The HIPC Initiative: Issues for Consideration April, 2006

2 Outline What is the HIPC Initiative? What is the HIPC Initiative? The Sunset Clause The Sunset Clause The HIPC Process from Decision to Completion Point The HIPC Process from Decision to Completion Point MDRI MDRI Impact on Public Finances Impact on Public Finances Main Considerations Main Considerations

3 What is the HIPC Initiative? The HIPC Initiative is a debt relief initiative (DRI) The HIPC Initiative is a debt relief initiative (DRI) established jointly by the IMF and the World Bank in 1996 and enhanced in It is the first DRI that includes debt relief from multilateral creditors. It is the first DRI that includes debt relief from multilateral creditors. Goal: to ensure swift and deep debt relief thereby contributing to poverty reduction. Goal: to ensure swift and deep debt relief thereby contributing to poverty reduction. So far, 28 countries are benefiting under the HIPC Initiative and 18 have graduated from it. So far, 28 countries are benefiting under the HIPC Initiative and 18 have graduated from it.

4 HIPC Implementation to Date Zambia Post-HIPC Uganda Tanzania Senegal Rwanda Niger Nicaragua Mauritania Madagascar Guyana Ethiopia Bolivia Mozambique Mali Honduras Ghana Burkina Faso Benin 18 Interim-HIPC Sierra Leone Sao Tome & Principe Malawi Guinea-Bissau Guinea The Gambia Chad Congo DRC Cameroon 10 Pre-HIPC Togo Sudan Somalia Myanmar Liberia Lao PDR Congo, Republic of Comoros Cote d’Ivoire Central African Rep. 10 Burundi 38 Participating Countries

5 The HIPC Sunset Clause  A “sunset clause” was included to prevent HIPC from becoming a permanent facility.  In September 2004, the Boards of the World Bank and IMF decided to extend the sunset clause to end-2006 and to limit (“ring-fence”) its application to countries fulfilling the income and indebtedness criteria as of end

6 Status of the Assessment Four countries appear likely to be newly eligible Four countries appear likely to be newly eligible Work continues on these four plus five other possible cases Work continues on these four plus five other possible cases The final list is due by April 2006 The final list is due by April 2006 Governments choose whether to enter the Initiative Governments choose whether to enter the Initiative NPV/XNPV/R Eritrea362 Nepal201 Haiti190 Kyrgyz345 Bangladesh Myanmar Bhutan Tonga12696 Sri Lanka

7 The HIPC Process

8 Irrevocable Debt Relief Decision Point 6 months on track with reform program and PRSP or I-PRSP in place Calculation of relief due Agreement on country-specific completion point triggers Country meets HIPC eligibility criteria Completion Point Interim Period Satisfactory performance of reform program One year of execution of PRSP Meet completion point triggers Preliminary Document Interim relief

9 Where does Kyrgyz Stand?

10 The Multilateral Debt Relief Initiative (MDRI)

11 The MDRI The MDRI on IDA and IMF claims occurs at the HIPC Completion Point: The MDRI on IDA and IMF claims occurs at the HIPC Completion Point: A country must reach the HIPC Completion Point. A country must reach the HIPC Completion Point. 100% cancellation of outstanding debt to the IDA (as of end-2003) and the IMF (as of end-2004). 100% cancellation of outstanding debt to the IDA (as of end-2003) and the IMF (as of end-2004). For the Kyrgyz Republic, initial figures suggest a debt write-off of roughly USD 520 million (assuming completion point in Dec-2007). For the Kyrgyz Republic, initial figures suggest a debt write-off of roughly USD 520 million (assuming completion point in Dec-2007). Caveat: All figures are “back of the envelope” and intended for illustrative purposes only

12 Likely Impact on Public Finances In 2007, HIPC debt service relief (interim assistance) will be roughly USD 30 million. In 2007, HIPC debt service relief (interim assistance) will be roughly USD 30 million. Once Completion Point is reached, annual debt service relief, including the MDRI, will be reduced by an average USD 42 million over Once Completion Point is reached, annual debt service relief, including the MDRI, will be reduced by an average USD 42 million over Amount of debt service reduction will remain substantial, though it will generally decline thereafter. Amount of debt service reduction will remain substantial, though it will generally decline thereafter.

13 Estimated Debt Service Relief Includes HIPC and MDRI relief. Red numbers are averages for the years concerned.

14 Main Considerations Benefits Direct, irrevocable debt service relief from multilateral, bilateral, and commercial creditorsDirect, irrevocable debt service relief from multilateral, bilateral, and commercial creditors MDRI: 100% debt cancellation from IDA and IMFMDRI: 100% debt cancellation from IDA and IMF Debt relief creates fiscal space for social spendingDebt relief creates fiscal space for social spending Policy signalingPolicy signaling Strong commitment to stabilization Strong commitment to stabilization Credit worthiness Credit worthinessConsiderations Additional conditionality but most envisioned by the NPRS Some bilateral creditors may scale back new assistance for a few years after they grant debt relief

15 Additional Considerations Concerns that becoming a HIPC would adversely affect FDI inflows into Kyrgyz Republic are unfounded: Concerns that becoming a HIPC would adversely affect FDI inflows into Kyrgyz Republic are unfounded: Current or prospective FDI are primarily in traditional sectors;Current or prospective FDI are primarily in traditional sectors; Large share of FDI comes from the CIS or neighbor countries and would not be deterred by the HIPC status;Large share of FDI comes from the CIS or neighbor countries and would not be deterred by the HIPC status; On the contrary, better debt solvency indicators and structural reforms would send a strong signal to potential investors.On the contrary, better debt solvency indicators and structural reforms would send a strong signal to potential investors.

16 Special case – MDRI by the IMF Non-HIPC countries are eligible to receive the MDRI on IMF claims if their per capita income is below USD 380. Non-HIPC countries are eligible to receive the MDRI on IMF claims if their per capita income is below USD 380. Under this window, the IMF cancelled USD 99 million in debt owed by Tajikistan. Under this window, the IMF cancelled USD 99 million in debt owed by Tajikistan.

17 Thank You