Multilateral Debt Relief Initiative

In 2005, the G8 responded to unprecedented international campaigning on debt by promising 'historic' debt cancellation at their Gleneagles summit. This promise has become the 'Multilateral Debt Relief Initiative'. But what is it and what difference is it making?

You can download our 4-page briefing on the good, the bad and the ugly of the G8 debt deal here.


What was promised?

• Leaders promised 'full' cancellation of debts to the World Bank, International Monetary Fund (IMF) and African Development Fund, for those countries that complete the Heavily Indebted Poor Countries (HIPC) initiative.

Has it happened?

• Countries that have already completed HIPC have had the promised debt cancellation: from January 2006 for IMF and African Development Bank debts, and from July 2006 for World Bank debts.
• Other countries will get debt cancellation as they qualify, by completing HIPC.

Which countries are included?

• At present, 23 countries have completed HIPC and had this promised cancellation. These are Benin, Bolivia, Burkina Faso, Cameroon, Ethiopia, Gambia, Ghana, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tomé and Principe, Senegal, Sierra Leone, Tanzania, Uganda, Zambia.
• Because of a rule about how IMF funds are used, Tajikistan and Cambodia also got cancellation of IMF debts, but did NOT get World Bank debt cancellation. (They do not have any African Development Fund debt.)
• Up to 17 more countries (making a total of 40, or 42 on the IMF side) could possibly qualify in future, although it could take years longer for those that do.
• At least 60 low-income countries need total debt cancellation if they are to meet the Millennium Development Goals (see our In the Balance report for details), and many others need partial cancellation. Unjust or illegitimate debt must also be cancelled.

How much is the debt being cancelled worth?

• If all 40 potentially eligible countries qualify, the deal could offer $50 billion in total.
• Of this, $43.5 billion was cancelled by September 2008.

What will it mean for individual countries?

• The amount being cancelled per country varies from $340 million for Guyana to $3.9 billion for Uganda.
• The actual benefit each year - that is, the money that poor countries will save by not paying debt service each year - should be around $600m to $1 billion in total. This is far short of what is needed - but substantial enough to make a huge difference for those countries that do benefit.
• It is only the IMF cancellation that directly means more money for the poor countries that qualify. The World Bank and African Development Fund cancellation is being off-set by reduced aid allocations to qualifying countries. Donors ARE also covering the cost of the cancellation; but this extra money is being spread - rather thinly - among a bigger group of countries, and only to the extent that they comply with World Bank conditions.
• Some countries have already said how they plan to spend the money from the IMF, and the presumed extra money from the World Bank. Zambia, for instance, will get cancellation of about $6.5 billion, which it plans to spend mainly on health and education, including on 4,500 teachers, building new schools, HIV/AIDS control, community health care and new medical equipment.
• The four qualifying Latin American countries benefit the least from this deal directly, as it covers only about 30% of their debts. However, other debts to the Inter-American Development Bank are being cancelled as part of a provisional deal agreed in November 2006.

What debts are covered?

• The deal gives 100% cancellation of outstanding debts to the International Monetary Fund (IMF)and African Development Fund incurred up to the end of 2004.
• It also includes 100% of outstanding debts to the World Bank incurred up to the end of 2003 - the creditors put back the cut-off date by one year, to save themselves $5 billion.
• This acknowledgement that some countries need and deserve cancellation of 100% of multilateral debts is a huge step forward, and a tribute to the efforts of campaigners over many years. Up to now, HIPC only led to cancellation of a smaller percentage of impoverished countries' debts.
• Almost all creditors had already agreed to cancel bilateral debts for countries that complete HIPC. But countries that aren't allowed to enter HIPC get nothing.

What debt is left?

• Debts of non-HIPC countries! Many impoverished countries are not allowed to enter HIPC but are still paying off billions in illegitimate and unpayable debt.
• HIPC countries still owe debts from after the cut-off dates, debts to countries that don't fully cancel debt under HIPC, and debts to other multilateral lenders. (Of the regional development banks, only the African one is included in this deal.)
• Very few commercial creditors (banks and private companies) are participating properly in HIPC - so far they have cancelled only 5% of the amount they should cancel through HIPC.
• Jubilee Debt Campaign is calling for 100% cancellation of all unjust and unpayable debts, not just some debts for some countries.

What else is needed?

• Jubilee Debt Campaign is calling for total cancellation of all illegitimate and unpayable debts, for all countries that need it, by fair and transparent means.
• This includes an end to the damaging and unfair conditions that are part of the HIPC process - and on which this extra cancellation promised in 2005 therefore still depends.
• For more information on what you can do, see the 'Act now' section of our website.

Thank you to all campaigners for helping to make this debt cancellation happen!