Post on 18-Jan-2018
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IMF Policies to Help Low-Income Countries Restore and Maintain Debt Sustainability
Review Session on Chapter V of the Monterrey Consensus
March 10, 2008Martine Guerguil, IMF
Outline
Restoring sustainability. Quick overview of advances under the HIPC and MDR Initiatives since Monterrey
Maintaining sustainability. Quick
overview of IMF support to low-income countries in the design of sound borrowing policies
Part IRestoring Sustainability
HIPC Initiative and MDRI Original HIPC Initiative launched in 1996 to
reduce debt burdens of eligible countries to sustainable levels Enhanced in 1999 to provide deeper debt relief
Equitable burden sharing: all creditors, including commercial ones, are expected to participate
Further steps taken to accelerate and facilitate access to debt relief, most recently for HIPCs with protracted official arrears
MDRI introduced in 2005 to complete debt relief and provide more resources to foster development
Implementation to Date (I)
32 countries are past the decision point, of which 23 countries past the completion pointMost have reached these stages since
Monterrey 9 countries still have to initiate the
process
Implementation to Date (II)
Post-Completion-Point Countries (23)
Benin Honduras Rwanda
Bolivia Madagascar São Tomé & Príncipe
Burkina Faso Malawi Senegal
Cameroon Mali Sierra Leone
Ethiopia Mauritania Tanzania
The Gambia Mozambique Uganda
Ghana Nicaragua Zambia
Guyana Niger
Interim Countries (Between Decision and Completion Point) (9)
Afghanistan Chad Guinea
Burundi Republic of Congo Guinea-Bissau
Central African Republic Democratic Republic of the Congo Haiti
Pre-Decision-Point Countries (9)
Comoros Kyrgyz Republic Somalia
Côte d’Ivoire Liberia Sudan
Eritrea Nepal Togo
Countries in bold have reached their completion or decision point since Monterrey
Debt Burdens Have Been Substantially Reduced...
Making Room for Poverty-Reducing Spending
Challenges in Implementation
The political, security and economic situation of remaining HIPCs is challenging Most of them have experienced conflicts A number have arrears to multilateral
institutions, which need to be cleared and raise financing issues
The debt relief framework is used with maximum flexibility to address these challenges
More resources are needed to fully finance the Initiatives
Increasing the participation of non-Paris Club (NPC) creditors
While all Paris Club creditors provide full HIPC relief (and even beyond), only a few NPC bilateral creditors do
Most provide only partial or no relief Efforts to raise awareness and encourage
them to deliver their share of relief Information on IMF websiteGood offices and technical assistance
Aggressively Litigating Creditors
A small but highly visible group of creditors to HIPCs As of mid-2007, 11 HIPCs targeted by 44 lawsuits. 24 judgments so far awarding about $1 billion
The international response to litigation is constrained Participation in HIPC Initiative is voluntary Little can be done without infringing contractual rights
Stepped-up efforts within these constraints Moral suasion DRF-supported buybacks Building debt management capacity
• Legal support (donor-funded) can help if provided early
Part IIMaintaining Sustainability
Maintaining Sustainability
Debt relief frees up resources, but more resources are needed to meet the MDGs
A new financial environment ODA is often falling short of commitments Emergence of a more diverse group of lenders,
both public and private A new policy challenge
Investment opportunities are large But additional lending, if in excessive volume or
on unfavorable terms, could contribute to the re-emergence of debt vulnerabilities
IMF policies and tools
The debt sustainability framework (DSF)
Country-specific policy advice Technical assistance in the area of
debt management
The Debt Sustainability Framework (DSF)
Developed by the IMF in 2002 A tool to:
Examine the sources and extent of debt-related vulnerabilities under alternative borrowing scenarios
Guide new borrowing decisions to match financing with ability to repay debt
Design preventive policies to avoid debt payment problems
Undertaken annually in the context of Article IV consultations
The Debt Sustainability Framework for Low-Income Countries (LIC DSF)
Developed jointly by the World Bank in 2005 Acknowledges the specificities of low-income
countries’ debt Higher vulnerability to shocks Weaker institutional settings Joint debtor-creditor responsibility for outcomes
A tool to improve IFIs’ policy advice and guide their provision of needed technical assistance
The DSF will be effective in preventing new crises only if it is used actively by both creditors and borrowers
Support to Borrowers Medium-term debt strategies (MTDSs)
To meet government's financing needs at the lowest possible cost consistent with a prudent degree of risk
Stepped-up capacity building program in debt management
Concessional finance remains the most appropriate form of finance for LICs, even after debt relief Many LICs remain susceptible to shocks, and have
limited capacity to manage debt MDG-related expenditures generally do not generate the
cash flows necessary to service nonconcessional debt Access to nonconcessional finance should be cautious
and gradual
Outreach to Creditors
Information sharing DSAs produced annually on more than 60 LICs A unique source of information and analyses on LICs’
debts Most DSAs are published and can be found on a
dedicated webpage: http://www.imf.org/dsa Awareness raising
Enhanced cooperation is needed to avoid negative outcomes
Some multilaterals already use DSA results in their lending decisions (AfDB, AsDB, IFAD)
Development of sustainable lending principles• OECD Export Credit Group
Thank you for your attentionFurther information at:www.imf.org/dsa
Questions or queries? Lending toLICs@imf.org