Debt Relief Mechanisms Under Ministerial Scrutiny

Zambia's Minister of Finance, Peter Ng'andu Magande, who has taken over as chair of the ministerial forum

Finance Ministers from some of the Commonwealth's least developed countries have been discussing the various mechanisms and facilities for debt relief and poverty reduction. At the Commonwealth Heavily Indebted Poor Countries (HIPC) Ministerial Forum held in Livingstone, Zambia, from 10 to 12 April 2006, they focused, among other things, on the Multilateral Debt Relief Initiative (MDRI), Exogenous Shocks Facility (ESF) and the IMF/World Bank Debt Sustainability Framework (DSF).

The ministers welcomed the establishment of the MDRI following the G8 proposal in 2005 for the cancellation of HIPC debt claims of the International Monetary Fund (IMF), International Development Association (IDA) and the African Development Fund (AfDF). They raised concerns, however, that the IDA had shifted the cut-off date of eligible debts from end-2004 to end-2003, with the implementation taking place in July 2006. HIPC countries would lose significantly in debt relief because of the change of dates. Noting that the IMF and AfDF had retained the end-2004 cut-off date, the ministers said consistency between institutions was important and called on the IDA to reconsider its decision. They also called on donors to provide adequate funding for IDA to do so.

The ministers urged appropriate follow-up initiatives that could lead to further debt relief by other multilateral institutions, and called for permanent solutions to the problems of bilateral and commercial debts. The establishment of the concessional ESF -- a facility to deal with an unexpected event, which is beyond the control of a country, that impacts negatively on its economy -- within the Poverty Reduction and Growth Facility (PRGF) Trust in the IMF was also welcomed. The ministers said, however, that the ESF had a number of shortcomings that needed to be addressed if it was to be a useful mechanism to provide quick assistance to low income countries. For example, the ESF was only open to PRGF-eligible countries which had not yet put PRGF arrangements in place. Poverty Reduction Strategy Papers around which PRGF-supporting programmes are framed, also take a lot of time to prepare.

The ministers said the IMF should carry out a thorough consultation with the intended beneficiaries of the ESF to ensure that it reflects their needs and does not suffer the fate of low patronage that has characterised IMF's previous shock-mitigating facilities. They also urged strengthened mechanisms in the IMF for catalysing shock mitigating assistance from other donors and reiterated the need for similar facilities in the IDA and AfDF. The ministers also agreed that the IMF/World Bank Debt Sustainability Framework, designed to regulate new debt financing by low income member countries, remained of continuing relevance particularly for determining debt distress possibilities and grant/credit allocations.

The ministers and officials were from Cameroon, Ghana, Mozambique, Sierra Leone, Uganda, United Republic of Tanzania and Zambia. Others who attended the forum included specially invited delegates from Kenya, the United Kingdom, Burundi, Madagascar, Niger, the World Bank, IMF, African Development Bank, West African Institute for Financial and Economic Management, Macroeconomic and Financial Management Institute of Eastern and Southern Africa, the Organisation Internationale de la Francophonie and the Commonwealth Foundation.

The Minister of Finance for Zambia, Peter Ng'andu Magande, has taken over the chair of the Forum, replacing Mozambique's Minister of Finance Manuel Chang.

The full text of the Commonwealth HIPC Ministerial Forum Statement is available at http://www.thecommonwealth.org/.

 

CNIS - Commonwealth News and Information Service Issue 281, 19 April 2006

Secretariat Links:

• HIPC Ministerial Statement 2006