1. Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative
Shonar Lala
Multilateral Development Bank Meeting on Debt Issues
June 21, 2006

2. Outline
Additionality
Debt Sustainability
Policy Performance

3. Debt relief has been additional

4. … so HIPC countries get a larger share of aid
Share of Net Resource Transfers
40%
54%
60%
46%

5. Debt ratios have regressed for many HIPC beneficiaries
Relief granted under E-HIPC reduced debt ratios to half their initial levels in 18 countries
But debt ratios have deteriorated subsequently in 11 out of 13 countries with current data
In 8 countries, they exceed HIPC thresholds of 150% or 250%
Mean Debt Ratios
(NPV of debt to exports/revenues)
Export
Fiscal
Before relief
310%
445
After relief
142
181
Current estimate (2003)
174
218

6. Why have post-completion point countries’ debt ratios risen?

7. HIPC beneficiaries continue to be vulnerable
Risk of debt distress
Vulnerabilities
Burkina Faso
Moderate
Needs to remain macro-economically stable and continue to mobilize revenues
Ghana
Double trade shock; hinges on highly concessional financing
Mali
Poor export performance or less favorable terms of donor financing; a nominal depreciation
Mauritania
Fiscal policy slippages and external shocks
Tanzania
Poor export performance or less favorable terms of donor financing
Uganda
Heavy reliance on donor support; macroeconomic shocks and imprudent debt management
Ethiopia
High
Terms of new borrowing and export shocks in particular; but sensitive to most stress tests
Rwanda
Needs highly concessional financing and swift diversification of exports
Source: Low Income Country Debt Sustainability Analyses

8. Post-completion point countries are the highest performers

9. HIPCs not yet at decision point have the worst governance of all low-income countries

10. Debt management capacity has worsened in all low-income countries

11. Summary
HIPC is affecting the overall allocation of concessional resources
Debt relief alone does not guarantee debt sustainability
Countries not yet at decision point face serious challenges in managing their economies
HIPC countries need help in improving their debt management capacity