second bars to 2003. 25
HIPCs: Evolution of CPIA ratings (1998 and 2003)
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
3.60
3.80
Post-HIPC Interim-HIPC Pre-HIPC
CP
IA r
ati
ng
s
Evaluation: HIPC Has Achieved a Number of Successes - Yet Challenges Remain“The Initiative is likely to achieve its original fundamental goal – to … [reduce] … debt stocks and debt service burdens.”
“The HIPC Initiative has been a catalyst for far-reaching changes in the processes surrounding development assistance…”
“It has made the processes of the sovereign debt regime more open and accountable and spurred development cooperation…”
“…budgetary resources for targeted sectors have indeed increased appreciably.”
26Note: The evaluation was undertaken by the Operations Evaluation Department (OED), a unit independent of World Bank management that reports to the Bank’s shareholders. Source: Debt Relief for the Poor – An OED Review of the HIPC Initiative, 2003.
“Clarify the objective… the goal of debt reduction needs to be clearly distinguished from the goal of poverty alleviation.”
“Improve the transparency of the methodology and economic models underlying the debt projections and the realism of economic growth forecasts…”
“Maintain standards for policy performance”
“Performance criteria need to increase the focus on pro-poor growth… [relative to the] heavy emphasis on social expenditures…”
Voices: HIPC Did Not Meet Everyone’s Expectations
“Debt relief received through the HIPC Initiative should not necessarily only be tied to social spending.”John Okidi, Executive Director, EPRC (Uganda)
27
“HIPC did not provide our economy a new flow of funds. It simply reduced the debt stocks. There was no new money!”Abbas Beriya, Deputy Director, Bank of Tanzania
“It has been difficult to make creditors follow through with their commitments.”Mr. Fred Matayama, Principal Economist, Ministry of Finance
“The rate of delivery for social services were slower than anticipated.” Daniel Lukwago, Policy Officer, Uganda Debt Network
Conclusion
28
1
2
3
HIPC reduced multilateral and other debts – external debts have been cut by two-thirds
HIPC helped increase pro-poor spending – on water, health and education
HIPC met the its original goal of debt reduction
HIPC also helped promote economic reform, transparency and sound debt management
How Do We Avoid Future Debt Distress?
Reaching the MDGs Must Not Create A New Debt Problem
The Debt Sustainability Framework for Low-Income Countries (DSF) ensures that the government does not borrow more money from the World Bank than it is able to pay back
DSF determines up front the mix of World Bank (IDA) loans and grants Countries with high risk of a debt crisis only receive grants Over 40 Low-Income Countries will now receive either 100%
or 50% of their World Bank finance in the form of grants Countries with low debts receive more resources
DSF does not finance debt reductions – HIPC does
30
Notes: Thresholds apply to public and publicly guaranteed (PPG) external debt, only. The Country Policy and Institutional Assessment (CPIA) assesses the quality of a country’s present policy and institutional framework. “Quality” means how conducive that framework is to fostering sustainable, poverty-reducing growth and the effective use of development assistance.
Institutional strength and quality of policies
Weak
CPIA<3.25
Medium
3.25<CPIA<3.75
Strong
CPIA>3.75
NPV of debt-to-GDP 30 40 50
NPV of debt-to-exports 100 150 200
NPV of debt-to-revenue 200 250 300
Debt service-to-exports 15 20 25
Debt service-to-revenue 25 30 35
Sustainable Levels of Debt Burden Depend on a Country’s Institutions and Policies
31
+10%
-10%
Threshold
High Risk100% Grants
Medium Risk50% Grants
Low Risk100% Soft Loans
Debt Burdens Determine the Mix of World Bank Loans and Grants
32
Conclusion
Much Progress Has Been Made – Yet Challenges Remain
1. Debt Distress Debt distress culminated in the late 1990s
Caused primarily by low growth, fueled by borrowing, fiscal deficits, shocks, declining export prices, and weak institutions
2. HIPC
3. Debt Framework
Reduced debt in LICs from $84bn to $21bn
Increased poverty-related expenditures from 41% to 48%
Helped promote reforms, strengthen debt management, and increase fiscal discipline and parliamentary oversight
Ensures that borrowing to finance the MDGs does not come at the expense of a debt crisis
Complements the HIPC debt reduction program
34
Q & A
A Wealth of Information is Available on the World Bank Web Site
The website contains extensive information on:Country cases (full HIPC documents available)Description of HIPCProgress report and debt relief provided FAQ HIPC partners
Visit http://www.worldbank.org/debt/ ORhttp://www.worldbank.org/economicpolicyanddebt
36