Transcript HIPC Expenditures, Ownership and the Role of Donors

HIPC Expenditures,
Ownership and the Role of
Donors
Robrecht Renard
University of Antwerp
I. Introduction
Financial flows between low-income
countries and public donors consist of
outflows of debt service payments
plus
inflows of grant aid and new loans

resulting in considerable net inflows
Net transfers to SSA countries
billions $
Long-term official debt
New loans
Principal reimbursement
Interests
Net transfers
Grants
Technical assistance
IMF net transfers
Official Net Transfers*
Long-term private debt
New loans
Principal reimbursement
Interests
Net transfers
Foreign investment
Net flows
Dividends
Net transfers
Private Net Transfers
Total Net Transfers
* : inclusive of technical assistance and IMF
Source: Global Development Finance 2002
1980
1990
1995
1996
1997
1998
1999
2000
2001
4.2
-0.7
-0.7
2.9
3.6
2.7
0.7
9.9
7.2
-2.6
-2.7
1.9
12.0
5.0
-0.5
18.4
5.9
-3.0
-2.0
0.9
11.4
5.0
0.1
17.3
5.3
-3.3
-2.7
-0.7
10.2
4.9
-0.1
14.4
4.9
-3.0
-2.1
-0.1
9.6
4.4
-0.6
13.3
4.3
-3.1
-2.0
-0.9
10.4
3.9
-0.4
13.0
3.8
-3.2
-2.0
-1.4
10.8
3.4
-0.1
12.6
3.8
-2.7
-1.6
-0.4
10.3
3.7
-0.1
13.6
4.6
-3.4
-2.1
-1.0
9.9
3.6
-0.2
12.3
6.3
-2.1
-1.7
2.5
2.5
-2.1
-1.7
-1.2
5.2
-4.1
-2.0
-0.9
4.3
-5.5
-2.2
-3.3
7.2
-7.0
-1.6
-1.4
3.4
-4.8
-1.8
-3.2
4.3
-5.0
-1.6
-2.3
4.4
-4.9
-1.6
-2.1
5.8
-5.6
-1.7
-1.5
0.0
-2.9
-2.9
-0.4
9.5
0.8
-1.7
-0.9
-2.1
16.3
9.3
-4.4
4.9
4.0
21.3
6.5
-4.2
2.3
-1.1
13.3
9.7
-3.9
5.8
4.3
17.6
7.0
-4.2
2.8
-0.4
12.7
11.8
-4.5
7.3
5.0
17.7
7.6
-4.8
2.8
0.7
14.3
14.3
-5.9
8.4
6.9
19.2
Financial conditions
unweighted averages for HIPCs for which data are availabe
1970 1980 1990 1995 1999
OFFICIAL CREDITORS
Average interest (%)
2.6 3.6 2.5 1.9 1.1
Average grant element (%)
average
58
47
59
66
73
maximum
83
91
83
81
83
minimum
23
11
20
6
8
Average maturity (years)
31
26
31
33
37
Average grace period (years)
9
7
8
9
9
ALL CREDITORS
Average interest (%)
3.5 4.8 2.9 2.0 1.5
Average grant element (%)
average
49
38
56
63
69
maximum
83
91
83
81
83
minimum
14
-6
14
5
3
Average maturity (years)
27
22
29
31
35
Average grace period (years)
7
6
8
8
9
source: Global Development Finance 2001, World Bank
• Notwithstanding positive net transfers and high
loan concessionality,
• many recipients have difficulty servicing their old
debts,
• while facing severe administrative and managerial
constraints in absorbing new aid,
• suggesting a recurrent fiscal constraint
• and a mismatch of aid instruments (project aid
versus budget support) and financial conditions
(soft loans versus grants).
Debt relief is
akin to budget support
• and has similar advantages
– relieves the recurrent fiscal constraint
– enhances fiscal ownership
– has low transaction costs for the recipient
• and then some more
– is predictable
– is not pro-cyclical
– reduces debt overhang
Debt relief
as an instrument of aid makes extra sense
in view of the fact that
• LICs might be unable to absorb the extra
new aid required to achieve the MDGs
• donor public opinion favours debt
cancellation over identical new flows
Extra ODA to achieve MDGs
Additional aid levels required to halve poverty (income growth)
Current
Additional
ODA levels
ODA
1999
required
($ billion)
“On Track” countries
33
-“Uphill” countries
24
54
Adequate policies and institutions
19
39
Weak policies and institutions
5
15*
Official development assistance
57
54*
Total aid (% of DAC GNP)
0.25
0.49
* assuming improved policies and institutions
source: World Bank
Debt relief also has some
disadvantages, such as
• moral hazard,
• adverse selection,
and it raises complex issues of
creditor burden sharing
All in all, one would expect a
substantial effort at debt
cancellation
Does HIPC live up to the
expectation?
II. Characteristics of HIPC
G-8 meeting
Toronto (1988)
London (1991)
Naples (1995)
Lyon (1996)
HIPC I
Cologne (1999)
HIPC II
reduction
33%
50%
67%
80%
modalities
service
service
stock
stock
>80%
stock
creditors
bilateral
bilateral
bilateral
bilateral+
multilateral
bilateral+
multilateral
HIPC II eligibility criteria
• low-income country
• unsustainable debt
• track record of sustained adjustment
– up to decision point: 3 years
– up to completion point: variable
• PRSP
Unsustainable debt
NPV of debt
 150 %
Exports
NPV of debt
 250%
Fiscal revenue
if
Exports
 30%
GDP
and
Fiscal revenue
 15%
GDP
Situation September 2002
•
•
•
•
•
•
26 countries reached their decision point
of which 6 countries their completion point
debt relief of > $40 billion (nominal)
debt as a per cent of GDP from 56% to 30%
debt service requirements cut by one-third
$1.3 billion annual savings
III. Some topics for discussion
• Is debt relief really additional?
• Should donors extend deeper debt relief?
• Is the conditionality right?
Is aid additional?
• virtual or illusory resources?
– compared to effective debt service, or
– compared to contractual debt service
• additional to other aid
• EURODAD
“ a glorified accounting excercise”
Fungibility could undermine
additionality
Pressure from
Purpose of pressure
Defensive tactic
Outcome
Fungibility caused by evasive
action on behalf of the aid
recipient (in the case of
project aid)
Donor, in form of project
conditionality
Implement the project, with a
view of increasing investment in
the sector concerned
Accept project, reduce own
effort in same sector
what you see is not what you
get: the project is there, but the
intended sector impact is
missing
Fungibility caused by evasive
action on behalf of the aid
donor (in the case of debt
relief)
International public opinion, in
the form of moral exhortation
Grant debt relief, with a view of
increasing net transfers
Accept to provide debt relief,
reduce aid effort elsewhere
What you see is not what you
get: debt relief has been
granted, but without an increase
in net transfers
Share of Debt Relief in DAC Members'
Total Net ODA in 2000
Net ODA (US$ million)
Net ODA Debt Relief (US$ million)
of which: Bilateral
Debt Relief as per cent of Net ODA
NetODA Debt Relief for HIPC countries (U$ million) (a)
HIPC Debt Relief as per cent of Net ODA
source: DAC
(a): including multilateral contributions to the HIPC Initiative
53,737
2,236
1,988
4.2
1,180
2.2
ODA from DAC countries
(billion US$ - 1998 prices)
billion US$
70
60
50
40
30
20
1960
1970
1980
1990
2000
years
ODA inclusive debt relief
ODA exclusive debt relief
Should donors go further?
• by moving the cut-off date forward in time?
• by redefining sustainability?
• by radically cancelling all public debt to
low-income countries?
The sustainability debate
• present definition is
– arbitrary
– non developmental
• proposal by anti-debt campaigners
– consider debt relief as an aid instrument
– take MDGs seriously
– define sustainability with respect to fiscal
spending for development
Which conditionality for HIPC?
• ex ante: adjustment plus pro-poor spending
• ex post: pro-poor expenditure tracking
– virtual funds
– comprehensive
– who should do the tracking?