Debt Relief for the Poorest (PDF)

WORLD BANK OPERATIONS EVALUATION DEPARTMENT

Debt Relief for
the Poorest
An OEDReview of the
HIPC Initiative
Madhur Gautam

http://www.worldbank.org/oed

2003
THE WORLD BANK
Washington, D.C.

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Contents

vii

Acknowlegments

ix

Foreword
ix
ix
xi
xi

xiii

Executive Summary
xiii
xiii
xix
xix

xxvii
11.

Introduction

Evolution of the HIPC Debt Burden
The Consequences of an Excessive External Debt Burden

The HIPC Initiative
9
10
11
11

15

Progress and Current Status
Evaluation Design

Evolution of Debt and the Debt Problem
5
8

93.

Executive Summary
Resumo Executivo
Résumé analytique
Resumen

Abbreviations and Acronyms
2
3

52.

Foreword
Prefácio
Préface
Prólogo

Background
The Political Economy of HIPC
The HIPC Objectives
The Process

4. Design of the Initiative
15
15
18
23

Background
Consistency of the Design with Overall Objectives
Debt Sustainability
Performance Criteria
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DEBT RELIEF FOR THE POOREST:AN OED REVIEW OF THE HIPC INITIATIVE

25
25

27

5. Implementation Experience
27
27
30
34
35

37

Debt Sustainability
Progress Toward Performance Criteria
Incremental Resource Transfer
Debt Management Capacity
Likely Outcomes

7. Findings and Recommendations
53
55
56
56
57

59

Pace of Implementation
Debt Sustainability Analysis
Performance Criteria
Creditor Participation
Institutional Development: Capacity Building for External
Debt Management

6. Likely Outcomes—Preliminary Findings
37
42
46
50
51

53

Creditor Participation
Capacity Building

Relevance
Efficacy and Efficiency
Sustainability
Institutional Development
Recommendations

Annexes
61
63
65
67
69
71
73
77
81
87
89
95

A:HIPCInitiative:Status of Country Cases Considered under the
Initiative, July 2002
B:The Objectives and Guiding Principles for the HIPC Initiative
C:HIPC Debt Initiative:Flow Chart
D:Evaluation Approach
E:Change in Net Transfers to HIPCs, by Source
F: How Does a Large Debt Stock Affect Economic Performance?
G:Debtor Country Perspectives on the Heavily Indebted Poor Country
(HIPC) Initiative
H:Creditor Country Perspectives on the Heavily Indebted Poor Country
(HIPC) Initiative
I: Synthesis of Main Findings from Case Studies
J: Constraints to Growth as Identified by OED Country Assistance
Evaluations
K: Management Response
L: Chairman’s Summary: Committee on Development Effectiveness (CODE)

99

Endnotes

105

References
Figures
6
7
20

iv

2.1 Evolution of the HIPC Debt Burden
2.2 Net Resource Transfers to HIPCs Have Outpaced Debt Service
4.1 HIPC Target for Debt-to-Export Ratio Compared with
Other Poor Countries

CONTENTS

21
30
40
40
41

4.2
5.1
6.1
6.2
6.3

44

6.4

48
48

6.5
6.6

49

6.7

What Would Be a Good Debt-to-GDP Target?
Structural Adjustment Compliance Fosters GDP Growth
Projected Debt-to-Export Ratios (2000–10)
Projected Debt Service Ratios (2000–10)
Key Factors Affecting Debt Sustainability: Status of E-HIPC
Completion Point Countries
Average Policy Performance Scores of Early Entrants, the
“Millennium Rush” Group, and Late Entrants
Declining Aggregate Net Transfers to HIPCs
Sharply Declining Aggregate Net Transfers to All Developing
Countries (excluding Asian crisis countries)
HIPCs’ Growing Share of Aggregate Net Resource Transfers

Tables
5
12
29
38
39
43

2.1 External Debt as Percentage of GDP (period average)
3.1 The Original and Enhanced HIPC Frameworks in a Nutshell
5.1 Comparison of DSA Export Growth Projections and Historical
Performance
6.1 Debt Sustainability Indicators for O-HIPC Graduates
6.2 Debt Sustainability Indicators for E-HIPC Graduates
6.3 Countries with Difficulties Staying on Track with Macroeconomic and
Structural Programs in 2001

Boxes
2
16
32
35
36
42

1.1 Status of the 42 Eligible HIPCs (as of August 2002)
4.1 Uganda’s Influence on the Design of the HIPC Initiative
5.1 Debtor Countries Endorse the Links Between the HIPC Initiative and
the PRSP
5.2 PERs Highlight Absorptive Capacity Constraints in the Social Sectors
in HIPCs
5.3 Increasing World Bank Involvement in Debt Management Capacity
Building
6.1 Topping-Up and the Prospects for Debt Sustainability for Burkina Faso

v

Acknowledgments

T

his report was prepared by a team led by Devarajan, Sumana Dhar, Geske Djikstra, William
Madhur Gautam. Members of the core
Dorotinsky, Ceri Edmonds, Ibrahim Elbadawi,
team were Georgia Wallen, Shonar Lala, Mahyar Eshragh-Tabary, Gerald Flood, Indermit
and Yusuf Ahmad. Victoria Elliott provided over- Gill, Romilly Greenhill, Jo Marie Griesgraber,
all guidance to the team as manager of the Cor- Bernhard Gunter, Sanjeev Gupta, Maria Ionata,
porate Evaluation and Methods Group, with
Keith Jay, Kadima Kalonji, Nawal Kamel, Jeffrey
substantial input into the formulation of the
Katz, Heinz Kaufmann, Tony Killick, Jeni Klugfinal report. Professors Thomas M. Callaghy and man, Matthew Martin, Calvin McDonald, Rob
Jonathan Eaton contributed key background pa- Mills, John Mitchell, Ashoka Mody, Catherine
pers and have advised the team at critical stagesPattillo, Ann Pettifor, Malvina Pollock, Robert
of the review. Magdalene Apenteng, William Bat-Powell, Doris Ross, Alison Scott, Kathy Selvaggio,
taile, Sunday Khan, Michael Lav, and Mirafe Mar-Sudhir Shetty, Veena Siddharth, Miriam Tamane,
cos contributed to the country case studies.
Melissa Thomas, Rachel Turner, D. C. van der
Additional inputs were provided by Judith Hahn, Hoek, Nicholas Vaughan, Jian-Ye Wang, Howard
Robert Keyfitz, Carlos Reyes, and P. A. Shara- White, Alexandre Widmer, John Williamson, and
fudheen. Parveen Moses provided administrativeHanspeter Wyss.
support, with assistance from Annisa ClineOED is grateful to the Swiss Agency for DeThomas and Julia Ooro. William Hurlbut and
velopment Cooperation for financial assistance
Caroline McEuen edited the report.
to support a number of activities, including the
The evaluation has benefited from discusmultistakeholder workshop and background resions, comments, and assistance from numeroussearch. OED also thanks the U.K. Department
people. Special thanks are due to former and cur-for International Development for sponsoring
rent staff of the World Bank’s HIPC unit, in par- the Lilongwe and London workshops, Debt Reticular Mark Dorfman, Francis Earwaker, Anthonylief International for organizing the workshops,
Gaeta, Charlene Adam Gust, Young Chul Kim, and the finance ministers and their representaJacob Kolster, Vikram Nehru, and Axel van Trot- tives from the 24 HIPCs who participated in
senberg, for their cooperation at all stages of
these two workshops for their time and invaluthe review. Inputs from the following persons are able inputs. The evaluation benefited greatly
acknowledged with gratitude: Lisandro Abrego, from the feedback from the World Bank’s exMasood Ahmad, Oliver Buston, John Cady,
ecutive directors and their advisers from 14
Punam Chuhan, Stijn Claessens, Shantayanan creditor countries on their perspectives on the

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DEBT RELIEF FOR THE POOREST:AN OED REVIEW OF THE HIPC INITIATIVE

initiative. Thanks are due to the governments of the multistakeholder technical workshop held
Cameroon, Guyana, Malawi, Uganda, and Zam- in Washington in September 2002 for their time
bia for agreeing to be case study countries for and inputs.
this review, and to the numerous government
The study was published in OED’s Partnerofficials and civil society and donor represenships and Knowledge Group, under the direction
tatives interviewed in these countries. The coun- of Osvaldo Feinstein, by the Outreach and Distry case studies also benefited significantly from semination staff of the Knowledge Management
the assistance and inputs of the respective WorldUnit, including Patrick Grasso, lead knowledge
Bank and IMF country teams. Finally, the eval- management officer, Caroline McEuen, editor;
uation team is grateful to the participants of
and Juicy Qureishi-Huq, team assistant.

Gregory K. Ingram
Director-General, Operations Evaluation:
Nils Fostvedt
Director, Operations Evaluation Department (Acting):
Victoria Elliott
Manager, Corporate Evaluation and Methods:
Madhur Gautam
Task Manager:

viii

FOREWORD

P ORTU GU ÊS

EN GLI S H

FOREWORD

PREFÁCIO

The creation of the Heavily Indebted Poor Countries
A criação da Iniciativa para os Países Pobres Muito
(HIPC) Debt Initiative marked a turning point in the evoluEndividados (PPME) marca uma viragem na evolução do fition of development finance. The HIPC Initiative has been
nanciamento do desenvolvimento. A iniciativa para os
a catalyst for far-reaching changes in the processes surPPME tem sido catalisadora de mudanças de longo alrounding development assistance, reflecting the coming
cance nos processos que rodeiam a assistência ao desenof age of a new authorizing environment with the active
volvimento, o que reflecte a maturação de uma nova
participation of civil society. It has introduced greater
conjuntura que autoriza a participação activa da societransparency and accountability in the sovereign debt
dade civil. Ela introduziu uma maior transparência e resregime and raised development cooperation to a higher
ponsabilidade no regime da dívida estatal e elevou a
plane, including between the World Bank and the Intercooperação para o desenvolvimento a um nível mais alto,
national Monetary Fund.
inclusivamente a cooperação entre o Banco e o FMI.
This review by the Operations Evaluation Department Esta análise realizada pela OED mostra que a iniciativa
finds the HIPC Initiative highly relevant in addressing para os PPME é muito pertinente para abordar um grande
a key obstacle facing many poor countries. If the an- obstáculo que enfrentam muitos países pobres. Se o alíticipated debt relief is delivered in full, the initiative will vio previsto da dívida for prestado na sua totalidade, a inisucceed in substantially achieving its fundamental goal ciativa conseguirá alcançar substancialmente o seu
of reducing the excessive debt burden of the qualify- objectivo fundamental de reduzir o encargo excessivo da
ing countries. But the legitimizing process that helped dívida dos países qualificados. Mas o processo de legitimake the initiative a reality has also expanded its ob- mação que contribuiu para que a iniciativa se tornasse uma
jectives. The initiative seeks to provide a “permanent” realidade também ampliou os seus objectivos. A iniciaexit from debt rescheduling, promote growth, and re- tiva procura proporcionar uma saída “permanente” do release resources for social expenditures targeted at
escalonamento da dívida para promover o crescimento
poverty reduction. Achieving these objectives will re- e desbloquear recursos para as despesas sociais dirigidas
quire actions by donors and the HIPC governments
à redução da pobreza. Para atingir estes objectivos será
that are beyond the scope and means of the initiative. necessário que os doadores e os governos dos PPME
Unmanageable debt is a problem that needs to be tomem medidas que vão para além do alcance e dos
effectively dealt with, but it is also a result of economic meios da iniciativa.
and political factors constraining growth and poverty
A dívida descontrolada é um problema que tem que
reduction. The HIPC Initiative is thus an important
ser tratado efectivamente, mas também é o resultado
but small part of the overall development assistance de factores económicos e políticos que constrangem o
framework. Having provided the HIPCs with an opcrescimento e a redução da pobreza. A Iniciativa para os
portunity for a “fresh start,” the international comPPME é, portanto, uma parte importante, porém pemunity still faces a challenge in helping these countries quena, de toda a estrutura de assistência ao desenvolviset out on a sustainable path for growth and poverty mento. Tendo proporcionado aos PPME a oportunidade
reduction. This requires actions by the HIPC govern- de “começar de novo”, a comunidade internacional enments to adopt sound policy frameworks and a balfrenta ainda o desafio de ajudar os países que estão no
anced development strategy. It also requires actions bytrilho do crescimento e da redução da pobreza. Isso rethe international community to assist the countries to quer que os governos dos PPME tomem medidas para
enhance their exports and build needed institutional
adoptar um sólido quadro de políticas e sigam uma escapacities. A further challenge for donors, consistent tratégia de desenvolvimento equilibrado. Também re-

ix