« back to menu

A Factsheet - April 2006

The Multilateral Debt Relief Initiative (MDRI)

What is the Multilateral Debt Relief Initiative (MDRI)?

In June 2005, the Group of 8 (G-8) major industrial countries proposed that three multilateral institutions—the IMF, the International Development Association (IDA) of the World Bank, and the African Development Fund (AfDF)—cancel 100 percent of their debt claims on countries that have reached, or will eventually reach, the completion point under the joint IMF-World Bank enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative). The HIPC Initiative entailed coordinated action by multilateral organizations and governments to reduce to sustainable levels the external debt burdens of the most heavily indebted poor countries. The MDRI goes further by providing full debt relief so as to free up additional resources to help these countries reach the MDGs. Unlike the HIPC Initiative, the MDRI does not propose any parallel debt relief on the part of official bilateral or private creditors, or of multilateral institutions beyond the IMF, IDA, and the AfDF.

How is the IMF implementing the MDRI?

Although the MDRI is an initiative common to three international financial institutions, the decision to grant debt relief is ultimately the separate responsibility of each institution, and the approach to coverage and implementation may vary. In deciding to implement the MDRI, the IMF Executive Board modified the original G-8 proposal to fit the requirement, specific to the IMF, that the use of the IMF's resources be consistent with the principle of uniformity of treatment. Thus, it was agreed that all countries with per-capita income of US$380 a year or less (whether HIPCs or not) will receive MDRI debt relief financed by the IMF's own resources through the "MDRI-I Trust". HIPCs with per capita income above that threshold will receive MDRI relief from bilateral contributions administered by the IMF through the "MDRI-II Trust". The MDRI-I Trust draws on resources from the 1999-2000 off-market sales of the Fund's gold, and the MDRI-II on transfers of contributions originally provided to fund concessional lending to low income countries under the Poverty Reduction and Growth Facility (PRGF).

MDRI relief covers the full stock of debt owed to the IMF at end-2004 that remains outstanding at the time the country qualifies for such relief. There is no provision for relief of debt disbursed after January 1, 2005, or for reimbursement of payments made after that.

Which countries are eligible for the MDRI?

All countries that reach the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative), and those with per capita income below US$380 and outstanding debt to the Fund at end-2004, are eligible for the MDRI. The list of eligible countries is detailed in Table 1 (see below).

Which countries have already qualified?

In December 2005, IMF staff assessed whether the group of 20 countries that were already eligible according to the criteria explained above effectively qualified for MDRI relief. To qualify, the IMF Executive Board required that these countries be current on their obligations to the IMF and demonstrate satisfactory performance in (1) macroeconomic policies; (2) implementation of a poverty reduction strategy; and (3) public expenditure management. The Board determined that 19 countries qualified for MDRI relief. They included 17 HIPCs that had reached the completion point, and two non-HIPC countries whose per capita income was below the established threshold. Debt relief—amounting to SDR 2.3 billion (US$3.4 billion, see Table 2), including remaining HIPC assistance—was delivered on January 6, 2006. Corrective actions were proposed for one member—Mauritania—whose performance needed to improve. Its qualification for MDRI relief will be reassessed once these actions have been implemented.

Countries that have not yet reached the completion point under the HIPC Initiative will qualify for MDRI relief upon reaching the completion point.

How much debt relief will be provided by the Fund?

The current estimate of the total cost to the IMF of MDRI debt relief and remaining HIPC assistance is around SDR 5.3 billion (about US$8 billion; figures are in end-2005 NPV terms), including the cost of debt relief already delivered in January 2006. The cost of MDRI relief alone (estimated at the time of Board approval in December 2005) was expected to be around SDR 3.5 billion (about US$5 billion).

The G-8 has committed to ensure that proposed debt forgiveness does not undermine the ability of the three multilateral institutions to continue to provide financial support to low-income countries, nor the institutions' overall financial integrity. In this context, the G-8 has committed SDR 100 million in end-2005 NPV terms to the IMF as additional subsidy resources for lending under the PRGF as well as the new Exogenous Shocks Facility (ESF). Additional contributions will also be needed to cover the cost of HIPC and MDRI debt relief for the three protracted arrears cases (Liberia, Somalia, and Sudan) and the four additional countries (Eritrea, Haiti, Kyrgyz Republic, and Nepal) that were found in April 2006 to meet the end-2004 income and debt criteria of the HIPC Initiative. This cost is estimated at SDR 1.9 billion.

Follow-up and monitoring

The IMF and the World Bank are expected to cooperate in the implementation and monitoring of the MDRI, particularly as regards assessing qualification for MDRI relief and monitoring MDG-related spending after provision of debt relief. A progress report on the IMF's implementation of the MDRI was produced in April 2006. Subsequently, MDRI status reports will be prepared in conjunction with the regular joint IMF-World Bank HIPC Initiative status reports.

« back to menu

print page

top