Developing Countries: The United States Has Not Fully Funded Its Share of Debt Relief, and the Impact of Debt Relief on Countries' Poverty-Reducing Spending Is Unknown
Published: 2009-01-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 1996, the Heavily Indebted Poor Countries (HIPC) Initiative was created to provide debt relief to poor countries that had reached unsustainable levels of debt. In 2005, the Multilateral Debt Relief Initiative (MDRI) expanded upon the HIPC Initiative by eliminating additional debt owed to four international financial institutions (IFI): the International Monetary Fund (IMF), World Bank's International Development Association (IDA), African Development Fund (ADF), and Inter-American Development Bank (IaDB). These four IFIs are projected to provide $58 billion in total debt relief to 41 countries. GAO (1) analyzed the U.S. financing approach for debt relief efforts; (2) reviewed the extent to which MDRI might affect resources available to countries for poverty-reducing activities; and (3) assessed revisions to the analyses conducted by the World Bank and IMF to review and promote future debt sustainability. GAO analyzed Treasury, IFI, and country documents and data, and interviewed officials at Treasury and the four IFIs.
section_title: What GAO Found
paragraphs: Treasury's approach to financing MDRI, known as early encashment, does not fully fund current and future U.S. commitments. The approach does not fully fund the current U.S. MDRI commitment because the United States is in arrears on its IDA replenishment. These arrears are due to requirements under U.S. law for withholdings and across-the-board rescissions. Under early encashment, the World Bank requires that the U.S. commitment to the IDA replenishment be paid in full before early encashment income can be used to fund MDRI. The World Bank deducts the U.S. arrears to IDA from any early encashment income before applying this income toward the U.S. MDRI commitment, resulting in a current MDRI shortfall of $149 million. Treasury officials said that if the United States ultimately pays its arrears to the IDA replenishment, early encashment income will then fully fund the U.S. MDRI commitment. However, to fully fund the U.S. MDRI commitment, (1) Treasury will need to release a withholding of $94 million by reporting to Congress that the World Bank has accomplished transparency reforms required under U.S. law, and (2) Congress will need to appropriate approximately $49 million to compensate for the rescissions. Moreover, GAO estimates that the early encashment approach will be insufficient to fully finance future U.S. MDRI commitments even if U.S. payments are made on time and in full because these commitments exceed projected early encashment income. GAO estimates that the HIPC Initiative and MDRI debt relief from the four IFIs combined may provide countries for which data are available with nearly $44 billion in additional resources over the next 50 years, but the extent to which countries spend these resources on activities to reduce poverty is unknown. In addition to providing debt relief, the MDRI program for IDA and ADF provides for a reallocation of assistance, based in part on a consideration of the strength of country policies and institutions. The estimated amount of this MDRI assistance individual countries receive will vary. Although IFIs and the U.S. government encourage recipient countries to spend resources generated from debt relief on efforts to reduce poverty, the extent to which such spending occurs is unknown for two reasons. First, debt relief resources are difficult to track, because these resources cannot easily be separated from other types of financial flows such as international assistance and fiscal revenues. Second, country data on poverty-reducing expenditures are not comparable across countries and also may not be reliable. The World Bank and IMF have improved their country debt sustainability analyses (DSA) since 2005, including by addressing weaknesses GAO previously reported. DSAs now consider the strength of a country's policies and institutions in determining sustainable debt loads and assess future debt sustainability under multiple scenarios that adjust economic assumptions. Furthermore, IDA and ADF now structure their assistance based on a country's risk of debt distress. While the new DSAs have identified numerous ambitious actions countries should take to avoid eroding their debt sustainability, implementing these actions could prove difficult.

section_title: Letter
paragraphs: A buildup of foreign debt throughout the 1970s and 1980s—combined with  low growth, falling commodity prices, and other economic difficulties— left many poor countries with significantly more debt than they could  repay. In order to address this problem, the international community has  provided increasing amounts of debt relief to 41 such heavily indebted  poor countries over the last decade. These efforts include the Heavily  Indebted Poor Country (HIPC) Initiative, which was launched in 1996 as  an approach for international financial institutions (IFI), commercial  creditors, and individual nations to lower the debt levels of the world’s  poorest and most indebted nations to “sustainable” levels. “Sustainable”  means that a country can make its future debt payments on time and  without rescheduling.
Multilateral debt relief efforts culminated in the Multilateral Debt Relief  Initiative (MDRI), which was announced in 2005. MDRI involves fewer  creditors than the HIPC Initiative, eliminating additional eligible debt that  countries owe to four IFIs—the World Bank’s International Development  Association (IDA), the International Monetary Fund (IMF), the African  Development Bank’s African Development Fund (ADF), and the Inter- American Development Bank (IaDB). MDRI was created to assist  countries in increasing their funding for poverty-reducing activities and  accelerating progress toward achieving the United Nations (UN)  Millennium Development Goals (MDG). Countries must complete the  HIPC Initiative before they can receive MDRI debt relief. Of the 41  countries that may benefit from both programs, 23 have received  irrevocable HIPC Initiative and MDRI debt relief and another 11 have  begun receiving debt relief under the HIPC Initiative. Another seven  countries are potentially eligible for debt relief but have not yet met the  requirements for such relief.
We estimate that IDA, IMF, ADF, and IaDB will provide about $58 billion in  debt relief under the HIPC and MDRI Initiatives to 41 countries over the  next several decades. Donor governments (including the U.S.  government) have agreed to help fund multilateral debt relief. Donor  governments have provided funding to IFIs to support the HIPC Initiative  through means such as a trust fund established at the World Bank. To fund  MDRI, governments may (1) provide funding in addition to their regular  contributions or replenishments to the institutions, (2) provide their  regular contributions early and generate credits through an approach  known as early encashment, or (3) do both. The U.S. Department of the  Treasury (Treasury) is currently using early encashment to fund the U.S.  MDRI commitment. In July 2008, we reported that even if the U.S.  government provides full funding for IDA, this early encashment approach  results in a U.S. funding shortfall for MDRI by 2014.
In response to your request, we (1) analyzed the U.S. financing approach  for debt relief efforts; (2) reviewed the extent to which MDRI might affect  resources available to countries for poverty-reducing activities; and (3)  assessed revisions to the analyses conducted by the World Bank and IMF  to review and promote future debt sustainability. In addition, you asked us  to review strategies for addressing legal actions brought by companies to  collect outstanding claims from countries receiving HIPC and MDRI debt  relief. These strategies are discussed in appendix II. We have previously  reviewed debt-related issues, including the HIPC Initiative and MDRI.
To address these objectives, we reviewed documents and analyzed data  provided by Treasury, the World Bank, IMF, ADF, and IaDB, and spoke  with officials at Treasury and these four institutions. We also examined  poverty reduction strategy papers, country budget documents, and debt  sustainability analyses. We prepared our own estimates regarding the  sufficiency of the U.S. funding approach for MDRI as well as the amount of  assistance that will be provided to beneficiary countries by the HIPC  Initiative and MDRI. Our calculations reflect relevant data for debt relief  countries as of November 21, 2008. All figures provided in this report are  expressed in end-2008 present value dollars unless otherwise noted. To  illustrate the impact of debt relief on individual countries, we selected five  countries (Ethiopia, Ghana, Nicaragua, Rwanda, and Tanzania) as case  studies based on several criteria, including geographic diversity and  dispersion of country ranking in terms of the percentage of total HIPC and  MDRI debt relief they received from the four institutions. In terms of  percentage of debt relief received, we selected countries at or near the top,  middle, and bottom of the ranking as examples of how the program works.  Our choice of countries is meant to be illustrative, not representative. We  assessed the reliability of the data analyzed and found the data to be  sufficiently reliable for the purposes of this report.
We conducted this performance audit from December 2007 through  January 2009 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. (See app. I for more  detailed information regarding our scope and methodology.)
subsections: section_title: Background
paragraphs: Bilateral creditors and IFIs created the HIPC Initiative in 1996 to address  concerns that certain poor countries had accumulated unsustainable debt  burdens, despite receiving debt relief from bilateral creditors. In response  to concerns over the continuing vulnerability of poor countries, the World  Bank and IMF enhanced the initiative in 1999 by reducing the qualifying  thresholds and increasing the number of potentially eligible countries.  Countries must meet numerous criteria in order to qualify for HIPC  Initiative debt relief, such as establishing a track record of reform and  sound policies. To fully benefit from HIPC debt relief, countries must  progress through different phases of the initiative (see fig. 1). At a  country’s “decision point,” IDA and IMF use certain criteria to determine  whether a country qualifies to receive HIPC Initiative debt relief. If a  country is determined to qualify, it can begin to receive interim HIPC debt  relief. Subsequently, at the “completion point,” IDA and IMF determine  whether the country meets additional criteria and can receive full and  irrevocable HIPC debt relief. As of November 2008, of the 41 countries that  may benefit from debt relief efforts, 23 had reached the completion point  and 11 more had reached the decision point. An additional seven countries  are considered “pre-decision point” countries and have not yet qualified  for debt relief. MDRI expands upon the HIPC Initiative and represents the  most recent effort to provide debt relief to heavily indebted poor  countries. To receive MDRI debt relief, countries must first complete the  HIPC Initiative.
In addition, IMF has determined that it will provide MDRI debt relief to  member countries with debt outstanding to IMF and a per capita income at  or below $380 at end-2004 that do not otherwise qualify for debt relief.  While the HIPC Initiative provides for a reduction in the debt levels of  eligible countries, the process associated with MDRI debt relief requires  IDA and ADF to take additional actions that provide resources to poor  countries beyond those countries benefiting from debt relief.
We estimate that IDA, IMF, ADF, and IaDB will provide, in present value  dollars, about $58 billion in debt relief (in end-2008 present value dollars)  under the HIPC and MDRI Initiatives to 41 countries over the next several  decades. The amount of total debt relief provided under each initiative  will be about equal, with over $28 billion provided under the HIPC  Initiative and about $30 billion provided under MDRI. IDA is to provide the  greatest level of debt relief at $34 billion (almost 60 percent of the total).  IMF is to provide $10.6 billion, while ADF and IaDB are to provide $9.1  billion and $4.1 billion, respectively. Table 1 provides data on the amount  of funding each institution will provide for each program.
For the 33 countries currently receiving debt relief under both programs,  IDA has secured about $8.6 billion for the HIPC Initiative and $4.4 billion  for MDRI (for more detailed information, see app. III). This total of $13.1  billion represents 47 percent of the total required IDA financing of almost  $27.8 billion for these countries under both debt relief initiatives. ADF will  provide about $7.5 billion in HIPC Initiative and MDRI debt relief and has  secured about $5.7 billion, about 76 percent of this amount. IMF and IaDB  have fully financed their $8 billion and $3.8 billion of HIPC Initiative and  MDRI debt relief for the countries currently receiving such relief,  respectively, using internal resources and donor-provided funds. Because  these two institutions have fully funded their HIPC Initiative and MDRI  debt relief, almost 65 percent of total debt relief costs for all four IFIs has  been secured.
Based on our projections, the United States has committed to provide a  total of about $8.4 billion to the four IFIs to finance the total costs of their  HIPC Initiative and MDRI debt relief (see table 2).
We estimate that the U.S. government is to provide $6.2 billion, or 74  percent, of its debt relief financing to IDA and $1.3 billion, or 16 percent,  to ADF. The U.S. government has already provided $0.5 billion to IDA and  $0.9 billion to ADF, leaving the majority of these costs ($5.7 billion for IDA  and $0.4 billion for ADF) to be paid in the future. The U.S. government has  provided $0.8 billion to IMF and $0.1 billion to IaDB. Of the $2.3 billion  that the United States has already provided, $2.0 billion was for the HIPC  Initiative and $0.3 billion was for MDRI. (App. IV provides information on  bilateral debt relief that the United States has provided to countries under  the HIPC Initiative.)
section_title: U.S. Approach to Financing MDRI Does Not Fully Fund Current and Future U.S. Commitments
paragraphs: Treasury, IDA, and ADF have agreed to a financing approach for MDRI  called early encashment, under which the U.S. government earns income  for early replenishment payments to IDA and ADF. Since the U.S.  government is currently in arrears on its replenishment payments to  IDA14, early encashment does not fully fund the current U.S. MDRI  commitment. We also estimate that U.S. early encashment income will be  insufficient to fully finance future MDRI debt relief. Furthermore, the U.S.  financing approach is more costly than other options.
subsections: section_title: Treasury Uses Early Encashment to Generate Income
paragraphs: The U.S. government currently uses an early encashment approach to fund  U.S. MDRI obligations at both IDA and ADF. Early encashment income is  earned by IDA and ADF when the United States allows the IFI to draw  funds on, or encash, its replenishment commitment early, rather than  according to a standard encashment schedule that spans 9 years for IDA  and 10 years for ADF. The standard encashment schedule represents the  IFI’s expected disbursement pattern of the funds committed during the 3- year replenishment period. Treasury has agreed to allow IDA and ADF to  encash the U.S. replenishment commitment over an accelerated 4-year  period. Since the early encashments exceed amounts required during the  first 4 years under the regular 9-year or 10-year encashment schedule, IDA  and ADF can invest these funds and earn income (see app. V). IDA and  ADF guarantee fixed discount rates that determine the amount of income  countries using the early encashment approach will receive for full and  timely encashments according to the accelerated schedule, regardless of  IDA’s and ADF’s actual earnings on early encashments over the period.
These amounts are then credited to the U.S. government and can be used  toward paying the U.S. MDRI commitment. Treasury has separate  agreements with IDA and ADF regarding the methodology used to  estimate the amount of early encashment income that the United States  will earn.
section_title: United States in Arrears on Its IDA14 Replenishment Commitment
paragraphs: The World Bank requires that the U.S. IDA14 replenishment be paid in full  before early encashment income can be earned and used to fund MDRI;  however, the United States is currently in arrears on its replenishment  commitment. In recent years, Congress has withheld a portion of the U.S.  replenishment contribution to encourage the World Bank to undertake  specified reforms such as strengthened efforts to enhance transparency  and combat corruption. In fiscal year 2006, Congress required that 20  percent of the funds appropriated to IDA be withheld from disbursement  until the Secretary of the Treasury reported to Congress that the World  Bank had undertaken certain anticorruption reforms. In fiscal year 2006,  most of these funds were eventually disbursed pursuant to the  requirements in the law; however, there was a shortfall in fiscal year 2006  of approximately $41 million due to both the anti-corruption withholding  provision and an across-the-board rescission. In fiscal year 2007 there was  an additional rescission of about $9.5 million. In fiscal year 2008, Congress  rescinded $7.7 million and required that 10 percent, or $94 million, of IDA  funds be withheld until Treasury reported that the World Bank had  undertaken anticorruption reforms, and that another 10 percent be  withheld until Treasury reported that the World Bank had enacted certain  transparency reforms. As of July 2008, Treasury had reported to Congress  that the World Bank had enacted anti-corruption reforms called for in the  fiscal year 2008 appropriations law and had disbursed the corresponding  funds. However, Treasury still had not reported to Congress that the World  Bank had accomplished all of the 2008 transparency reforms and  continued to withhold funds. Treasury has complied with its legal  obligation to withhold these funds that have created arrears. When funds  are rescinded or withheld from IDA, the shortfall amounts become arrears  of the United States that remain until the appropriated funds are released  from Treasury. We estimate that the U.S. government has arrears to the  IDA14 replenishment of about $152 million, since the U.S. nominal  contribution of $2,698 million is less than the U.S. commitment of $2,850  million.
section_title: U.S. Early Encashment Income Insufficient to Fully Finance Current MDRI Debt Relief Due to Arrears
paragraphs: Because the United States is currently in arrears on its IDA14  replenishment commitment, the early encashment income the United  States earns does not fully finance the current U.S. MDRI commitment.  Under the early encashment process, the World Bank first uses early  encashment income to fund the present value of the shortfall in the U.S.  IDA replenishment before applying early encashment income to the U.S.  MDRI commitment. As such, the present value of the U.S. replenishment  to IDA14 will be fully funded before the MDRI obligation begins to be paid.  As shown in figure 2, based on current U.S. payments, we estimate that the  United States will generate sufficient early encashment income to fully  fund the U.S. IDA14 replenishment commitment in present value dollars,  with $83 million in encashment income applied toward the $232 million  U.S. MDRI commitment. After applying its earned encashment income of  $83 million, the United States will have a shortfall of $149 million in its  MDRI commitment.
Treasury officials noted that if the United States ultimately pays its arrears  to the IDA14 replenishment, early encashment income will then fund the  U.S. MDRI commitment. However, to fully fund the U.S. MDRI  commitment, (1) Treasury will need to release a withholding of $94 million  from the IDA14 replenishment, by reporting to Congress that the World  Bank has accomplished transparency reforms required under U.S. law, and  (2) Congress will need to appropriate approximately $49 million in funds  to compensate for the rescissions. Both actions will need to be completed  by June 30, 2009. We estimate that the additional encashment income  generated from releasing the $94 million will amount to $97 million and  the shortfall in the U.S. MDRI commitment will decrease from $149 million  to $52 million. A congressional appropriation of approximately $49 million  by June 30, 2009 would generate enough early encashment income to  finance the remaining $52 million U.S. MDRI commitment.
Although it is unknown whether there will be any future shortfalls in U.S.  replenishment payments, we assessed the impact of a shortfall on U.S.  financing of MDRI similar to those that have occurred in recent years. The  U.S. replenishment obligation for IDA for 2009 through 2011 is $3.7 billion,  which includes $375 million for IDA’s HIPC Initiative costs. In addition, the  United States has agreed to pay $356 million for its MDRI commitment,  which Treasury plans to finance using early encashment. We assumed a 5  percent across-the-board shortfall, slightly less than the current 5.3  percent shortfall during the 2006 through 2008 period. (See app. V for  further information on this simulation.) Under this scenario, the U.S.  government would make payments of $3.52 billion, leaving a shortfall of  $185 million. U.S. early payments would generate investment income of  $308 million. After first financing the replenishment shortfall, the  remaining early encashment income of $146 million would be used to pay  the U.S. MDRI commitment of $356 million, leaving a MDRI shortfall of  $210 million.
ADF and Treasury have agreed to a different approach to calculate early  encashment income that does not prioritize paying replenishment  shortfalls before funding MDRI. All encashment income is solely used to  pay the U.S. MDRI commitment. Excess encashment income is used to pay  future U.S. MDRI commitments when needed. Any arrears or shortfalls in  U.S. replenishment payments reduce encashment income proportionately.  None of the early encashment income is used to offset regular  replenishment shortfalls.
section_title: U.S. Early Encashment Income Insufficient to Fully Finance Future MDRI Debt Relief
paragraphs: The approach of funding the U.S. share of MDRI through early encashment  income will not generate sufficient funding to meet the future U.S.  commitment under the projected growth rate for future IDA  replenishments. As we reported in our July 2008 correspondence, even if  the United States pays its replenishments on time and in full, early  encashment credits will be insufficient to finance U.S. MDRI obligations by  2014 for IDA and ADF. Table 3 shows the relationship between the U.S.  replenishments and the use of early encashment to finance U.S.  obligations to MDRI under the World Bank’s projected average 7 percent  growth rate for IDA replenishments.
The first row in table 3 shows the U.S. MDRI commitment from 2006  through 2023 in nominal dollars. Under this scenario, even if the U.S.  government pays the replenishments on time and in full, there will be  funding shortfalls for each replenishment period that will increase over  time. We found that the U.S. government would need to increase its future  replenishments to IDA by an average of 31 percent over the next 15 years,  in order to fully fund its MDRI obligation using early encashment.
section_title: Early Encashment Is More Costly Than Other Options
paragraphs: Treasury’s use of an early encashment approach to finance the U.S. share  of MDRI debt relief has been more costly than paying U.S. MDRI costs  directly because U.S. costs to borrow funds have been greater than the  agreed-upon encashment interest rate for IDA and ADF. We estimate that  during the replenishment period from 2009 through 2011, early  encashment will cost the United States an additional $39 million, $41  million more for IDA and $2 million less for ADF. (See app. VI for more  information on this cost differential.) In September 2008, the  Congressional Budget Office (CBO) forecasted Treasury note borrowing  interest rates. For the 4-year period from fiscal year 2009 through fiscal  year 2012, CBO projected the average borrowing cost to the U.S.  government to be 5 percent. This interest rate is greater than the 4 percent  interest rate used by IDA and the 4.69 percent used by ADF to calculate  early encashment credits.
section_title: The Extent to Which Countries Spend Debt Relief Resources to Reduce Poverty Is Unknown
paragraphs: We estimate that 41 countries are to receive nearly $44 billion in  additional MDRI and HIPC resources from the four IFIs, but the degree to  which the countries target these resources at poverty-reducing activities is  unknown. The $44 billion consists of freed-up resources resulting from  HIPC Initiative and MDRI debt relief, as well as a MDRI-related reduction  and subsequent reallocation of IDA and ADF assistance. The estimated  amount by which IFI assistance will increase or decrease as a result of  MDRI resource reallocation varies by country. The World Bank and IMF  encourage countries to spend debt relief resources on activities to reduce  poverty and make progress toward the UN Millennium Development Goals  (MDG). Although the World Bank and IMF have suggested an association  between reduced debt service payments and increased poverty-reducing  expenditures, the extent to which countries spend debt relief resources on  poverty-reducing activities is unknown. It is difficult to establish that debt  relief has led directly to increased poverty-reducing expenditures for two  reasons: (1) debt relief resources are difficult to track and (2) country  spending data are not comparable and also may not be reliable.
subsections: section_title: Countries Projected to Receive Nearly $44 Billion in Additional HIPC Initiative and MDRI Resources
paragraphs: Overall, we project that the 41 countries receiving debt relief are to receive  $43.8 billion in additional resources from the four IFIs between 2000 and  2054. As shown in figure 3, this estimate is based on three projected  amounts:    $21.4 billion in HIPC debt relief, $28.3 billion in MDRI debt relief (IFIs will provide about 95 percent of  MDRI debt relief by 2034), and    $5.9 billion in reduced new IDA and ADF assistance resulting from  MDRI’s two-step process. Under this process, IDA and ADF reduce  their new assistance to MDRI debt relief recipients by the amount of  debt relief provided, $18.9 billion, and reallocate $13.0 billion of this  reduction to MDRI recipients. IDA and ADF then reallocate the  remaining approximately $5.9 billion to all low-income countries  eligible to receive only concessional resources from IDA or ADF that  did not receive debt relief. IDA and ADF determine the amount of  funding each country is to receive primarily on the basis of country  performance.
section_title: Net Change in IDA and ADF Assistance for Each Country due to MDRI Varies
paragraphs: Based on our projections, individual countries will have different results  from MDRI as they realize increases, decreases, or both in their annual  IDA and ADF assistance due to the resource reallocation process. For  example, while the overall net change in resources available due to MDRI  is positive for each of the five countries we analyzed (Ethiopia, Ghana,  Tanzania, Nicaragua, and Rwanda), the countries are projected to receive  different amounts of new IDA and ADF assistance. Table 4 illustrates the  overall projected impact of MDRI, including the net change in IDA and  ADF assistance, for our five case study countries.
We project that, even as MDRI debt relief frees up fiscal resources, Ghana  and Nicaragua may experience a decrease in IFI assistance over the life of  MDRI due to the MDRI netting out and reallocation process. In contrast,  for Tanzania and Ethiopia, we project that this MDRI process may result in  an increase in assistance from IDA and ADF. For Rwanda, MDRI may  provide a mixture of increases and reductions in IDA and ADF’s annual  assistance over the MDRI period. (See app. VII for additional information  on the impact of MDRI for our five case study countries, and app. VIII for  additional information regarding the mechanics of the MDRI process.)
section_title: Countries Are Encouraged to Spend Debt Relief Resources on Poverty Reduction, but the Extent of Such Spending Is Unknown
paragraphs: While IFI and U.S. government documents state that countries should  spend savings from debt relief on activities to reduce poverty and make  progress toward the MDGs, the extent to which countries do so is  unknown. In 2008, the World Bank and IMF suggested an association  between reduced debt service payments and increased poverty-reducing  expenditures, while acknowledging that it is difficult to show causation.  Specifically, these IFIs reported that since the late 1990s, the debt service  payments of countries that received debt relief have declined by about 2  percent of GDP, while poverty-reducing expenditures have increased by  about the same amount. However, it is difficult to establish that debt  relief has led directly to increased poverty-reducing expenditures for two  reasons: (1) debt relief resources are difficult to track, and (2) country  spending data are not comparable and also may not be reliable.
subsections: section_title: Debt Relief Resources Are Difficult to Track
paragraphs: The IFIs have suggested an association between debt relief and increased  poverty-reducing expenditures. However, IMF and World Bank officials  told us that they are unable to link debt relief resources directly to  poverty-reducing expenditures because it is difficult to separate debt relief  resources from other types of financial flows, such as international  assistance and fiscal revenue. Based on the five case study countries, we  found that these other resources often represent a much larger percentage  of country budgets than savings from debt relief. For example, in the 2007  budgets of Ethiopia and Ghana, tax revenue and grant assistance  represented at least 67 percent of government revenue combined, while  HIPC Initiative and MDRI debt relief resources represented less than 8  percent (see fig. 4).
section_title: Spending Data Are not Comparable and also May not Be Reliable
paragraphs: Although IMF and the World Bank publish aggregated poverty-reducing  expenditures for all countries that received debt relief, individual  countries can define and report such expenditures differently, resulting in  data that are not comparable. We found that definitions of poverty- reducing expenditures vary. For most countries that receive debt relief,  reported poverty-reducing expenditures include spending on primary  education, basic health care, and rural development; however, countries  can also choose to include additional categories. For example, as shown  in figure 5, some countries consider expenditures in areas such as energy  development, transport, or judicial systems as poverty reducing, while  other countries do not.
Country definitions of poverty-reducing expenditures can also change over  time to include or exclude categories. For example, in 2005, Rwanda  expanded its definition of poverty-reducing expenditures to include energy  development, while Nicaragua no longer included institutional  strengthening. Such differences in definitions between countries, as well  as changing definitions for particular countries, complicate comparability  across countries and over time.
In addition, we found that three of our five case study countries report  aggregate spending in broad areas such as education, health and rural  development rather than providing a detailed breakdown of poverty- reducing expenditures in these areas. For example, as shown above, while  two countries (Ghana and Rwanda) reported specific spending in primary  education and public health in their country budget documents, three  countries (Ethiopia, Nicaragua, and Tanzania) reported only on aggregate  spending in these two areas. Aggregate spending data can include  activities that do not directly affect the poor and may overestimate actual  poverty-reducing expenditures. For example, a 2003 IMF and World Bank  Poverty and Social Impact Analysis for Nicaragua found that almost no  public spending on university education affects the extremely poor, who  generally do not participate at that level of the educational system.
Furthermore, country capacity to collect and report on poverty-reducing  expenditures is questionable. According to several IFI assessments,  countries receiving debt relief have numerous weaknesses in collecting  and reporting information on poverty-reducing expenditures that raise  doubts about the data’s reliability. For example, a 2005 IMF assessment of  country capacity to track poverty-reducing expenditures found that 19 out  of 26 countries needed substantial upgrades to their data management  systems and had weaknesses in tracking budgetary expenditures in areas  such as budget formulation, execution and reporting. IMF and the World  Bank do not independently track poverty-reducing expenditures, and  instead rely on country governments to provide such data even though the  accuracy of these data and country capacity to provide such information  are uncertain.  Additionally, the 2005 IMF assessment found that while 20  countries define poverty-reducing spending in their PRSPs, not all  countries could identify these areas of expenditures in their budgets or  report on such spending. Limitations in country capacity to report on  poverty-reducing spending raise further concerns about the reliability of  the combined data published by IMF and the World Bank.
Moreover, while it is difficult to establish that debt relief has led directly to  increased poverty-reducing expenditures, it is even more difficult to  determine if debt relief has improved progress toward the MDGs. We  found that for all five of our case study countries, progress data on the  MDG targets were often either lacking or incomplete. In 2008, IMF and  the World Bank reported that it is difficult to quantify the impact of debt  relief on the MDGs and that they have instead focused their analysis on  linking debt relief and poverty-reducing expenditures.
section_title: The World Bank and IMF Have Improved Their Country Debt Sustainability Analyses and Identified Numerous Actions Countries Should Take to Avoid Future Unsustainable Debt Levels
paragraphs: The World Bank and IMF have improved their country debt sustainability  analyses (DSA) since 2005, including by addressing weaknesses that GAO  and others have previously identified. If countries do not realize the  objectives outlined in the new DSAs, they once again may experience  unsustainable debt levels. These objectives are ambitious and could prove  difficult for these poor countries to achieve over the course of the 20-year  projection period.
subsections: section_title: World Bank and IMF Established New Approach That Improves Projections of Country Debt Sustainability
paragraphs: The World Bank and IMF introduced the Debt Sustainability Framework  (DSF) in 2005 to provide a new and improved approach to assessing debt  sustainability in low-income countries. The DSF is intended to    help guide financing for low-income countries’ development needs,  while also reducing the chances of another excessive build-up of debt  in the future;    help detect potential problems early so that preventative action can be  improve World Bank and IMF assessments and policy advice; and    provide guidance for country borrowing and creditor lending decisions.
Under the DSF, IMF and World Bank staff prepare DSAs, which project  debt sustainability indicators over a 20-year period and are conducted  roughly every 12 to 18 months for low-income countries. These DSAs  include elements that were lacking in the past and address weaknesses  that had previously been identified by GAO, such as overly-optimistic  economic assumptions. Furthermore, DSAs now result in a linkage  between debt sustainability and the composition of future IFI assistance  (grants and concessional loans), thus addressing a previous GAO  assessment that IFIs should provide grants as a way of addressing future  debt concerns.
subsections: section_title: DSAs Determine Risk Based on the Strength of Country Performance and Analysis of Numerous Possible Scenarios
paragraphs: In a departure from prior DSAs, the new DSAs consider the strength of a  country’s policies and institutions in assessing risk and determining  sustainable debt loads; countries with strong policies and institutions are  considered capable of successfully carrying greater levels of debt. The  DSF uses the World Bank’s CPIA index to sort countries into three policy  performance categories (strong, medium, or poor). Countries with strong  policies and institutions have a higher CPIA rating. An acceptable risk of  debt distress for current strong performers, such as Tanzania, allows for  higher levels of debt compared to countries with currently low CPIA  ratings, such as Sierra Leone. Furthermore, performance categories are  updated annually according to the latest CPIA ratings and, therefore,  certain countries’ annual performance categories have varied since the  new process was introduced in 2005. For example, Burkina Faso’s 2007  DSA noted that the country was a strong performer, but the country’s  CPIA rating was subsequently lowered and the 2008 DSA identified  Burkina Faso as a medium performer. As a result, DSAs for Burkina Faso  now require lower levels of debt in order to be categorized as debt  sustainable. The new process provides flexibility to assess every country’s  risk differently based on individual performance, as well as an ability to  adjust risk assessments within a specific country’s DSA over time as CPIA  ratings shift. Currently, of the 23 countries receiving HIPC Initiative and  MDRI debt relief, a majority (14) have been identified as medium  performers, 5 as poor performers, and 4 as strong performers.
DSAs conducted under the DSF now consider debt burden “threshold”  indicators when assessing a country’s debt sustainability position. Five  thresholds have been established that provide key insights into a country’s  debt situation and that vary according to a country’s CPIA-based  performance category (see table 5). Other DSAs, on the other hand, assess  primarily only one variable. Strong performers have higher thresholds,  indicating an ability to carry higher debt levels while maintaining debt  sustainability.
In order to project a country’s risk of future debt distress, these threshold  indicators are compared against a country’s performance under a  “baseline” scenario based on assumptions of macroeconomic performance  expected for the future in areas such as national income, inflation,  exports, imports, and government revenues and expenditures. Various  sensitivity scenarios are also used to test the robustness of the indicators  to changes in key assumptions. These scenarios include the following:    (1) numerous temporary standardized “stress” or “shock” scenarios that  consider possibilities such as lower growth in national income or exports  than experienced in the past; and (2) two additional scenarios: (a) a  scenario that assumes a level of public loans on terms that are less  concessional, and (b) a historical scenario that uses macroeconomic  assumptions based on past performance (which has often, but not always,  been less optimistic than the baseline scenario in the past). IMF and World  Bank staff explained that baseline assumptions will diverge from the  historical scenario if the institutions agree that the economic outlook of a  country has changed. Such changes must be explained in the DSA. For  example, in the case of Tanzania’s 2007 DSA, a baseline GDP growth rate  of 7.6 percent was used, rather than the historical 5.3 percent growth rate.  According to the DSA, this change reflected “strong overall ratings of  Tanzania’s macroeconomic policies, as well as ongoing structural reforms  in key areas.”
A country’s risk of future debt distress is then categorized as follows:    Low risk – All scenario debt burden indicators are well below the  thresholds throughout the 20-year projection period, and sensitivity  testing does not result in significant breaches of thresholds;    Moderate risk – Debt burden indicators are below the thresholds under  the baseline scenario, but sensitivity testing causes them to exceed  thresholds;    High risk – Debt burden indicators exceed thresholds under the  baseline scenario, and sensitivity testing further exacerbates the  situation; or  In debt distress – Debt burden indicators are currently in significant or  sustained breach of thresholds, and the country is already experiencing  repayment difficulties.
As shown in table 6, for the 23 countries receiving HIPC Initiative and  MDRI debt relief, 9 are classified at “moderate” risk of future debt distress,  4 at “high” risk, and 10 at “low” risk. IFI officials have considered  refinements to the “moderate” risk classification that would provide  greater distinctions within risk assessments, but have determined that  there is currently no need to revise the category.
New DSA assessments of country debt sustainability under multiple  scenarios address past concerns that DSAs only used one scenario, which  may have contained overly-optimistic economic assumptions. For  example, we reported in 1998, 2000, and 2004 that expected debt  sustainability for debt relief countries was calculated based on one  scenario that assumed high economic growth, including strong and  sustained export growth. We noted that such growth could be unrealistic  given that many countries had very narrow export diversity (i.e., a limited  number of exported goods), and these exports tended to be concentrated  in the area of commodities that are highly vulnerable to events outside a  country’s control, such as drought or price fluctuations. IMF officials told  us that current DSAs use assumptions that have been lowered to more  realistic levels. They also stated that DSAs, which include descriptions of  macroeconomic assumptions, are now transparent because they are  publicly available and subject to scrutiny by outside parties. In addition,  IMF officials noted that because DSAs are conducted on an annual basis,  DSAs can now begin to incorporate events such as increases in food or  fuel prices in a timelier manner.
However, IMF officials also noted that the current approach for  determining future macroeconomic performance assumptions is “not a  perfect science,” particularly when it makes projections over a 20-year  period, and cannot be executed without potential forecast errors. In  addition, a debt management capacity building group concluded that the  sensitivity analyses contained in DSAs do not alter all relevant variables  and exclude additional or secondary effects. It also reported that DSAs do  not necessarily reflect all the risks that a country may think are likely in its  own economic or borrowing prospects.
section_title: IFIs Now Base Future Country Assistance on Risk of Future Debt Distress
paragraphs: IDA and ADF have adopted a revised system for providing future  assistance based on DSA results. According to IDA officials, countries with  a high risk of debt distress, or countries that are already in debt distress,  receive 100 percent grant assistance, countries with a moderate risk of  debt distress receive 50 percent grants and 50 percent concessional loans,  and countries with a low risk of debt distress receive only concessional  loans. ADF officials told us that ADF has adopted a similar system.  According to World Bank officials, when a country’s risk of future debt  distress changes, the change is reflected in IDA allocations annually. This  approach directly aligns IDA and ADF assistance with a country’s assessed  ability to repay debt, and is relevant to our past reporting that the  increased use of grant assistance would have a positive impact on future  debt sustainability. However, IDA and ADF reduce the volume of grant  assistance provided under this system. Specifically, IDA and ADF reduce  grant assistance by 20 percent for countries classified at a high or  moderate risk of debt distress, thereby reducing resources available for  poverty reduction. The 20 percent volume reduction is divided into an  “incentives”-related portion and a “charges”-related portion. The  incentives-related portion is reallocated to IDA-only countries based on  performance, and the charges-related portion is provided to creditworthy  blend countries. According to IDA, this grant reduction was instated to  maintain IDA’s performance incentive.
Other IFIs, such as IaDB and the Asian Development Bank, are also  utilizing the new DSAs as part of their lending decision-making process,  according to IMF and World Bank officials. In addition, OECD export  credit agencies adopted a set of lending principles that adhere to IDA and  IMF concessionality in January 2008. Conversely, regarding borrowing  decisions, IDA, ADF, and IMF officials stated that they work with country  governments to improve their understanding and use of DSAs in future  borrowing decisions. For example, IMF officials noted that DSAs are  discussed as part of regular economic consultations with countries.  Furthermore, according to an IMF and World Bank report, since 2005 eight  training workshops have been organized in Africa, Asia, and Latin America  and attended by officials from all 23 countries receiving HIPC Initiative  and MDRI debt relief. However, IMF officials pointed out that countries  currently range widely in terms of their ability to use the DSA process to  conduct their own analyses, and some country officials have said that they  find the DSA process to be overly complicated.
section_title: DSAs Have Identified Numerous Ambitious Actions Countries Should Take in Order to Avoid Unsustainable Debt Levels
paragraphs: The new DSAs have cited many actions that countries receiving HIPC  Initiative and MDRI debt relief should take in order to avoid unsustainable  debt burdens in the future. Of the 23 countries receiving HIPC Initiative  and MDRI debt relief, 13 (over 50 percent) have been found to have a  moderate or high risk of future debt distress. These countries maintain this  level of risk despite substantial HIPC Initiative and MDRI debt relief.  DSAs have stressed numerous policies or growth scenarios that countries  should achieve in order to avoid further eroding their debt sustainability.  For example, DSAs note that projected debt sustainability could be eroded  if countries do not realize broad objectives that affect their overall  economy, such as the following: continued concessional borrowing,  implementation of sound macroeconomic policies, strengthened debt  management capacity, sustained national income or export growth, and  increased export diversity.
Such broad and ambitious objectives could prove difficult for countries to  achieve over the course of the 20-year DSA period for various reasons. A  country’s debt position may be at risk even after it receives significant  debt relief if, for example, its economy remains overly dependent on one  export. For instance, Burkina Faso still held a moderate debt risk in 2007  despite World Bank and IMF reports that the HIPC Initiative and MDRI  had substantially reduced its debt burden, because its economy is highly  dependent on cotton exports (60 percent of total export value in 2006)  which are vulnerable to large price fluctuations and weather shocks such  as drought. In 2008, Burkina Faso’s debt risk was elevated to high due to  deteriorating country performance. Other unexpected factors beyond a  country’s control, such as oil and food import prices, may also affect  economic position and debt sustainability. IMF and the World Bank have  projected that countries may eventually return to pre-MDRI debt positions  as they accumulate new debt over time.
Continued concessional borrowing is cited frequently as an action  countries must take to maintain debt sustainability. IFIs have taken  actions to address the issue of excessive nonconcessional borrowing.  While IFIs aim to lower the risk of debt distress in low-income countries  by providing new financial assistance on appropriately concessional  terms, other creditors and borrowing governments may gain from  nonconcessional lending that is made possible following large-scale debt  relief or in conjunction with IFI grant assistance. According to the World  Bank, rating agencies may upgrade commercial risk ratings for countries  that have received MDRI debt relief, improving the countries’ ability to  secure nonconcessional loans. The risk of realizing an unsustainable  nonconcessional debt burden is particularly high in resource-rich  countries that can more easily obtain nonconcessional borrowing by using  expected future export earnings as collateral to back such loans. In  addition, IDA has noted that countries are experiencing significant risks  associated with their weak debt management capacity. Debt management  offices in low-income countries lack adequate capacity to monitor and  accurately record debt data and new resource flows, let alone effectively  manage them.
IDA established a nonconcessional borrowing policy in 2006 to prevent the  rapid reaccumulation of unsustainable debt. This policy states that IDA  has two instruments at its disposal to confront excessive nonconcessional  borrowing— reducing its assistance volumes (primarily used in countries  where debt sustainability is a major concern) and “hardening” its lending  terms in countries with stronger debt sustainability and greater financial  market access. According to IDA staff, hardened lending terms could  include an increased interest rate, a shorter grace period, or a reduced  repayment period. IDA has also reported that these options come with  trade-offs as volume cuts reduce resources available to pursue poverty  reduction, and hardened terms may exacerbate debt sustainability  problems. As of June 2008, IDA reported that there had been two cases of  hardened lending terms (Angola and Ghana) and, as allowed, one  exception (Mali) granted under its nonconcessional borrowing policy.  IMF can impose limits on nonconcessional loans for countries that have a  current arrangement with the institution. For countries that do not have a  loan arrangement with IMF, there is nothing IMF officials can do when  countries borrow on a nonconcessional basis beyond consulting with  borrowing country officials.
section_title: Conclusions
paragraphs: While HIPC Initiative and MDRI debt relief are projected to provide  countries with additional resources, it is unknown how much of these  additional resources countries will spend on poverty-reducing  expenditures or pursuit of the MDGs. Furthermore, some countries may  have difficulty maintaining debt sustainability, which requires  demonstrating strong and sustained performance in numerous critical  areas such as national income and export growth over the next several  decades. The current U.S. approach for financing MDRI has several  limitations. First, if the U.S. government does not fully pay its regular  contributions to IDA on time, which is currently the case primarily due to  withholdings, early encashment funding will be used to cover shortfalls in  U.S. funding to IDA, rather than to solely fund debt relief. Second,  according to our estimates, the U.S. financing approach will likely result in  future shortfalls for funding MDRI for both IDA and ADF as early as 2014,  even if the U.S. government provides full funding in a timely manner.   Given these limitations, reassessing the options for funding U.S. MDRI  commitments for IDA and ADF is critical.
section_title: Recommendation for Executive Action
paragraphs: To address limitations in the U.S. approach for financing MDRI, we  recommend that the Secretary of the Treasury consider the use of  different funding options that clarify the priority between paying U.S.  arrears owed to IDA and paying MDRI obligations, such as requesting  separate appropriations from Congress.
section_title: Agency Comments and Our Evaluation
paragraphs: The Department of the Treasury, the World Bank, and IMF provided  written comments on a draft of this report, which are reprinted in  appendixes IX, X, and XI. Treasury stated that it is open to our  recommendation that alternative U.S. funding approaches for MDRI be  considered in the future. Treasury emphasized its objective to fully meet  its current IDA and MDRI funding commitments while also noting that a  lack of full funding would jeopardize this objective. In addition, Treasury  expressed a view that World Bank and IMF analyses produced under the  Debt Sustainability Framework represent an improved ability to assess the  debt sustainability outlook in low-income countries. Treasury explained  that while debt relief can be a valuable tool, merely canceling debt is not  sufficient to ensure long-term debt sustainability if underlying economic  vulnerabilities remain.
The World Bank stressed the importance of full funding for IDA and a  sustainable U.S. funding approach to cover debt relief costs.  The World  Bank also noted that our report could more explicitly state that it will not  be possible for the United States to fund future MDRI costs through early  encashment of the regular IDA contributions.  The World Bank reported  that the annual MDRI costs of IDA will more than triple over the next two  decades, reaching an estimated $1.8 billion per year by 2025.  Continuing  the current practice would presuppose a commensurate increase in  regular IDA contributions from the United States.  The World Bank further  noted that funds from debt cancellation are small, relative to domestic  revenues and external aid flows in countries benefiting from the debt  relief, but represent a source of predictable financing for poverty-reducing  expenditures.
IMF stated that poverty-reducing spending has increased in countries that  have benefitted from debt relief - a point also made by Treasury. IMF  further noted its disagreement with our position that the impact of debt  relief on poverty-reducing spending is unknown. We maintain that our  position is accurate since, while data compiled by IMF report that poverty- reducing spending has increased in countries receiving debt relief, it is not  possible to link such increases to debt relief. Multiple factors, including  challenges in tracking how debt relief resources are used and data  reliability concerns, make it difficult to establish a linkage.
Treasury, the World Bank, IMF, and the African Development Bank  provided technical comments on a draft of this report, which we have  incorporated as appropriate. The World Bank’s technical comments are  included as part of its formal comment letter and suggested, as did IMF  technical comments, that we better distinguish between recent debt  sustainability analyses conducted under the Debt Sustainability  Framework and other analyses conducted to establish the amount of debt  relief needed to lower external public debt to agreed HIPC Initiative  thresholds. We have altered our report to address this point. The African  Development Bank provided comments on the U.S. costs for funding  MDRI. We requested comments from IaDB, but none were provided.
We are sending copies of this report to other congressional offices and the  Department of the Treasury, as well as the World Bank, IMF, AfDB, and  IaDB. The report also is available at no charge on the GAO Web site at  http://www.gao.gov. If you or your staff have any questions about this  report, please contact me at (202) 512-9601 or at melitot@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last past of this report. Other contacts and major  contributors are listed in appendix XII.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) analyze the U.S. financing approach for debt  relief efforts, (2) review the extent to which the Multilateral Debt Relief  Initiative (MDRI) might affect resources available to countries for poverty- reducing activities, and (3) assess revisions to the analyses conducted by  the World Bank and IMF to review and promote future debt sustainability.
subsections: section_title: U.S. Financing for Debt Relief
paragraphs: To analyze U.S. financing for debt relief, we compiled data from Treasury  and IFI staff and reviewed the U.S. contribution with these staff. To  evaluate whether the U.S. approach to funding its IDA and ADF MDRI  costs was adequate to fully pay U.S. commitments, we estimated total U.S.  commitments in each IDA and ADF replenishment period and then used  this amount in a simulation model of the U.S. payment schedule in order to  estimate the amount of early payment credits that would be earned  annually if Treasury continued to use the early encashment approach. To  evaluate the early encashment approach the United States is using to  finance its IDA and ADF MDRI costs during 2006-2011, we analyzed the  statistical models that IDA and ADF are using to calculate U.S.  encashment income. We performed simulations of shortfalls in U.S.  replenishment payments and discussed our results with officials from  Treasury and these IFIs. We developed a model to compare the costs to  the United States of paying the MDRI obligation using the current early  encashment approach rather than paying annual MDRI costs directly when  due. Appendixes V and VI provide additional information regarding the  costs associated with use of early encashment. We calculated and have  presented all figures in this report in end-2008 present value dollars unless  otherwise noted. We assessed the reliability of the data analyzed and  found the data to be sufficiently reliable for the purpose of this report.
section_title: MDRI and Resources Available for Poverty- Reducing Activities
paragraphs: To estimate the impact of MDRI debt relief on countries’ resources, we  calculated the aggregate net change in resources for MDRI recipient  countries using an approach that considers the value of money over time.  Our methodology reflects the three elements of MDRI’s structure: MDRI  debt relief, IDA and ADF reductions of annual assistance to the countries  by the amount of debt relief provided in that year, and the reallocation of a  portion of the cancelled debt service to countries based on their  performance. IDA, ADF, and IaDB provided aggregate, annual debt relief  and country-specific annual MDRI debt relief data for all current and  expected future MDRI recipient countries, including our five case-study  countries. To calculate the aggregate reduction of annual assistance from  IDA and ADF, we applied each IFI’s encashment schedule to the  disbursement of the annual MDRI debt relief that both IDA and ADF  provided. While 1 year’s debt relief is matched by a reduction in 1 year’s  IDA or ADF assistance, the reduction in assistance takes place over a 9- year disbursement cycle for IDA and a 10-year disbursement cycle for  ADF. This annual MDRI debt relief reduction, aggregated over all MDRI  recipients, is the amount to be reallocated to IDA-only recipients—a larger  subset of IDA recipients than those that receive MDRI debt relief—on the  basis of performance. We refer to this as the performance-based  reallocation, or PBA reallocation. We discussed our methodology with IMF  and World Bank officials. The staff of both IFIs concurred that our  approach was a valid way to analyze MDRI.
To determine the portion of the MDRI debt relief to be reallocated to  recipients as additional HIPC countries reach their completion point, we  created a weighted allocation index based on data provided by the World  Bank. The World Bank told us that the group of 23 completion point  countries is currently receiving 50 percent of the reallocated cancelled  debt relief funds, and that this would rise to 60 percent as the interim  (decision point) countries reach their completion points, which is  assumed to occur during 2009 and 2010. To determine the portion of the  additional 10 percentage points that would go to each of the 10 interim  countries, we created a weighted allocation index by dividing each  country’s projected percentage of IDA14 assistance flows by the portion of  IDA14 assistance going to this group of 10 countries. To compute each  country’s share of the IDA PBA reallocation, we multiplied their weighted  allocation index by the 10 additional percentage points to calculate the  portion of the 10 percent that each would receive. Finally, to calculate the  changing PBA allocation over the period as the individual countries reach  their completion point, we added each country’s respective share of the 10  percentage points on to the 50 percent base, arriving at 60 percent in 2010.  We used the same methodology to determine the additional portion of the  MDRI pool of debt relief that would go to 8 pre-decision point countries,  based on their projected completion point dates that the Bank provided.  We assume that the pre-decision point countries will account for a  proportional percentage of the 10 percentage points, reflecting their  projected portion of IDA14 assistance flows. Based on this methodology,  we estimate that, adding on the 8 pre-decision point countries, 41 HIPCs  would receive about 67 percent of the reallocated MDRI debt relief and the  remainder would go to all other low-income countries eligible to receive  only concessional loans from IDA or ADF. ADF provided us with the  amount of MDRI debt relief reallocated to all of its member countries, as  well as the projected completion point dates for the HIPCs. To determine  the portion of ADF’s MDRI debt relief to be reallocated to recipients as  additional HIPC countries reach their completion point, we added each  country’s percentage of total MDRI debt relief to the current reallocation  percentage as countries successively reach their completion point. For  ADF countries, by 2016, 33 HIPC countries would account for nearly 90  percent of ADF’s reallocated MDRI debt relief. For all efforts to review the  impact of MDRI on country resources, we assessed the reliability of the  data analyzed and found the data to be sufficiently reliable for the  purposes of this report.
We also included Enhanced HIPC Initiative debt relief in our analysis to  present a more complete picture of the IFIs’ contribution to debt relief.  IDA, ADF, IaDB, and IMF provided annual data for Enhanced HIPC, by  country. We included these data in our reported estimate of overall debt  relief resources.
To calculate the impact of MDRI debt relief on individual countries, we  selected five countries (Ethiopia, Ghana, Nicaragua, Rwanda, and  Tanzania) as case studies based on several criteria, including dispersion of  country ranking in terms of the percentage of total HIPC and MDRI debt  relief they received from the four institutions, geographic diversity, and  debt sustainability risk classification. In terms of percentage of debt relief  received, we selected countries at or near the top, middle, and bottom of  the ranking to use as examples of how the program works. Our choice of  countries is meant to be illustrative, not representative. We used the same  methodology to estimate the three components of MDRI debt relief for  individual countries as we used in the aggregate.
To determine whether countries receiving debt relief are using the savings  toward poverty reduction and achieving the MDGs, we reviewed  documents provided by Treasury, the World Bank, IMF, ADF and IaDB,  and spoke with officials at Treasury and these four institutions. We also  examined publicly-available online data sources for poverty-reducing  expenditures in areas such as education and health. To illustrate the  impact of debt relief on individual nations, we examined the spending data  for the five countries cited above. We reviewed the most recent Poverty  Reduction Strategy Papers (PRSP) of the five countries in order to  examine their poverty-reducing goals and objectives. In addition, we  reviewed the most recent (2007) online country budgets and IMF Article IV  consultation documents for our five case study countries to examine how  countries were reporting their poverty-reducing expenditures.
section_title: Debt Sustainability Analyses
paragraphs: In order to assess revisions to IMF and World Bank debt sustainability  analyses (DSA) since 2005, we first reviewed prior GAO reports issued  between 1998 and 2004 that identified weaknesses in past DSAs. We then  examined IMF and World Bank documentation explaining the Debt  Sustainability Framework (DSF) and the related DSAs and other relevant  issues, the following in particular:    Staff Guidance Note on the Application of the Joint Fund-Bank Debt  Sustainability Framework for Low-Income Countries, October 6,  2008;    Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral  Debt Relief Initiative (MDRI) – Status of Implementation, September  12, 2008;  IDA’s Nonconcessional Borrowing Policy: Review and Update, June  2008;    Applying the Debt Sustainability Framework for Low-Income  Countries Post Debt Relief, November 6, 2006;    How to Do a Debt Sustainability Analysis for Low-Income Countries,  IDA Countries and Nonconcessional Debt: Dealing with the “Free  Rider” Problem in IDA14 Grant-Recipient and Post-MDRI Countries,  June 19, 2006;    Review of Low-Income Country Debt Sustainability Framework and  Implications of the MDRI, March 27, 2006; and    Operational Framework for Debt Sustainability Assessments in Low- Income Countries – Further Considerations, March 28, 2005.
We then collected and reviewed all DSAs performed for 23 completion  point countries since the DSF was implemented in 2005 as part of IMF  Article IV consultations, IMF Poverty Reduction Growth Facility (PRGF)  arrangement requests or reviews, or other events. We identified the  assumptions and scenarios used, and compiled the most recent risk  determinations for each country. We did not independently assess the  accuracy or comprehensiveness of the assumptions and data included in  the DSAs. We discussed the DSA process with IMF and World Bank  officials and found the DSA information sufficiently reliable for descriptive  purposes.
We compared the current process against the weaknesses we had  previously identified to determine whether the new process addressed  these limitations. Furthermore, we identified additional alterations to the  process and interviewed IMF, World Bank, IaDB, and AfDB officials to  obtain their views on the new DSA process and results. Finally, we  compiled the results of DSAs to determine the debt distress risk of  countries currently receiving HIPC Initiative and MDRI debt relief, as well  as DSA recommendations for actions such countries should take in order  to avoid future downgrading of their debt risk classification and  deterioration of their debt sustainability. Our work focused on analyses  related to external debt and not domestic public debt.
We conducted this performance audit from December 2007 through  January 2009 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Commercial Lawsuits to Collect Unpaid Debt from Debt Relief Countries
paragraphs: Lawsuits by commercial creditors to collect on outstanding HIPC country  debt can erode gains made through debt relief. International courts and  U.S. federal courts have allowed commercial creditors to pursue legal  action in order to recover funds owed to them, but these creditors are  sometimes viewed as creating difficult circumstances for countries that  have received debt relief from other creditors. As of the end of 2007,  based on survey data provided by country governments, 47 litigating  creditors had filed suits against 11 countries receiving HIPC Initiative and  MDRI debt relief (see table 7). Over $1 billion has been awarded by courts  and is due to commercial creditors. About one-third of this total, or over  $440 million, has been awarded against the Republic of Congo, followed by  over $350 million against Liberia, and $100 million against the Democratic  Republic of the Congo.
Treasury officials told us that while a court can award claims in favor of  commercial creditors, actually enforcing the judgments and receiving  payment is a separate, potentially more difficult exercise.
The international community has taken numerous actions to address such  cases:    The World Bank’s Debt Reduction Facility (DRF) allows governments  to buy back—at a deep discount—country debts owed to external,  commercial creditors. Through grants, the DRF supports heavily  indebted IDA-only countries that undertake reforms to retain  professional services necessary in preparing these commercial debt  reduction operations and assists the countries in funding the cost of  these operations. For example, court judgments against Nicaragua  were settled through the DRF-supported buyback. All four litigating  creditors participated in the buyback operation and accepted a  significant cut in the value of their legal claims. The Nicaragua buyback  extinguished about $1.3 billion in commercial debt. Another buyback  operation has been concluded for Mozambique. Furthermore,  according to Treasury officials, a DRF operation is currently being  prepared for Liberia, and the United States intends to contribute $5  million to help fund the cost of this buyback.
Paris Club creditors have committed as a group not to sell claims on  HIPC countries to creditors who do not intend to provide debt relief.
In April 2008, AfDB approved a proposal to establish the African Legal  Support Facility (ALSF), which would provide (1) technical legal  advice to members of the facility in creditor litigation, and (2) technical  legal assistance to members of the facility to strengthen their legal  expertise and negotiating capacity in matters related to debt  management and other issues. The U.S. government was the only  participating state to vote against establishment of the ALSF, and  Treasury officials have noted that countries that have been the target of  recent litigation have had very able legal representation to date, calling  into question the need for ALSF assistance. In addition, Treasury staff  expressed a position that some of the proposed activities for the ALSF  are not an appropriate use of AfDB funds and noted concerns over the  substantial administrative costs associated with ALSF. Furthermore,  Treasury staff have emphasized that the DRF—an option already in  operation that is achieving results in reducing country debt burdens to  commercial creditors—is a preferred alternative.
section_title: Appendix III: Funding Provided for the HIPC Initiative and MDRI
paragraphs: IDA and ADF have not secured all financing that will be required to meet  their HIPC Initiative and MDRI debt relief commitments for countries  currently receiving such relief, though IaDB and IMF have secured all  necessary funding. Overall, about 65 percent of the $47 billion in funding  required to cover debt relief over the next several decades has been  secured. Countries have currently received about $14 billion in debt relief.  Overall, we project that the U.S. government is committed to provide  about $8.4 billion in funding for the HIPC Initiative and MDRI.
subsections: section_title: IDA and ADF Have Not Secured All Necessary Financing
paragraphs: Of the $27.8 billion required to finance IDA’s HIPC Initiative and MDRI  debt relief for the 33 countries currently receiving such relief, IDA has  secured about $8.6 billion for the HIPC Initiative and $4.4 billion for MDRI  (see fig. 6). This total of $13.1 billion represents 47 percent of the total  required financing for both debt relief initiatives.
IDA previously financed the HIPC Initiative primarily through transfers  from the World Bank’s International Bank for Reconstruction and  Development. Beginning in July 2006, this financing process changed and  became part of the regular 3-year replenishment process. Donors have  agreed to finance MDRI costs on a “dollar for dollar” basis (i.e., total MDRI  costs will be covered) in conjunction with, and in addition to,  replenishment contributions through 2044.
According to our projections, ADF is to provide about $7.5 billion in HIPC  Initiative and MDRI debt relief and has secured about $5.7 billion, or more  than 75 percent, of this amount. ADF has secured $4.6 billion for the HIPC  Initiative and $1.1 billion for MDRI. ADF is financing the HIPC Initiative  from internal African Development Bank resources and donor  contributions, all of which are channeled through the HIPC Trust Fund  administered by the World Bank. As with IDA, donors have agreed to  finance ADF’s MDRI costs on a “dollar for dollar” basis in conjunction  with, and in addition to, replenishment contributions through 2054.
section_title: IMF and IaDB Have Secured HIPC Initiative and MDRI Funding
paragraphs: IMF and IaDB have fully financed their $8 billion and $3.8 billion of HIPC  Initiative and MDRI debt relief for the countries currently receiving such  relief, respectively, using internal resources and donor-provided funds.  Because these two institutions have fully funded their HIPC Initiative and  MDRI debt relief for the countries currently receiving debt relief, almost 65  percent of total debt relief costs for all four IFIs have been secured. To  fund HIPC Initiative and MDRI debt relief, IMF uses internal resources,  including proceeds from its 1999 and 2000 off-market gold sales, and  donor contributions. IMF has also secured some of the funds to cover its  future debt relief costs for the countries not yet receiving debt relief. IaDB  has fully financed its HIPC Initiative debt relief from internal resources  and donor funding through the HIPC Trust Fund. With the advent of its  MDRI-like program in 2007, IaDB created a blended loan product made up  of concessional and nonconcessional funds, according to Treasury  officials. The process of creating this blended product freed up resources  to be used for debt relief while allowing IaDB to continue to provide  concessional lending. Furthermore, Treasury officials noted that IaDB  took other measures to obtain additional resources, such as canceling  undisbursed portions of nonperforming concessional loans, to gain access  to additional funding. IaDB freed up sufficient internal resources to  provide debt relief for its four member countries receiving HIPC Initiative  and MDRI debt relief as well as reserves of about $0.4 billion for Haiti  when it completes both programs.
section_title: Countries Have Realized $14 Billion in Debt Relief Assistance
paragraphs: Countries currently receiving debt relief have thus far realized less than a  third of expected assistance. Countries realize the benefits of debt relief as  annual debt service payments to IFIs that would have come due are no  longer required to be paid. Debt relief provides the countries with  additional available resources that they can spend on other activities, such  as poverty-reduction programs. Table 8 shows the amount of debt relief  assistance that each IFI has delivered compared to the required amount of  assistance that has been approved.
The IFIs have delivered a total of $14.3 billion in debt relief, which is 30  percent of the approved $47.1 billion for the 33 countries. IDA has  delivered the largest amount, $6.2 billion, representing 22 percent of its  approved $27.8 billion in debt relief assistance. IMF has delivered $4.8  billion, or 60 percent, of its approved $8 billion in debt relief. The HIPC  Initiative has delivered nearly 80 percent, or $11.4 billion, of the debt relief  delivered to date. Countries began receiving HIPC Initiative debt relief  benefits in 1998, whereas MDRI debt relief began in 2006.
section_title: Appendix IV: U.S. Bilateral HIPC Initiative Debt Relief
paragraphs: Table 9 shows the budget cost and the amount of bilateral debt relief the  U.S. government has provided or is projected to provide to 30 countries  under the HIPC Initiative.
section_title: Appendix V: Calculation of Early Encashment Credits
paragraphs: We calculated the outcome of the early encashment approach to funding  the U.S. MDRI commitment under a scenario (1) where the U.S.  government makes its payments in full and on time, and (2) where the U.S.  contribution is 5 percent less than required. Our analysis demonstrates the  significant impact on early encashment income and actual U.S. funding  levels for MDRI when funding reductions, similar to those experienced in  recent years, are realized.
The following is our explanation of the early encashment process. We use  the same assumptions that are being used by Treasury and IDA, but  describe the process in nominal dollars. The U.S. government plans to pay  its share of IDA’s debt relief costs for MDRI from the encashment income  generated by paying its regular IDA replenishment commitment over a 4- year period, rather than over the standard 9-year period. Table 10  describes this process.
The U.S. replenishment obligation for IDA15, which covers the period 2009  through 2011, is $3.7 billion. Column (a) describes the annual standard  encashment or payment schedule over the 9-year period from 2009  through 2017. Column (b) is the annual U.S. payment over a 4-year period.  Column (c) is the annual outstanding excess payment. In 2009, this  amount consists of the difference between what the U.S. government pays,  $1.1 billion, and the required amount of $252 million. In subsequent years,  it consists of the annual excess in payment plus the outstanding excess  payment balance. Beginning in the fifth year, no new payment is made.  The excess payment balance is used to cover the required payment. In the  ninth year, the excess payment balance is just sufficient to pay the last  year’s required payment. Column (d) is the annual encashment investment  income. This amount is the estimated earned income calculated by  multiplying the excess payment balance by the agreed-upon interest rate,  which is 4 percent for the IDA15 replenishment. The line “Total (nominal)”  shows that the total payments under the standard encashment schedule is  equal to the total under the early encashment schedule. The total nominal  dollar earned income is $359 million.
Treasury and IDA use a different method to compute early encashment  income. Under their method, Treasury and IDA first calculate the present  value sum of the payment schedules. The present value is a statistical  method that takes into consideration the amount of annual payments, the  time during which these payments are made, and the interest rate when  computing the sum. Although the nominal sums of the two schedules are  the same, the present value of the early encashment schedule, $3,414  million, is larger than that of the standard schedule, $3,114 million.  Treasury and IDA compute the percent face value as the difference  between these present values divided by the present value of the standard  schedule. The percent face value, 9.63 percent in this example, is  multiplied by the nominal sum of early encashment payments, $3,705  million, to calculate the early encashment income of $357 million. This is  the agreed-upon methodology and $357 million will be used toward paying  the U.S. IDA MDRI commitment of $356 million. The surplus $1 million can  be used to pay future MDRI obligations.
In the previous example, the U.S. government pays its replenishment in  full and all the early encashment income is used to pay its MDRI  obligation. In the next example, we assume that the U.S. government does  not pay its replenishment in full, either due to a rescission or a decision to  withhold payment until certain reforms are made by the World Bank.  Under the agreed-upon methodology, early encashment income is first  used to pay off the replenishment shortfall. Any remaining encashment  income is then used to pay the U.S. IDA MDRI commitment. Table 11  describes the calculation of early encashment income when there is a  replenishment shortfall. We assume an across-the-board shortfall in U.S.  annual payments of 5 percent, resulting in a shortfall of $185 million.  Thus, the total nominal early encashment payments are $3,520 million.  Since the annual U.S. payments are less, the earned income in column (d)  is less: $308 million or a 14-percent reduction. The calculated early  encashment income to pay for the U.S. MDRI commitment is $146 million,  a 59 percent reduction. Most of the earned encashment income is used to  pay the replenishment shortfall. If the across-the-board shortfall were 8.8  percent or more of the replenishment, all of the earned encashment  income would be used to pay the shortage and nothing would be used to  pay the U.S. MDRI commitment.
Treasury and ADF have agreed to use a different methodology to compute  early encashment income. We applied this ADF approach to the IDA15  replenishment. If there is no funding shortfall, the results are identical  between the two approaches. When there is a shortfall, the ADF approach  implicitly reduces the standard encashment schedule payments by the  average across-the-board percentage shortfall. Thus, the nominal total of  the standard encashment schedule is the same as the total early  encashment schedule payments. In the previous example with a 5 percent  shortfall, the computed early encashment income would total $339 million  and all of this amount would be used to pay the MDRI obligation. None of  the earned encashment income would be used to pay the shortfall to IDA.
section_title: Appendix VI: Early Encashment Costs More than Alternative Financing
paragraphs: Under some conditions the early encashment approach to pay the U.S.  MDRI commitment may be more costly than paying the annual MDRI  obligations directly when they are due. If the cost for the U.S. government  to borrow the funds exceeds the agreed upon interest rate used to  compute early encashment income, then the early encashment approach is  more costly than paying the U.S. replenishment and MDRI obligations  annually as they come due. Conversely, if the borrowing cost to the U.S.  government is less than the agreed-upon interest rate used to compute  early encashment income, then the early encashment approach is less  expensive.
According to the Congressional Budget Office, the average medium-term  cost to borrow funds during fiscal year 2009 through fiscal year 2012 is  projected to be 5.0 percent. This amount is greater than the 4.0 percent  agreed-upon interest rate used to compute early IDA encashment income.  Under these conditions, the early encashment approach to finance the U.S.  IDA MDRI commitment is more costly than paying the U.S. commitment  directly.
Assuming that the full replenishment and IDA MDRI commitments are  paid, we estimate that the cost to the U.S. government for early  encashment payments, including financing costs for IDA15, will be  $3,347.2 million in end-2008 present value dollars. This is about $38 million  more than the cost of paying IDA15 replenishment and MDRI obligations  annually as they come due, a total of $3,309.6 million. In nominal dollars,  we estimate the additional cost is $42 million. Since early encashment  income earned is $1 million more than MDRI obligations, the net  additional cost is $41 million.
A similar cost analysis for ADF-11 in end-2008 present value terms shows  that the early encashment cost, including financing costs, is $416.8 million,  about $12.2 million more than the cost of paying ADF-11 replenishment  and MDRI obligations annually as they come due, a total cost of $404.6  million. This reflects the higher government cost of borrowing, 5 percent,  than the 4.69 percent used by ADF to calculate early encashment income.  Again we have assumed that the United States pays its full replenishment  and ADF MDRI commitment. In nominal dollars, we estimate the  additional cost is $14 million. Since early encashment income earned is  $16 million more than MDRI obligations, for ADF-11 early encashment  results in a net benefit of $2 million as compared to paying replenishment  and MDRI obligations annually as they come due.
Based on CBO’s projections for the cost of U.S. borrowing, we estimate  that during the replenishment period from 2009 through 2011, early  encashment will cost the United States an additional $39 million, $41  million more for IDA and $2 million less for ADF.
section_title: Appendix VII: Projected Impact of MDRI on Five Case Study Countries
paragraphs: Based on our projections, while the overall net change in resources  available due to MDRI is positive for each of the five countries we  analyzed (Ethiopia, Ghana, Tanzania, Nicaragua, and Rwanda), individual  countries may experience increases or decreases in their IFI assistance.  The following graphs illustrate the projected overall impact of MDRI for  these five countries. The shaded area indicates the negative (below the  axis) or positive (above the axis) change in IDA and ADF assistance.
Ghana and Nicaragua are projected to experience a decrease in IFI  assistance due to reduced IDA and ADF assistance over the life of MDRI,  even as MDRI debt relief provides freed-up resources. (See shaded area in  figs. 7 and 8.)
In contrast, for Ethiopia and Tanzania, MDRI is projected to result in an  increase in assistance from IDA and ADF. (See shaded area in figs. 9 and 10.)
As shown in figure 11, for Rwanda, MDRI is projected to provide a mixture  of increases and reductions in IDA’s and ADF’s annual assistance over the  MDRI period.
section_title: Appendix VIII: Implementation of the Multilateral Debt Relief Initiative (MDRI) Process
paragraphs: We found that countries receiving MDRI debt relief are projected to  receive about $3 billion more than suggested in World Bank/International  Development Association (IDA) documents describing MDRI. IDA  documents state that, in a particular year, IDA is to reduce its  commitments of financial assistance to countries receiving MDRI debt  relief by the amount of debt relief provided, netting each other out. Donor  governments have agreed to compensate IDA for the foregone debt service  payments. IDA is to reallocate these funds to all countries eligible to  borrow only from IDA, which includes countries that receive MDRI debt  relief as well as those that do not. Thus, when IDA reallocates the donor  funds, all IDA-only countries would be at the same starting point—with no  net additional funds.
We compared the projected amount of debt relief to the projected amount  of reduced assistance under two scenarios, each incorporating the time  value of money. In the first scenario, we assumed that IDA reduces its  assistance by the amount of debt relief provided in the same year, as  described in World Bank documents. In the second scenario, we  considered the disbursement pattern that IDA actually uses to distribute  the reduction in allocations for MDRI recipients as well as the reallocation  of those funds. Under the second scenario, because the disbursement  pattern takes place over a 9-year period, the dollar value of MDRI debt  relief is greater than the actual reduction in IDA disbursements.
In the first scenario, IDA is projected to provide $18.9 billion in debt relief and  reduce its assistance commitments to MDRI recipients by the same amount.  IDA is then projected to reallocate—on the basis of performance—a portion  of this $18.9 billion of reduced assistance commitments to recipients of debt  relief, $12.3 billion, and the remainder, $6.6 billion, to IDA-only countries that  do not receive debt relief. (See fig. 12.)
Under the second scenario, the overall annual amount of debt relief is  greater than the overall annual reduction in assistance. When considering  the disbursement pattern of IDA funds, the projected net present value of  MDRI debt relief, $18.9 billion, is greater than the net present value of  IDA’s reduction in assistance, $15.8 billion, by $3.1 billion. Countries that  receive debt relief are projected to receive this $3.1 billion in addition to  about $10.2 billion in reallocated assistance, for total MDRI benefits of  $13.3 billion. (See fig. 13.)
The additional $3.1 billion places debt relief recipients in a more  advantageous position at the outset of the reallocation process than their  non-debt relief counterparts.
While IDA documents indicate that donor funding provided to compensate  for MDRI debt relief is to be reallocated to IDA-only countries, IDA is  using donor finances to provide the $3.1 billion in net debt relief benefits  to debt relief recipients, in addition to their performance-based  reallocation of donor funds. Thus, the $18.9 billion in donor financing for  MDRI is allocated as follows: $3.1 billion to net debt relief benefits, $10.2  billion in IDA reallocations to debt relief recipients, and $5.5 billion in  reallocations to non-debt relief recipients.
section_title: Appendix IX: Comments from the Department of the Treasury
paragraphs: The following is GAO’s comment on the Department of the Treasury’s  letter dated January 9, 2009.
subsections: section_title: GAO Comment
paragraphs: 1.  GAO could not identify sufficient empirical evidence to suggest that  increases in spending for the poor are directly related to savings from  debt relief. It is difficult to establish that debt relief has led directly to  increased poverty-reducing expenditures for two reasons: (1) debt  relief resources are difficult to track, and (2) country spending data are  not comparable and also may not be reliable. Because of these  limitations, it is difficult to establish if debt relief has caused these  countries to increase or decrease their spending toward the poor.
section_title: Appendix X: Comments from the World Bank
paragraphs: The following is GAO’s comment on the World Bank’s letter dated January  12, 2009.
subsections: section_title: GAO Comment
paragraphs: 1.  We have revised our report language to clarify this distinction between  DSAs.
section_title: Appendix XI: Comments from the International Monetary Fund
paragraphs: The following is GAO’s comment on the International Monetary Fund’s  letter dated January 8, 2009.
subsections: section_title: GAO Comment
paragraphs: 1.  Based on our evidence, we found that the impact of debt relief on  poverty-reducing expenditures is unknown. Our report shows that  additional resources have been created by debt relief, but it is difficult  to establish that debt relief has led directly to increased poverty- reducing expenditures for two reasons: (1) it is not possible to track  how debt relief resources are used, and (2) country spending data are  not comparable and also may not be reliable. In addition, based on our  review of five MDRI case study countries, we found that debt relief  resources are often much less than other types of resources such as  tax revenue and grants. Therefore, while we agree that associations  between debt relief and poverty-reducing expenditures may exist, the  impact is unknown.
section_title: Appendix XII: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the person named above, Cheryl Goodman, Assistant  Director; Leslie Holen; Bruce Kutnick; RG Steinman; Farahnaaz Khakoo;  Ashley Alley; and Debbie Chung made key contributions to this report.
section_title: Related GAO Products
paragraphs: Developing Countries: U.S. Financing for Multilateral Debt Relief  Initiative Currently Experiencing a Shortfall. GAO-08-888R. Washington,  D.C.: July 24, 2008.
Developing Countries: Challenges in Financing Poor Countries’  Economic Growth and Debt Relief Targets. GAO-04-688T. Washington,  D.C.: April 20, 2004.
Developing Countries: Achieving Poor Countries’ Economic Growth and  Debt Relief Targets Faces Significant Financing Challenges. GAO-04-405.  Washington, D.C.: April 14, 2004.
Developing Countries: Switching Some Multilateral Loans to Grants  Lessens Poor Country Debt Burdens. GAO-02-593. Washington, D.C.: April  19, 2002.
Developing Countries: Challenges Confronting Debt Relief and IMF  Lending to Poor Countries. GAO-01-745T. Washington, D.C.: May 15, 2001.
Developing Countries: Debt Relief Initiative for Poor Countries Faces  Challenges. GAO/NSIAD-00-161. Washington, D.C.: June 29, 2000.
Developing Countries: Status of the Heavily Indebted Poor Countries  Debt Relief Initiative. GAO/NSIAD-98-229. Washington, D.C.: September  30, 1998.