Pillar II: Arrears Clearance

The objective of the Arrears Clearance Pillar is to provide partial funding for clearing Bank Group arrears, thus facilitating the normalization of the relationships of the beneficiary with the Bank.

Eligibility

Eligibility for the Arrears clearance pillar is open to countries with chronic arrears with the Bank. The countries concerned must meet the two-stage eligibility criteria of the Supplemental Support Pillar and must also:

• Demonstrate respect for the Bank Group’s preferred creditor status by servicing new maturities on all outstanding Bank Group loans or at least to the same relative level of debt service paid to other International Financial Institutions (IFIs); and
• Be eligible for Highly Indebted Poor Countries (HIPC) debt relief, but not yet reached the decision point under the Initiative.

Burden Sharing Arrangement

A two-tier burden sharing arrangement will apply to the arrears clearance pillar of the FSF. The two-tier approach will ensure that a beneficiary country meets up to a maximum of a third (1/3) of its arrears clearance obligations while the FSF, through its Arrears Clearance Pillar, takes up a minimum of two thirds (2/3). Donors are free to make voluntary contributions to assist beneficiary countries to fund their assessed burden sharing obligations or to assist in servicing new maturities until the country qualifies for debt relief under the HIPC initiative.

Assessment of Country Capacity to Pay for Arrears Clearance

An objective assessment of a country’s ability to pay for its arrears clearance program is conducted based on the framework developed by the Bank to that effect. The Bank will undertake the assessment on a case-by-case basis, and in close partnership with other International Financial Institutions. The objective of the exercise is to determine appropriate burden sharing arrangements for arrears clearance between the country and the FSF, while also reaffirming the importance of individual country’s circumstances.