Develop a global partnership for development
Target 15: To deal comprehensively with the debt problems of developing countries through national and international measures and make debt sustainable in the long term.
Progress
Over $117 billion of unpayable debt has been written off through the Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI).
35 countries are currently receiving debt relief, with 5 still able to qualify when they meet the necessary conditions. Annual spending on anti-poverty programs increased from approximately $6 billion in 1999 to almost $27 billion in 2008.
Key Messages
Debt relief provides long term, additional resources for countries to spend on health, education and infrastructure as set out in national Poverty Reduction Strategies. The UK is at the forefront of debt cancellation for poor countries and international poverty reduction. UK policy is to promote responsible and sustainable lending to poor countries to ensure that lending does not contribute to the build-up of new debts. We are carefully monitoring the effect of the global economic crisis on the debt levels of poor countries.
Facts and Figures
The HIPC Initiative
- 26 countries have now reached ‘Completion Point’ of the HIPC Initiative, the stage at which countries receive an irrevocable reduction in their debts (including 100% cancellation from most bilateral creditors, including the UK).
- 9 countries have reached ‘Decision Point’ of the HIPC Initiative, the point at which they receive interim relief (i.e. making no payments on their debts)
- 5 more countries remain eligible for debt relief under the HIPC Initiative but their progress has been hampered by conflict, poor economic management or serious governance concerns.
- Poverty-reducing expenditures in countries that receive HIPC assistance have risen from $5,952 billion in 1999 to $26,697 billion in 2008.
The Multilateral Debt Relief Initiative (MDRI)
- 26 HIPCs have now received 100% debt cancellation at the World Bank, IMF and African Development Bank.
- Up to 14 others will also receive 100% debt cancellation when they reach HIPC Completion Point.
- Donors will pay the World Bank and the African Development Bank the full cost of the debt they cancel. These banks will share these extra resources amongst the poorest countries for poverty elimination programmes.
The UK Multilateral Debt Relief Initiative (UK MDRI)
- The UK Multilateral Debt Relief Initiative is designed to help poor countries that do not yet qualify for the HIPC Initiative.
- To qualify for the UK MDRI, countries must demonstrate good financial management.
- 8 countries (Cape Verde, Lesotho, Moldova, Mongolia, Nepal, Samoa, Vanuatu and Vietnam) currently receive assistance under the UK MDRI. We pay 10% of their annual debt service to the World Bank and, for African countries, the African Development Bank.
- To date over £68 million has been provided under this initiative.
Challenges and Solutions
The impact of the economic crisis is a stark reminder that gains made in moving towards the Millennium Development Goals can be fragile. We are carefully monitoring the effect of the economic crisis on the debt levels of poor countries. Countries in strong debt positions remain robust to the crisis. The global nature of the crisis requires a strong multilateral response. We are working closely with International Financial Institutions and partner countries to ensure the action is targeted and timely.
It is vital that the savings from debt relief are used well for poverty reduction. It is also important that countries have the resources they need to achieve the MDGs without getting back into unsustainable debt. The primary duty for responsible borrowing rests with the borrowing country itself and, to help, the UK is providing support to assist countries to develop their debt management capacity. We also need to ensure that countries and creditors can make informed decisions on appropriate lending. For example, if a country might struggle to repay debts, new financing will be given as grants instead. We are also working with partners to ensure that new loans taken on by countries are affordable, appropriate and will contribute to development
What the UK government is doing to help
The UK exceeds its obligations under HIPC, cancelling 100% of debts for qualifying countries.
DFID has cancelled nearly all of its old aid loans and debts of qualifying middle-income Commonwealth countries. The UK plays an active part in the Paris Club (a group of 19 official governement creditors) and offers generous debt relief as part of deals agreed by the club. The Paris Club offers debt resolutions for any country. The largest ever debt deal was agreed in 2006 by the Paris Club for Nigeria (a non-HIPC). In total, the UK wrote off £2.853 billion. In order to reduce the risk of debts falling into the hands of vulture funds, we are working with the World Bank to help poor countries buy back their commercial debts at a deep discount through the Debt reduction Facility. The UK has committed £5 million to the Legal African Support Facility in order to increase help to poor countries to tackle vulture funds. The UK is at the forefront of international initiatives on responsible lending and borrowing, aimed to ensure that poor countries do not accumulate unsustainable debts in the future.
There is an important balance to be struck between a country’s need for more finance to meet the Millennium Development Goals (MDGs) and debt sustainability.
In January 2008, the UK helped secure agreement at the Organisation for Economic Co-operation and Development (OECD) to a set of principles and guidelines to promote sustainable lending practices to low-income countries. These oblige Export Credit Agencies to try to ensure that lending decisions do not contribute to future debt distress. The UK has been instrumental in securing an additional $50 billion at the London Summit in 2009 which is being made available for Low Income Countries (LICs) to mitigate the effects of the economic downturn.
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