Financial Times (U.K.)
September 13, 2004
Washington: International efforts to lighten the debt burden on the world’s poorest countries are failing to provide the expected level of relief, according to a new report to be discussed today by finance ministers from the G7 nations.
Charity groups are hoping that the annual progress report by the World Bank and International Monetary Fund will add to pressure on wealthy countries to write off 100 per cent of the debt of the most impoverished states – a prospect raised at the last G7 meeting at Sea Island, Georgia.
The Highly Indebted Poor Countries Initiative (HIPC) was set up eight years ago with the aim of eliminating Dollars 100bn (Pounds 55bn, Euros 80bn) of the debt of the poorest countries. So far about a third of the debt has been cancelled and some estimates suggest HIPC countries still have about Dollars 90bn in debt stock.
The latest update provides additional evidence that even those countries that have received HIPC relief have unsustainable debt levels – defined by the initiative as more than 150 per cent of annual exports.
The cost of topping up relief to reach this level – estimated last year at Dollars 860m – is now expected to be more than Dollars 2bn, according to the report.
Last year’s report estimated that countries entering the process would spend Dollars 2.4bn servicing their debts last year. In fact they spent Dollars 2.8bn – an average of 15.2 per cent of government revenues and higher than the expected 14.6 per cent.
The report also produced new forecasts, suggesting that those countries qualifying for relief because of their high debt-to-export ratios would see these ratios fall by less than expected. Instead of emerging from the process with debt-to-export ratios averaging 140 per cent, they were now likely to end up with ratios of 171 per cent.
Max Lawson, policy adviser to Oxfam, said the research underlined the need for more radical action on debt. “We welcome signs that the G7 appear to be moving towards a full write-off of debt. The HIPC process – though positive – has been painfully slow.”
Some non-governmental organisations are worried, however, that a more generous debt write-off might be offset by a reduction in new aid. “It is vital that any deal results in real new money and is not just a piece of financial housekeeping,” said Romilly Greenhill, a policy officer at Action Aid.
Jubilee USA network, the debt campaigners, have pressed the IMF to sell or revalue part of its gold reserves in order to help pay for a debt write-off.