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Debt Relief

Volume 688: debated on Tuesday 9 January 2007

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

Since my last Statement in July, there has been further progress on debt relief for poor countries.

Debt cancellation, under the Multilateral Debt Relief Initiative (MDRI), was implemented at the African Development Fund (AfDF) of the African Development Bank on 1 September 2006, with relief backdated to 1 January 2006. The MDRI agreement at Gleneagles has therefore now been delivered at the IMF, the International Development Association (IDA) of the World Bank and at the AfDF. Over $38 billion (approximately £20 billion) of debts for 21 heavily indebted poor countries (HIPCs), as well as two other non-HIPCs, Cambodia and Tajikistan at the IMF, have now been cancelled under the MDRI. A further 22 countries will have their debts cancelled when they complete the HIPC process.

There are many good examples of the use countries are making of their savings under the MDRI1. Cameroon is using the $29.8 million of savings it will gain from the MDRI in 2006 for national poverty reduction priorities, including infrastructure, social sector and governance reforms. Uganda is using its $57.9 million savings in 2006 on improving energy infrastructure to try to ease acute electricity shortages, as well as primary education, malaria control, healthcare and water infrastructure (specifically targeting the poor and under-served villages). Zambia is using its savings of $23.8 million under the MDRI in 2006 to increase spending on agricultural projects on smallholder irrigation and livestock disease control, as well as to eliminate fees for healthcare in rural areas.

There has also been good progress in the Heavily Indebted Poor Countries (HIPC) initiative. Some 21 countries have now completed the HIPC initiative, with Malawi and Sierra Leone the most recent to do so, in August and December 2006 respectively. Upon reaching HIPC completion point, Malawi and Sierra Leone received 100 per cent bilateral debt cancellation from the UK, as well as debt cancellation under HIPC and the MDRI. Haiti reached HIPC decision point in November and will now receive interim debt relief. Debt relief worth $61.2 billion has been delivered or committed for 30 countries under HIPC to date.

The UK remains committed to the full financing and implementation of HIPC and the MDRI. We have recently contributed £10 million to the HIPC Trust Fund towards the costs of debt cancellation for Malawi at the AfDB, and made a generous pledge towards the trust fund's overall financing needs in the next three to four years. The UK will also contribute £1.3 million towards the costs of clearing the Central African Republic (CAR)’s arrears to the African Development Bank, an essential prerequisite for the bank's re-engagement in the country and for CAR to qualify for debt relief in due course.

Last autumn, after strong lobbying by the UK, the international community agreed to remove the requirement (known as the HIPC sunset clause) that countries must have started a programme of support with the IMF by the end of 2006 to remain eligible for debt relief. All 13 countries that have yet to reach HIPC decision point will therefore still be able to qualify for debt relief.

The UK supports debt relief for all poor countries—not just HIPCs—that would use the savings to progress towards the millennium development goals. We therefore continue to offer debt relief (reimbursements of 10 per cent of debt service payments to IDA and the AfDF) to qualifying low-income countries under the UK Multilateral Debt Relief Initiative. Moldova recently qualified for this assistance, bringing the total number of recipients to seven countries.

The UK is working with the World Bank, IMF, African Development Bank and other development partners to ensure that countries that have benefited from debt relief can access the financing they need to reach the millennium development goals, without re-accumulating unsustainable levels of debt. The joint World Bank/IMF Debt Sustainability Framework (DSF) provides guidance on new borrowing and lending to low-income countries. Countries that may struggle to repay loans receive grants from the World Bank and African Development Bank instead. The UK is also leading efforts among export credit agencies (ECAs) to agree new guidelines on responsible lending to countries that have received debt relief. It is important that borrowers and lenders work together to ensure any new borrowing is appropriately concessional, well targeted and used for productive purposes.

1 As reported by recipient countries to the World Bank and IMF.