Public Information Notice No. 05/168

Public Information Notice: IMF Executive Board Discusses the First Assessment of Eligible Countries under the Multilateral Debt Relief Initiative

December 27, 2005

On December 21, 2005 the Executive Board of the International Monetary Fund (IMF) established the list of countries that qualify for debt relief from the Fund under the Multilateral Debt Relief Initiative (MDRI). Debt relief delivery, which could start as soon as January 3, 2005, is now conditional on getting the consents of all the contributors to the Subsidy Account of the Poverty Reduction and Growth Facility (PRGF) Trust, whose contributions help finance the Initiative. The MDRI will deliver debt relief from the Fund to qualifying members countries with an annual per capita income at or below US$380, and to countries above the threshold that have reached the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative. The implementation of the MDRI will reduce the external debt burden of a number of the world's poorest countries and will provide additional resources to help them reach the Millennium Development Goals (MDGs).

Background

The Executive Board approved the requisite decisions to implement the MDRI on November 23, 2005 (PIN No. 05/164), and decided to consider promptly the list of qualifying country members.¹ Debt eligible for MDRI debt relief consists of obligations to the Fund on debt disbursed before January 1, 2005 which remains outstanding at the time that the member country's qualification for debt relief is assessed.

The Board established that eligible members should meet three criteria to qualify for debt relief. These criteria — satisfactory performance in the macroeconomic area, in implementing poverty reduction policies, and in public expenditure management — are meant to ensure that resources freed by the Initiative can be used effectively to help reach the MDGs.

Staff assessed, in collaboration with the World Bank, the situation of the twenty members that are currently eligible for relief under the Initiative.

Executive Board Assessment

Executive Directors welcomed the opportunity to assess eligible members' qualification for debt relief under the Multilateral Debt Relief Initiative. They noted that the legal framework for the MDRI will become effective only when the consents of all 43 contributors to the PRGF Trust Subsidy Account have been received. Directors welcomed the consents received from 36 contributors, and urged the contributors that have not yet done so to provide their consents as quickly as possible.

Directors confirmed that the list of members that could potentially qualify now for MDRI debt relief includes eighteen HIPCs that have already reached their completion point under the HIPC Initiative and two non-HIPCs (Cambodia and Tajikistan). Twelve countries, including the two non-HIPCs, are eligible for debt relief under the MDRI-I Trust, which was established for countries with an annual per capita income at, or below, US$380. The other eight HIPCs, with annual per capita incomes above US$380, are eligible for debt relief under the MDRI-II Trust.

Directors determined that Burkina Faso, Cambodia, Ethiopia, Ghana, Madagascar, Mali, Mozambique, Niger, Rwanda, Tajikistan, Tanzania and Uganda meet the three qualification criteria for debt relief from the MDRI-I Trust, and that Benin, Bolivia, Guyana, Honduras, Nicaragua, Senegal and Zambia meet the three qualification criteria for debt relief from the MDRI-II Trust. Specifically, these countries have demonstrated a track record of at least six months of satisfactory macroeconomic performance and satisfactory implementation of poverty reduction policies, as well as evidence of appropriate quality of their public expenditure management systems. Directors expressed their preparedness to approve MDRI debt relief for each of these members on a lapse-of-time basis, if, by January 31, 2006, the general MDRI decisions have become effective. Directors determined that another meeting would be needed to reaffirm these countries' qualification if all the necessary consents have not been received by January 31, 2006. Directors urged all countries qualifying for debt relief to maintain sound macroeconomic policies and progress with structural reforms, and to make productive use of the resources freed by debt relief.

Directors determined that Mauritania could qualify for MDRI relief after certain remedial actions are taken. In addition to sound macroeconomic policies over a period of six months, these would include actions in the areas of budget formulation, execution, and reporting, and the resolution of data issues with the Fund.

Directors again stressed the importance of ensuring that the Fund's financing capacity is not jeopardized by the MDRI. They noted that the cost of MDRI debt relief for Cambodia and Tajikistan, at SDR 123 million, is higher than the estimate presented in earlier Board papers, and that there also remains a need to ensure that the financing capacity of the PRGF is not reduced. However, Directors also noted that there is no immediate need for additional resources, and considered that the Board should return to this issue once the financing needs are more precisely known. In this context, they again welcomed the G-8's commitments to provide an additional subsidy contribution of SDR 100 million and to consider dealing with the potential additional costs of including Cambodia and Tajikistan, if and when they arise, consistent with their commitment to ensure that the financing capacity of the Fund is not reduced.

Directors endorsed the staff's proposal on the publication of the overview paper and associated Public Information Notice, and the 20 individual country assessments prepared by the staff.