Debt & Debt Relief

Which countries have the largest debts?

• United States$ 13,750,000,000,000

• United Kingdom$ 9,041,000,000,000

• Germany$ 5,158,000,000,000

• France$ 4,935,000,000,000 • Netherlands$

2,461,000,000,000• Ireland$ 2,356,000,000,000• Italy$ 2,328,000,000,000• Spain$ 2,317,000,000,000• Japan$ 2,231,000,000,000• Luxembourg$

2,020,000,000,000

• Belgium$ 1,354,000,000,000

• Switzerland$ 1,305,000,000,000

• Austria$ 832,800,000,000 • Australia$

799,800,000,000• Canada$ 781,100,000,000 • Hong Kong$

659,900,000,000 • Sweden$ 617,300,000,000 • Denmark$

588,800,000,000 • Greece$ 504,600,000,000• Portugal$ 484,700,000,000

What about Poorer Countries?

• The poorest 49 countries have debts totalling US $375 billion,

• The poorest 144 countries, it is over US $2.9 trillion.

• For every $1 in aid the developing world pays $13 on debt repayment (2000)

Which Countries are in Debt?Public Debt % of GDP

Why are countries in debt?

• Low industrial growth• High interest rates• Rise in old prices• Falling commodity prices

Heavily Indebted Poor Countries (HIPC) Initiative

• Launched 1996-7 by IMF & World Bank- Endorsed by 180 governments

- To relieve certain low income countries of their unsustainable debt to donors

- Promote reform and sound policies for growth, human development & poverty reduction

How does debt relief work?

• At the decision point the country gets debt service relief after adherence to an IMF program and progress in developing a national poverty strategy

• At the completion point the country gets debt stock relief on approval by the world bank & the IMF of its poverty reduction strategy. The country is entitled to at least 90% debt relief from its creditors.

What is ‘debt service’ & ‘stock relief’?

• ‘debt service’ is the cash required over a given period for the repayment of interest and principal on a debt

• ‘stock relief’ is the cancelling of specific debts this will achieve a reduction in debt service over the life of a loan

HIPC InitiativePost-Completion-Point Countries

Benin Guyana NigerBolivia Haiti Rwanda

Burkina Faso Honduras São Tomé & PríncipeBurundi Madagascar Senegal

Cameroon Malawi Sierra LeoneCentral African Republic Mali Tanzania

Ethiopia Mauritania UgandaThe Gambia Mozambique Zambia

Ghana NicaraguaInterim Countries

Afghanistan Democratic Republic of the Congo

Guinea Bissau

Chad Côte d'Ivoire LiberiaRepublic of Congo Guinea Togo

Pre-Decision-Point Countries Comoros Kyrgyz Republic SudanEritrea Somalia

Successful?• Boosting social spending. On average, such

spending is about six times the amount of debt-service payments.

• Reducing debt service. For the 35 countries receiving debt relief, debt service paid, on average, has declined by about 2½ percent of GDP between 1999 and 2007.

• Improving public debt management. Debt relief has markedly improved the debt position of post-completion point countries, bringing their debt indicators down below those of other HIPCs or non-HIPCs

WARNING

• MEDCS must at the same time:– Increase Official Development Assistance– Remove tariffs & quotas– Finance debt reduction to ensure sustainability

• Criticized by some for “half-hearted inadequate, piecemeal cancellation– Purpose to ensure repayment not cancellation