Resource Mobilization Lead Expert, Boubacar Traoré, sheds light on the MDBs Meeting in Washington

28/08/2007
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Question: What were the main issues discussed during the most recent Multilateral Development Banks (MDBs) meeting on debt-related issues held at the World Bank’s Headquarters in Washington DC?

Answer: On July 11 and 12, the World Bank hosted the 2007 Annual Meeting of multilateral creditors in Washington D.C. Representatives of 17 multilateral institutions participated in the meeting, and two bilateral creditors attended as observers. The meeting focused on progress in implementing the Heavily Indebted Poor Countries (HIPC) Debt Relief Initiative and the Multilateral Debt Relief Initiative (MDRI), debt sustainability - including arrears clearance and the treatment of ‘fragile states’ - and debt management capacity building in low income countries.

Question: Can you brief us on the main conclusions on the HIPC & MDRI that were reached during the Washington meeting?

Answer: Since June 2006, Malawi, São Tomé and Príncipe as well as Sierra Leone had reached the completion point, while Haiti and Afghanistan had reached the decision point.  To date, 31 countries have reached their decision points, of which 22 have reached their completion points, including 18 Regional Member Countries (RMCs).  It is possible for another four to six HIPCs to reach their completion points by the end of 2008, including Burundi, Chad, Guinea, and DRC. Equally important to highlight is that the Central African Republic and Liberia may reach their decision points by end-2007 as soon as a firm and comprehensive agreement on financing among preferred creditors is in place. Within this framework, the MDBs meeting also noted that the upcoming arrears clearance process for Liberia was representative of the growing complexities that now confront the MDB community.  Participants recognized the importance of collaboration in facilitating smooth arrears clearance for such countries to enable them reach the HIPC decision point as early as possible.  In this connection, the AfDB presented, in detail, its proposed framework of enhanced engagement in fragile states.  This was very well received.  Most importantly, the EC indicated that they had started a process to develop a similar strategy to deal with states in ‘fragile situations’. 

Question: What are the new MDRI cost estimates for different MDBs?

Answer: Overall, preliminary estimates of the total cost of MDRI debt relief amounts to US$44.5 billion in nominal terms discounted to end-2006. Debt cancellation provided under MDRI by IMF, IDA, African Development Fund (ADF) has resulted in greatly improved debt-burden indicators.  The International Development Association (IDA) provides approximately 74 percent of the total multilateral debt relief (MDR) cost, while the IMF and ADF contributed 10 percent and 16 percent, respectively.  To date, relief has been provided to the 22 countries that have reached the completion point at a cost of about US$26 billion.  The IMF, whose modalities were approved in November 2005, has delivered relief to 22 HIPCs to date at a total cost of US$3.9 billion. AfDB’s participation in the MDRI, which commenced in September 2006, is expected to amount to approximately US$8.5 billion for 33 HIPCs, including 18 countries that have already qualified.  You may also wish to note that the Inter-American Development Bank (IaDB)’s Board of Governors approved in March 2007 the provision of debt relief under the MDRI to five HIPCs (Bolivia, Guyana, Haiti, Honduras, and Nicaragua). Effective January 2007, 100% debt relief has been provided to four of these countries through the IaDB soft window (FSO) at a total cost of about US$4.4 billion (end-2004 cut off date).  Debt relief will be provided to Haiti upon reaching HIPC completion point. In contrast with ADF and IDA, no external resources have been provided to IaDB to finance the deepened debt relief.

Question: Could you tell us more about the progress made in the application of the Low-Income Country Debt Sustainability Framework (DSF)?

Answer: Today, we have results of Debt Sustainability Assessments (DSAs) for all our 40 ADF countries.  These results will be used to finalize the 2007 ADF-10 countries allocations of ADF resources before the end of July 2007.  I wish to take this opportunity to recall that the ultimate purpose of the DSF and DSA is to enable borrowers to develop appropriate financing strategies, consistent with development plans and poverty-reduction objectives. This calls for the need to accelerate dissemination of the DSF to creditors and borrowers.  Current efforts to achieve this objective were discussed and participants expressed an interest in contributing actively to this process. To better reach this objective, AfDB has proposed to arrange discussions on the DSF with other stakeholders during its annual meetings, and to organize DSF workshops in Mali and Malawi by end-2007 in close partnership with IDA, IMF and the EC.  IFAD informed participants about its recent adoption of the DSA as a tool to inform its financing decisions and the implications it is expected to have operationally.

Question: How is debt management capacity building going on in low income countries, particularly in Africa?

Answer: Experience with strengthening Public Debt Management (PDM) frameworks and capacity in developing countries was reviewed during our MDBs meetings. Discussions revealed that many LICs, particularly ADF countries, continue to face a range of policy, institutional and operational challenges. Participants were informed that, going forward the World Bank and IMF together with other RDBs such as ADB Group will continue to respond to demand by individual countries, undertake capacity building and knowledge dissemination, and monitor and analyze financial risks in debt structures.

Beyond this, the ADB Group will continue to take action in its governance programs and projects to support initiatives to scale up and strengthen debt management capacity in Africa. As a first step, a special effort will be required to support development and implementation of effective Medium Term Debt Strategies (MTDS) in ADF countries, with a special attention on the fragile countries and post-completion point HIPC countries, in close partnership with the Bretton Woods institutions, in particular during the implementation of ADF-11. However, this program will be part of a longer-term joint donors’ capacity building assistance. Consultation on the methodology will be carried out in due course with the World Bank and IMF and other bilateral donors. To track progress, this joint work will be complemented by periodic Debt Management Performance Assessments (DeMPA). These initiatives will be tailored for individual countries, complement existing programs, and will be undertaken in close consultation with country authorities, other providers of technical cooperation, and bilateral donors.