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Debt Relief

Volume 684: debated on Wednesday 5 July 2006

My right honourable friend the Secretary of State for International Development (Hilary Benn) has made the following Written Ministerial Statement.

Since my last Written Statement in November 2005, there has been excellent progress on providing debt relief for poor countries.

Under the Multilateral Debt Relief Initiative (MDRI) proposed by the G8 in 2005, the IMF cancelled 100 per cent debt stock for 20 HIPC countries (15 of which are African) in January 2006 and for another, Cameroon, since. The MDRI has now been approved by the World Bank and African Development Bank. In addition to the IMF debt stock cancellation, 100 per cent of debt stock,debt owed by 19 countries at the International Development Association (IDA) of the World Bank, has been cancelled. We expect similar cancellationfor 15 countries at the African Development Fund (AfDF) of the African Development Bank soon, backdated to 1 January 2006. Overall, $36 billion (approximately £20 billion) will then have been cancelled. Up to 24 other countries will also receive debt stock cancellation when they reach the required standards, bringing the total value of cancellations under the MDRI to over $50 billion. Around$1 billion a year will be freed up for spending on poverty reduction in 2007, rising to $1.7 billion by 2010. All poor countries borrowing from IDA and the AfDF will benefit from the increased donor resources provided to IDA and AfDF under the MDRI to compensate for the forgone debt flows.

In addition to MDRI, steady progress has been made in implementing the Heavily Indebted Poor Countries (HIPC) Initiative, with eligibility extended to more countries this year. Cameroon completed the initiative in May, becoming the 19th country to receive irrevocable debt relief, and the Republic of Congo has begun to receive interim relief. A further 10 countries also receive interim relief and 14 others remain eligible for debt relief when they reach the required standards. The UK continues to meet and exceed our commitments under HIPC, offering 100 per cent cancellation of bilateraldebts to countries at HIPC completion point. Over £100 million-worth of UK Export Credit Guarantee Department and CDC debts held by Cameroon have now been cancelled. Other Paris Club (government creditors) members have also agreed extensive debt stock cancellation for Cameroon. Three other countries, Malawi, São Tomé and Príncipe and Sierra Leone, are on course to complete the HIPC process by the end of the year. The UK remains the second largest bilateral contributor to the HIPC Trust Fund, which helps multilateral organisations deliver their HIPC assistance in a timely manner.

The largest ever debt relief deal by the Paris Club for an African country, Nigeria, has now been concluded. The deal resolved 100 per cent of Nigeria's debts to Paris Club government creditors, with $18 billion of debt written off. Nigeria used $12.4 billion of its oil windfall to buy back the remaining debt. The UK cancelled debts worth$2.85 billion as part of the deal. We have also worked hard to ensure savings will be used to reduce poverty—the deal will free up $1 billion a year for Nigeria to spend on employing an extra 120,000 teachers, putting 3.5 million children into school, and other health, education and social investments.

The UK also supports debt relief for all poor countries—not just those classed as HIPCs—that can use the debt service savings to make progress towards the millennium development goals. We therefore continue to offer debt relief (reimbursements of10 per cent of debt service to the IDA and the AfDF) to other qualifying countries under the UK Multilateral Debt Relief Initiative. Two new countries, Cape Verde and Georgia, recently qualified for this assistance, bringing the total number of recipients to six: Armenia, Cape Verde, Georgia, Mongolia, Sri Lanka and Vietnam.

Additional debt relief has also been granted to the Government of Jamaica for a further year under the Commonwealth Debt Initiative (CDI). This will mean that Jamaica will not repay £5.63 million worth of official debt to the UK, representing payments that were due in the financial year 2006-07. Each year we also look at providing relief under CDI for Belize. In February this year a further £1.21 million of debt relief for Belize was granted to use on reform programmes for poverty alleviation.