Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative Shonar Lala Multilateral Development Bank Meeting on Debt Issues June 21, 2006 www.worldbank.org/ieg/hipc

Outline Additionality Debt Sustainability Policy Performance

Debt relief has been additional

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

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

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

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

Post-completion point countries are the highest performers

HIPCs not yet at decision point have the worst governance of all low-income countries 1996 2004 1996 2004 1996 2004 1996 2004

Debt management capacity has worsened in all low-income countries

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