The UK's participation in the HIPC Initiative
The UK continues to be a champion of the HIPC Initiative.
The UK goes further than is required under the terms of the Initiative, cancelling 100 per cent of all bilateral debt owed by eligible HIPCs at Completion Point and providing 'topping up' assistance where a country has suffered an exogenous shock that threatens its long-term debt sustainability. We are also the second largest contributor to the HIPC Trust Fund which helps international finance institutions meets the costs of debt relief under HIPC.
We also offer debt relief unilaterally for non-HIPC poor countries under the UK MDRI (see below).
The Multilateral Debt Relief Initiative (MDRI)
Despite the successes of HIPC, debt owed by the poorest countries to the multilateral institutions remained a significant issue to them - up to 80 per cent of some poor countries' debt burdens. The UK therefore used its Presidencies of the G8 and EU in 2005 to promote 100 per cent debt relief by multilateral institutions to match the 100 per cent relief already given by many bilateral donors.
In June 2005, the G8 agreed a proposal for a Multilateral Debt Relief Initiative (MDRI) that will cancel 100 per cent of the remaining debts of HIPCs to the concessional lending arms of the World Bank (IDA), IMF and African Development Bank (AfDF). Under MDRI, HIPC countries receive 100 per cent debt relief to these institutions when they reach 'Completion Point' under the HIPC initiative.
In early 2007, the Inter-American Development Bank also decided to provide similar debt relief to the five HIPCs in the Western Hemisphere.
In total, MDRI is expected to deliver a total of around $50 billion of debt relief for 41 countries. The 23 countries that have already reached 'Completion Point' under HIPC have already received 100 per cent irrevocable debt cancellation.
UK Multilateral Debt Relief Initiative (UK MDRI)
The UK believes that all of the poorest countries that can use the savings from debt relief for poverty reduction should be eligible for 100 per cent multilateral debt relief.
Under the UK MDRI, we therefore pay our share (10 per cent) of the debt service owed to the World Bank and African Development Bank by all other low-income (IDA only) countries with sufficiently robust public expenditure management systems to ensure that the debt relief savings help progress towards the MDGs.
We have changed the UK MDRI eligibility criteria to provide a clearer focus on good public financial management. This enables more of the poorest countries to benefit from debt relief. Under the revised criteria, five new countries will qualify to receive UK MDRI in addition to Vietnam, Georgia, Moldova, Nepal, Mongolia, Armenia and Cape Verde, who all currently benefit from UK-MDRI. Last year in Vietnam, over US$10 million of debt relief provided through UK-MDRI helped rebuild schools and housing destroyed in the recent floods.
The UK continues to encourage other donors to join with us in providing this additional relief.
