IMF Policies to Help
Low-Income Countries
Restore and Maintain
Debt Sustainability
Review Session on Chapter V of the
Monterrey Consensus
March 10, 2008
Martine Guerguil, IMF
Outline
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Restoring sustainability. Quick overview
of advances under the HIPC and MDR
Initiatives since Monterrey
Maintaining sustainability. Quick overview
of IMF support to low-income countries in
the design of sound borrowing policies
Part I
Restoring Sustainability
HIPC Initiative and MDRI

Original HIPC Initiative launched in 1996 to
reduce debt burdens of eligible countries to
sustainable levels
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Enhanced in 1999 to provide deeper debt relief
Equitable burden sharing: all creditors, including
commercial ones, are expected to participate
Further steps taken to accelerate and facilitate
access to debt relief, most recently for HIPCs
with protracted official arrears
MDRI introduced in 2005 to complete debt
relief and provide more resources to foster
development
Implementation to Date (I)
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32 countries are past the decision point,
of which 23 countries past the completion
point
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Most have reached these stages since
Monterrey
9 countries still have to initiate the
process
Implementation to Date (II)
Post-Completion-Point Countries (23)
Benin
Honduras
Rwanda
Bolivia
Madagascar
São Tomé & Príncipe
Burkina Faso
Malawi
Senegal
Cameroon
Mali
Sierra Leone
Ethiopia
Mauritania
Tanzania
The Gambia
Mozambique
Uganda
Ghana
Nicaragua
Zambia
Guyana
Niger
Interim Countries (Between Decision and Completion Point) (9)
Afghanistan
Chad
Guinea
Burundi
Republic of Congo
Guinea-Bissau
Central African Republic
Democratic Republic of the Congo
Haiti
Pre-Decision-Point Countries (9)
Comoros
Kyrgyz Republic
Somalia
Côte d’Ivoire
Liberia
Sudan
Eritrea
Nepal
Togo
Countries in bold have reached their completion or decision point since Monterrey
Debt Burdens Have Been
Substantially Reduced...
Making Room for PovertyReducing Spending
Challenges in Implementation

The political, security and economic situation of
remaining HIPCs is challenging
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Most of them have experienced conflicts
A number have arrears to multilateral institutions,
which need to be cleared and raise financing issues
The debt relief framework is used with maximum
flexibility to address these challenges
More resources are needed to fully finance the
Initiatives
Increasing the participation of
non-Paris Club (NPC) creditors
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While all Paris Club creditors provide full
HIPC relief (and even beyond), only a few
NPC bilateral creditors do
Most provide only partial or no relief
Efforts to raise awareness and encourage
them to deliver their share of relief
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Information on IMF website
Good offices and technical assistance
Aggressively Litigating Creditors
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A small but highly visible group of creditors to HIPCs
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The international response to litigation is constrained

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As of mid-2007, 11 HIPCs targeted by 44 lawsuits.
24 judgments so far awarding about $1 billion
Participation in HIPC Initiative is voluntary
Little can be done without infringing contractual rights
Stepped-up efforts within these constraints
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Moral suasion
DRF-supported buybacks
Building debt management capacity
• Legal support (donor-funded) can help if provided early
Part II
Maintaining Sustainability
Maintaining Sustainability
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Debt relief frees up resources, but more resources
are needed to meet the MDGs
A new financial environment
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ODA is often falling short of commitments
Emergence of a more diverse group of lenders, both
public and private
A new policy challenge
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Investment opportunities are large
But additional lending, if in excessive volume or on
unfavorable terms, could contribute to the reemergence of debt vulnerabilities
IMF policies and tools
The debt sustainability framework
(DSF)
 Country-specific policy advice
 Technical assistance in the area of
debt management

The Debt Sustainability Framework (DSF)
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Developed by the IMF in 2002
A tool to:
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Examine the sources and extent of debt-related
vulnerabilities under alternative borrowing scenarios
Guide new borrowing decisions to match financing with
ability to repay debt
Design preventive policies to avoid debt payment
problems
Undertaken annually in the context of Article IV
consultations
The Debt Sustainability Framework for
Low-Income Countries (LIC DSF)
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Developed jointly by the World Bank in 2005
Acknowledges the specificities of low-income
countries’ debt
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Higher vulnerability to shocks
Weaker institutional settings
Joint debtor-creditor responsibility for outcomes
A tool to improve IFIs’ policy advice and guide their
provision of needed technical assistance
The DSF will be effective in preventing new crises
only if it is used actively by both creditors and
borrowers
Support to Borrowers
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Medium-term debt strategies (MTDSs)
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To meet government's financing needs at the lowest
possible cost consistent with a prudent degree of risk
Stepped-up capacity building program in debt
management
Concessional finance remains the most appropriate
form of finance for LICs, even after debt relief
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Many LICs remain susceptible to shocks, and have limited
capacity to manage debt
MDG-related expenditures generally do not generate the
cash flows necessary to service nonconcessional debt
Access to nonconcessional finance should be cautious and
gradual
Outreach to Creditors
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Information sharing
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DSAs produced annually on more than 60 LICs
A unique source of information and analyses on LICs’ debts
Most DSAs are published and can be found on a dedicated
webpage: http://www.imf.org/dsa
Awareness raising
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Enhanced cooperation is needed to avoid negative
outcomes
Some multilaterals already use DSA results in their
lending decisions (AfDB, AsDB, IFAD)
Development of sustainable lending principles
• OECD Export Credit Group
Thank you for your
attention
Further information at:
www.imf.org/dsa
Questions or queries?
Lending toLICs@imf.org