The Case for Further Debt Relief

1
The Case for Further Debt Relief

• UNCTAD 6th Debt Management Conference
• Geneva, November 20, 2007
• Mark Roland Thomas
• Economic Policy and Debt Department
• The World Bank

2
What Has Been Achieved?

• 22 completion points, 10 interim countries
• 70 billion (2006) committed
• Debt service halved by HIPC
• 18 of exports at DP to 8 4 years later
• Debt service cut further by MDRI
• 10 of exports in 2005 to forecast 3 in 2011
• Pro-poor spending up
• 6bn in 2000 to about 20bn in 2007 (DPs)

3
Creditor Commitments
MDRI
HIPC
4
HIPC/MDRI What Remains?

• 24 billion
• Challenges related to
• Arrears
• Governance
• Questions over
• Qualification
• Participation
• Dark matter

10
9
Afghanistan
Eritrea
Burundi
Kyrgyz Rep.
Central African Rep.
Nepal
Chad
Comoros
Congo, Dem. Rep.
Côte dIvoire
Congo, Rep.
Liberia
The Gambia
Somalia
Guinea
Sudan
Guinea-Bissau
Togo
Haiti
Interim-HIPC
Pre-HIPC
5
What would further debt relief look like?

• Like HIPC?
• Comprehensive but voluntary
• Thresholds
• Conditions
• Like MDRI?
• Not comprehensive, limited to certain creditors
• No thresholds, just eligible debt
• Conditions
• Both?
• Something completely different?

6
Debt Ratios in HIPCs
7
HIPC/MDRI II?

• Not much to forgive in the HIPCs
• Lower debt thresholds, higher income thresholds
  new countries?
  
• But, by definition, limited gain, since debt
  ratios were not above HIPC thresholds
  
• Possible exception of one or two countries just
  above the income threshold
  
• Move into territory with higher commercial share
• No thanks a real possibility
• MDRI will donors pay and how do they commit?

8
Further Debt Relief or More Aid?

• Sunset clause and ring-fencing were designed to
  avoid moral hazard
  
• Repeated/open-ended relief invites
  over-borrowing
  
• Especially relevant given private flows
• Unless you believe a very strong overhang story,
  debt relief does not allocate finance well
  
• Countries less capable of using it benefit
• Unless debt relief is additional and
  pre-financed, it may be robbing the poor to pay
  the poor

9
Conclusion

• There are major challenges pending to get the
  remaining HIPCs through the existing framework
  
• Need for focused donor effort on these cases
• With significant attached benefits
• Further debt relief may sound attractive
  until you consider the details
  
• Danger of arbitrary inclusion/exclusion
• Danger of moral hazard and induced
  over-borrowing
  
• Danger of inefficient allocation
• Danger of eviscerating development finance