Debt Relief For Ethiopia and Niger

By Andrew Balls in Washington Financial Times;
Mar 26, 2004

Niger and Ethiopia have received debt relief under the heavily indebted poor country (HIPC) initiative after rich countries settled a dispute over granting additional debt relief.

The delay in Niger and Ethiopia reaching what is called "completion point" in the programme resulted from a disagreement among executive directors of International Monetary Fund and the World Bank over the "topping up" of debt relief to reflect low interest rates.

Some countries, including the UK, France and Canada, have argued that poor countries should be granted additional debt relief because low interest rates raise the net present value of a country's debt burden.

Countries which had opposed topping up, including the US, Germany and Japan, are understood to have acquiesced.

Niger and Ethiopia are now expected to exit the HIPC in the next few weeks. John Taylor, the US Treasury's top international official, recently visited Niger as part of an African tour.

World Bank and IMF staff sent reports to their respective boards this month that supported topping up to reflect low interest rates.

The World Bank document, seen by the Financial Times, says: "Movements in nominal interest rates have been associated with changes in expected inflation, and so lower interest rates would imply an increase in the country's real burden of servicing its nominal fixed rate debt."

It follows, it says, that "changes in discount rates should be interpreted as signalling a fundamental change in the economic circumstances of HIPCs".

Net present value (NPV) calculations use a discount rate to determine the present value of future payments. The discount rate, under HIPC rules, is an average of long-term interest rates in industrial countries. The report estimates, using year-end 2003 data, that Ethiopia would receive topping up worth $643m in NPV terms, and Niger $143m.

Oliver Buston, spokesman for Data, the campaign group, said: "If the millennium development goals are going to be met then African governments must invest in health and education and this requires an injection of resources from rich countries."