Commission Participation in the HIPC Initiative 2008 Status Report

EUROPEAN COMMISSION AIDCO C4/AT D(2009) Commission Participation in the HIPC Initiative 2008 Status Report EUROPEAID December 2008 C:\Documents and Settings\tshiaau\Local Settings\Temporary Internet Files\OLKE\2008 HIPC Status report_final.doc

1. Background The Heavily Indebted Poor Countries (HIPC) Initiative was proposed by the World Bank and the IMF in 1996 following a G7 invitation as a co-ordinated approach to reduce poor countries' external debt to sustainable levels. The initiative involves both bilateral and multilateral public creditors as well as commercial creditors. At the 1999 Cologne Summit, G7 leaders agreed to a revised framework, an enhanced HIPC Initiative, which provides faster, deeper and broader debt relief 1. The HIPC initiative has multiple dimensions, emphasising debt relief but linking it to poverty reduction, structural adjustment and social policy reform, in particular the health and education sectors, inscribed in the context of an adopted Poverty Reduction Strategy Paper (PRSP). Intended originally to be a temporary action for a period of two years, the Initiative has been extended four times (in 1998, in 2000, 2002 and in 2004). The 'Sunset Clause' took effect on December 31, 2006, but the Executive Boards decided to grandfather all the countries that are assessed (or that will be assessed) to have met the income and indebtedness criteria based on end-2004 data and, hence, are allowed to become eligible for HIPC assistance. This report provides an update on the status of implementation of EC's contribution to the initiative. The Multilateral Debt Relief Initiative (MDRI): Aimed at further reducing the debt of HIPC and at providing additional resources to help them reach the Millennium Development Goals, the MDRI provides 100% multilateral debt cancellation of IDA, AfDF and IMF debt stocks for HIPCs that have reached, or will reach, completion point. In March 2007, the Inter-American Development Bank (IaDB) joined the IDA, IMF and AfDF in providing 100 percent debt relief on eligible credits to post-cp HIPCs. The initiative, launched mid-2006, provides debt relief on debt disbursed before end-december 2004 (IMF, AfDF and the IaDB) and end-december 2003 (IDA) and still outstanding at the time of qualification (after HIPC Initiative debt relief is cancelled). To date, all post-completion-point HIPCs have qualified for MDRI debt relief. The other HIPCs would qualify for debt relief under the MDRI once they reach their completion points under the HIPC Initiative. Participating creditors are IDA, AfDF, IMF and Inter-American Development Bank only. 1 Major modifications introduced by the enhanced HIPC regarded eligibility criteria (a lower NPV debt-to export ratio from a range of 200-250% to a single target of 150 percent, and a lower debt-to-revenue target from 280 percent to 250 per cent), earlier assistance, linking timing of Completion Point with implementation of structural reforms. 2

2. Latest developments Implementation. Out of the 41 HIPCs (Table 1), thirty-four countries have reached Decision Point 2. Among these 34, twenty-three countries have reached Completion Point 3, making them eligible for irrevocable relief; eleven are between decision and completion point (interim HIPCs) being thus eligible for the receipt of interim relief. Since the last Commission Status report no HIPC has reached Completion Point while Liberia and Togo reached Decision point respectively in March and November 2008. Table 1 - List of countries qualified or considered eligible or potentially eligible for debt relief under the HIPC Initiative as of December 31 st, 2008. Completion-Point Countries (23) Benin, Bolivia, Burkina Faso, Cameroon, Ethiopia, Guyana, Ghana, The Gambia, Honduras, Mali, Madagascar, Malawi, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao Tome & Principe, Senegal, Sierra Leone, Tanzania, Uganda and Zambia. Interim Countries (11) Afghanistan, Burundi, Chad, Central African Republic, Republic of Congo, DR Congo, Guinea, Guinea-Bissau, Haiti, Liberia and Togo. Pre-Decision-Point Countries (7) Comoros, Côte d'ivoire, Eritrea, Kyrgyz Republic, Nepal, Somalia and Sudan. Four interim countries Afghanistan the Central African Republic, Haiti, and Liberia are advancing towards their completion point. All of them are currently on track with the implementation of their Fund-supported programs Burundi is expected to reach the completion point early 2009. Two pre-decision-point HIPCs Comoros and Côte d'ivoire are making progress towards decision point. In 2008, Côte d'ivoire cleared or has reached agreements to clear arrears to major creditors and is on track with the implementation of its Fundsupported Emergency Post-Conflict Assistance (EPCA). The country is making progress with the preparation of its PRSPs and could reach decision point early 2009. Comoros cleared its arrears to the AfDB and, following the resolution of a short internal conflict, Fund support under EPCA is being discussed with the authorities. 2 Countries reach the DP if they have a track record of macroeconomic stability, have prepared an Interim Poverty Reduction Strategy through a participatory process, and have cleared, or reach an agreement on a process to clear, outstanding arrears to multilateral creditors. 3 Countries reach the CP if they maintain macroeconomic stability under a PRGF-supported programme, carry out key structural reforms, and implement satisfactorily a Poverty Reduction Strategy for one year. 3

The overall cost to creditors of the Initiative for the 41 HIPCs is estimated at US$71 billion in end-2007 terms. Nearly one-half of this cost (US$35 billion) represents irrevocable debt relief to the 23 post-completion-point countries. In end- 2007 NPV terms, the overall cost of the HIPC Initiative as not increased between 2006 and 2007. Topping-up assistance (received by 6 countries so far) only represents 3% of the total Initiative costs. Creditor participation. Multilateral creditors account for about 46% of the total estimated costs of debt relief to the 41 HIPCs while bilateral (Paris Club, non-paris Club and commercial creditors) account for 54% (35, 13 and 6% respectively). 25 out of 32 multilateral creditors are participating to the Initiative and account for over 99% of all multilateral debt relief to post-dp HIPCs. They are delivering or have committed to deliver US$18.8 billion 4 in end-2007 NPV terms to post-cp HIPCs. Bilateral Paris Club creditors continue to provide debt relief in line with their commitments to the Initiative including by providing interim relief as well as relief beyond HIPC by providing 100% debt relief (e.g. G7 and 15 EU Member States). The 54 non-paris Club creditors' cost of debt relief is estimated at US$3.7 billion in end-2007 NPV terms. If 8 non-paris Club creditors have provided full relief and 22 only partial relief, 21 creditors - accounting for about 34% of the total non Paris Club costs - have not yet delivered any HIPC Initiative at all. Debt relief by commercial creditors accounting for 6% of the total HIPC Initiative cost - has increased markedly from 2007 thanks to a large London Club operation and two successful buybacks (for Mozambique and Nicaragua) supported by the IDA Debt Reduction Facility (DRF 5 ). Smaller multilateral institutions, non-paris Club official bilateral creditors, and commercial creditors still need to participate more fully in the HIPC Initiative as they are expected to bear about 25 percent of the total HIPC Initiative cost. Commercial creditors' litigation against HIPCs. Although no new case of litigation was reported by HIPCs authorities to the WB survey in 2008, information available to IMF/WB staff indicate that at least 54 lawsuits have been filed by commercial creditors against 12 HIPCs over the past decade. The HIPCs facing the most litigation cases are Liberia, the Republic of Congo, Uganda, and Sierra Leone, with ten, eight, six, and five lawsuits, respectively. These lawsuits present a growing challenge to the implementation of the Initiative as in most cases, a court award has already been granted - for a total estimated cost of US$1.2 billion with an impact on the debtor's GDP ranging from 0.5% to 49% in the case of Liberia. As a response to this issue, the international community has intensified its efforts to discourage litigation. Active and cooperative negotiations for debt restructuring agreements 4 The EU and the EIB is the fifth largest multilateral creditor and account for US$631 million in end-2007 NPV terms. 5 In April 2008, the IDA s Executive Board approved changes to the DRF s policies and practices to allow it to act more quickly in supporting the preparation of commercial debt reduction operations in countries approaching the HIPC Initiative decision point, and to be more effective in resolving commercial debt burdens in a single operation by ensuring higher creditor participation 4

proved to be successful strategy to limit litigation as well as pressure from the public, non-litigating creditors' commitment not to sell their claims to creditors unwilling to provide debt relief (as was done by EU countries in March 2008) or DRF-supported buybacks. Moreover, the range of instruments to support HIPCs facing litigation with legal advice or technical assistance is increasing (AfDB's African Legal Support Facility or the Commonwealth Secretariat's HIPC Clinic). In this connection, the EU has also approved measures at the GAERC in May 2008 to fight commercial litigation against HIPCs. Achievements of the HIPC Initiative (and the MDRI). The HIPC initiative continues to show some encouraging concrete results. The overall assistance to post-dp HIPCs represents, on average, 50% of these countries' 2007 GDP. Their debt burden, as a result of this debt relief, as well as relief under traditional mechanisms and additional beyond HIPC relief from some creditors, is expected to be reduced by about 90 percent, compared to their pre-decision-point debt stock. With the universe of eligible countries changing towards a growing number of postconflict cases, operational modalities have been exercised flexibly to facilitate HIPCs' receipt of debt relief. For instance, the review of the eligibility criteria allowed Afghanistan not on the 2006 list of ring-fenced countries - to become eligible to the initiative. Also, the definition of a satisfactory track record of policy performance required to reach decision point and completion point has been applied with more flexibility both in terms of duration (in each case a minimum of 6 months is considered satisfactory instead of 3 years) and of the instruments that may count towards the track record for decision point (EPCA can now be used in addition to programs supported under the PRGF, ESF, EFF, SBAs, RAP, SAF and since early 2008, Staff Monitored Programmes (SMP)). For creditors, pre-decision-point clearance of arrears has been allowed to count towards their expected debt relief under the Initiative. There has also been more flexibility in allowing the use of interim PRSP for countries with limited administrative capacity to easily reach decision point. Similarly, flexibility is exercised in deciding if a country reaches completion point even if it has not met all the necessary completion-point triggers. While pro-poor expenditures have continued to increase and debt-service payments have declined in HIPCs, the impact of debt relief on attaining the MDGs has been difficult to quantify. Poverty-reducing spending has increased by about 2 percent of GDP in HIPCs since the late 1990s, while debt service has decreased by about the same amount. Recent empirical research also seems to suggest that debt relief has not affected negatively revenue mobilization, an important development if debt relief is to increase fiscal space. But problems remain. Despite the achievements described above, a number of challenges remain to be addressed for a full implementation of the Initiative as: (i) full financing of the HIPC initiative (and MDRI); (ii) full participation of official and commercial creditors; and (iii) support to the remaining countries to reach completion 5

point. Debt relief constitutes only a fraction of net aid flow to HIPCs. New aid flows are needed to address development needs and to respond to emerging issues, such as the food, oil or financial crisis. In recognition that debt relief alone would not be sufficient to ensure long-term debt sustainability, the Monterrey Consensus (i) highlighted the role of comprehensive strategies in reducing the vulnerability of debtor countries; (ii) called for debtors and creditors to share the responsibility for preventing and resolving unsustainable debt situations; and (iii) called for the strengthening of technical assistance for debt management and debt tracking. Much of the debt sustainability problem derives from the failure to follow up on the HIPC/MDRI Initiatives through enhanced debt management capacity. In order to achieve this long-term debt sustainability, the EC is exploring the possibility to complement its contribution to the Initiative with debt management capacity building in HIPCs. The contribution would make maximum use of existing international initiatives in this area to avoid duplication, in particular the Debt Management and Financial Analysis System Programme (DeMFAS) managed by UNCTAD and the Debt Management Facility (DeMF) managed by the World Bank. Also, the need to broaden the use of the debt sustainability framework (DSF) as an appropriate first step towards tracking debt sustainability on a continuous basis, and to use tools to manage their external and domestic public debt in a prudent manner has been generally agreed. 6

3. The EC contribution to the HIPC initiative The EC contribution to the HIPC Initiative is made in two main ways: through its contribution as a donor (as detailed under 6) to the World Bank HIPC Trust Fund and as a creditor (as detailed under 4) through the EIB. These contributions are incorporated in the two separate Financing Agreements signed in 2000 and 2003. The 2000 Financing Agreement included a 680 million contribution as a donor to the WBTF and 360 million contribution as a creditor for the EIB. The 2003 Agreement provided for a 200 million contribution to the WBTF and 260 million for the EIB. All of the amounts in the 2000 Agreement have been disbursed while 100 million remains to be disbursed to the WBTF and a further 100 million to the EIB TF under the terms of the 2003 Agreement. The contribution through the EIB is in respect of the EC participation in the HIPC Initiative as a creditor and is used to provide debt relief on outstanding EDF special and risk capital loans for eligible partner countries administered by the bank. Debt relief is assessed on the basis of a loan-by-loan reconciliation of partner countries' outstanding liabilities and by reference to the parameters set out in the IMF/WB debt sustainability analyses with respect in particular to discount and exchange rates and debt reduction factors. Debt relief is applied at the rate implied by the common reduction factor although some multilateral donors provide 100% relief. The contributions as a donor to the WBTF are used to fund the participation of the African Development Bank in the HIPC Initiative on the basis of existing grant agreements with beneficiary countries. The Commission also added 60 million to its HIPC contribution as a creditor to pay off special loans in LDCs not covered by the application of standard HIPC debt reduction (LDC Initiative detailed under 5). Arrears clearance operations are a further element in the Commission's participation in the HIPC Initiative. Arrears clearance takes place through a budget support operation but under the operation of HIPC rules, it is counted as part of the Commission's contribution to the HIPC Initiative. To date, arrears clearance operations have been put in place in seven countries, normally in respect of EDF arrears but on occasion and in exceptional circumstances for the African Development Bank arrears also. Arrears clearance operations take place in the form of budget support rather than as an instrumental part of the Commission's participation in the HIPC Initiative both because HIPC conditionality requires arrears clearance as a prior condition and because the level of funding available via the HIPC programmes is insufficient for arrears clearance purposes in general. The list of arrears clearance operations carried out is as follows: Democratic Republic of Congo - 106 M for arrears on EDF resources and $40 M as a donor to the African Development Bank; 7

Republic of Congo - 30.45 M for arrears on EDF and resources (+ 8 million as a donor to the AfDB); Burundi - 19 M for arrears on EDF resources and 7.6 M as a donor to the AfDB; Central African Republic - agreed to use 1.4 M for arrears on EDF resources and max. 5 M as a donor to the AfDB; Cote d Ivoire - 12.7 million; Liberia - 3.5 million plus AfDB arrears of 8 million; Togo - 22.5 million. The EC has so far pledged more than 1.6 billion to the initiative: 680 million, as a creditor, on its own claims, and 934 million as a donor to the HIPC Trust Fund. Table 2 summarizes the situation of the EC pledges, distinguishing between the resources coming from the European Development Fund (EDF) and from the EC Budget. No new pledges have been made during 2008 from horizontal envelopes. Table 2 - EC pledges to the HIPC initiative Summary Table (MEURO) EC acting as a Creditor (EDF) 2000 Financing Agreement (6300/REG of 07/07/2000) 360 2002 LDC Initiative (Rider nr 1 of 19/11/02 to FA 6300/REG) 60 2003 Financing Agreement (9050/REG of 05/11/03) 260 Total resources pledged as a creditor 680 of which transferred to the EIB for disbursement 580 Donor to the HIPC Trust Fund 2000 Financing Agreement (6300/REG of 07/07/2000) 680 Commission contribution for Latin America (EC Budget) 45 Commission contribution for Asia (EC Budget) 9 2003 Financing Agreement (9050/REG of 05/11/03) 200 Total pledged as a donor 934 Of which transferred to the HIPC Trust Fund 834 GRAND TOTAL 1614 8

4. EC Contribution as a Creditor EIB 6 The EC contribution as a creditor is channelled through a Trust Fund established within the EIB. The Decision No 1/1999 on exceptional aid for highly-indebted ACP countries, adopted by the ACP-EC Council of Ministers of the 8 December 1999 confirmed the Community's full participation both as a donor and as a creditor - to the Highly Indebted Poor Countries (HIPC) initiative. For the management and the effective use of its resources allocated to the implementation of the initiative as a creditor, the European Commission has signed two Management Agreements with the European Investment Bank. The first, signed in 2000, covered an amount of 349 million. The latest, signed in October 2006 and valid until end 2009, covers an amount of 260 million. It has helped improve debt relief operational modalities. In 2008, thanks to the new Agreement country operations and debt relief were run smoothly and efficiently. The methodological annex a joint effort from EC and EIB staff - was finalised and is in its final stages of approval. As shown in Table 4 below (account balance), the disbursement of the second tranche of 80 million mentioned in our last report was concluded early June 2008. In view of the timeline of operations to be concluded during 2009, it has been estimated with the EIB that some 110 million, (see table 7) would be needed to cover the year s commitments. With a balance of some 80 million, the disbursement of the final tranche to the bank can therefore be foreseen late in the year or early 2010. The pledged EC contribution as Creditor by country is set out in Table 8 (in annex). Operations concluded in 2008. Interim relief was provided to Burundi, Central African Republic, Chad, the Republic of Congo, the Democratic Republic of Congo (DRC) and Guinea. Full relief was provided early 2008 to the Gambia ( 0.01 million due to a slight upward revision of the CRF), Malawi including topping up ( 23.62 M) and Mozambique ( 0.18 million). Table 3 shows the details by country of the relief granted by the Commission up to December 31, 2008 and the resulting status of account is found in Table 4. 6 The EIB participates to the HIPC initiative in its own right. EIB s Board approved a contribution of 70 million to HIPC. 9

Table 3 - Debt relief granted through the EIB - by country - (million ) 2001 2002 2003 2004 2005 2006 2007 2008 Total Benin 0,39 5,41 5,80 Burkina Faso 8,99 7,11 16,10 Burundi 0,17 6,96 2,48 9,61 Cameroon 1,5 2,36 0,64 1,5 1,5 6,69 14,19 Central African Rep. 0,17 0,17 Chad 0,3 0,44 0,15 0,3 0,3 0,29 0,15 1,93 Congo 4,33 2,16 6,49 Congo DRC 5,38 5,2 4,02 4,21 4,22 23,03 Ethiopia 3,6 2,53 40,88 47,01 Gambia 0,53 0,47 0,5 0,5 0,5 0,01 2,51 Ghana 3,38 1,03 11,32 15,73 Guinea 1,23 3,68 1,37 1,49 7,77 Guinea-Bissau 0,18 0,18 Guyana 0,51 1,52 0,51 6,39 8,93 Liberia 0,21 0,21 Madagascar 0,96 0,54 9,48 10,98 Malawi 2,14 3,21 1,92 2,81 2,32 23,62 36,02 Mali 5,58 9,87 15,45 Mauritania 6,01 17,68 23,69 Mozambique 19,81 2,04 0,18 22,03 Niger 1,94 2,14 1,75 11,12 0,9 17,85 Rwanda 1,26 1,68 1,27 1,21 14,48 19,90 S.T. & Principe 0,04 0,76 0,38 1,64 2,82 Senegal 0,92 0,91 10,16 11,99 Sierra Leone 7,16 1,38 1,83 1,83 10,2 22,40 Tanzania 33,23 33,23 Uganda 8,43 1,33 2,61 0,92 13,29 Zambia 10,9 6,27 4,56 4,24 34,07 60,04 Total 30,84 74,56 80 33,66 88,64 55,83 51,1 34,69 449,32 10

Table 4 - EIB Account balance as of December 31st, 2008 (million ) First tranche - Dec 2000 100,0 Second tranche - Dec 2001 100,0 Third tranche - Oct 2003 148,9 New Agreement First tranche Dec 2006 80,0 New Agreement Second tranche Jun 2008 80,0 Debt relief granted up to 31 Dec 2008-449,3 Interest income 2000-2008 21,1 Balance as of December 31, 2008 80,7 Detail of interest earnings interest 2000 0,1 interest 2001 3,6 interest 2002 4,7 interest 2003 2,2 interest 2004 3,1 interest 2005 2,4 interest 2006 1,4 interest 2007* 1,8 interest 2008* 1,8 Total 21,1 * Net of EIB's management fee ( 0,4 million per year) Pending and foreseen operations. The countries that are considered likely to reach Decision Point in 2009 are Comoros and Côte d'ivoire. The countries that are considered likely to reach Completion Point in 2009 are Burundi, CAR, and Haiti for an estimated total of 42 million, excluding any topping up that might be approved by the boards of the World Bank and IMF. The cost of interim relief for the beneficiary countries is estimated between 10 to 15 million for 2009. Suspended operations: Chad has reached the limit of its HIPC entitlement early 2008. The country is eligible to the LDC Initiative and should get coverage of remaining special loans. However, following discussions with the country s authorities, it has been agreed that the remaining relief would be granted at completion point. Interim relief to Guinea was restored in 2008. However, as discussions of a potential suspension under Article 96 of the Cotonou Agreement are foreseen early 2009, interim relief to the country could be suspended again. Interim relief to Guinea Bissau has already reached its maximum as it was agreed to limit the interim relief to cover the arrears of the selected loans, the rest to be delivered at completion point. 11

5. Complementary Community participation in the HIPC initiative as a creditor (LDC initiative) In December 2001, the ACP-EU Council of Ministers decided, on the basis of a Commission proposal, to grant a further 60 million assistance to HIPC Initiative allowing full relief of the EC special loans of the eligible least developed ACP countries (LDC Initiative). The funds were transferred in October 2003 to the European Investment Bank following the same operational structure as the EIB Trust Fund described above. As of 2007 and following the entry into force of the new Management Agreement with the EIB, the HIPC and HIPC LDC accounts have been consolidated. In 2008, only Chad benefited from additional relief on its Special Loans not covered by the regular HIPC relief. Table 5 - EIB LDC Account balance as of December 31, 2008 in million Opening of account 60,00 Interest income 2003-2008 3,19 Debt relief up to 31.12.2008 7-53,36 Balance as of Dec. 31, 2008 9,83 Detail of interest earnings Interest 2003 0,26 Interest 2004 1,04 Interest 2005 0,51 Interest 2006 0,59 Interest 2007 0,38 Interest 2008 0,41 Total 3,19 7 As it was highlighted in the 2004 Status report the Senegal operation for a total of 29.7 million has used up a significant portion of the resources available. 12

6. EC Contribution as a donor to the HIPC Trust Fund managed by the World Bank Following the signature of the Financing Agreement on 7 July 2000, the Commission, on 17 July 2000, transferred the first tranche of the Community contribution which was received by the Trust Fund on 31 July 2000. Following the signature of implementation agreements with the World Bank, acting as Fund Administrator, and the African Development Bank (AfDB), the Trust Fund beneficiary, an agreement was reached in March 2001 on the individual country allocation. The terms of this relief are those defined by the AfDB 8. Since inception through June 2008, the Trust Fund has provided about $5,98 billion from donor contribution to support eligible creditors, including $2,31 billion to AfDB to which EC's contribution has been pledged. Additional contributions in 2008 have been made from the EC allocation in respect of CAR and DRC interim relief. Overall financing of the Trust Fund: Preliminary estimates by the TF Administrator shows that the total estimated AfDB's debt relief cost and timeline for the upcoming decision and completion point countries in 2009 is approximately $120 million for the first semester: Togo (decision point - December 2008): $7 million; Burundi (completion point - January 2009): $103 million; Côte d'ivoire (decision point - early 2009): $11 million. Comoros decision point is anticipated during the later part of calendar year 2009. The estimated timeframe of the disbursement of EC's final tranche should therefore be on the basis of WBTF treasury requirements. At the time of the last status report, the TF Administrator had proposed to widen the scope to allow it to receive donor contributions for arrears clearance and contributions from IBRD net income. After review by EuropeAid legal services, the proposed amendments were accepted by the EC. 8 Debt relief from the AfDB is governed by the following: a) delivery of debt relief through annual debt service reductions; b) release of up to 80 per cent of annual debt service obligations as they become due until total debt relief is provided; c) Interim financing between decision and Completion Point of up to 40 per cent of total debt relief; d) debt service to be provided, whenever possible, within a 15-year time-span to assist countries attain the internationally agreed development goals for the year 2015. 13

Table 6 9 HIPC Trust Fund Schedule of Resources contributed by the European Commission as of November 30, 2008 Unaudited Amount in EUR Amount in USD Contributions Africa - AFDB 670.000.000 628.540.088 Caribbean - Guyana 10.000.000 9.083.000 Latin America 45.000.000 39.433.500 Asia 9.000.000 7.849.800 Africa - AFDB 100.000.000 126.016.000 IFAD- Nicaragua 7.500.000 9.512.321 820.434.709 Investment Income 63.365.907 Refunds Asia- Principal (7.849.800) Asia- Investment Income (1.293.469) Latin America - Investment Income (4.508) (9.147.777) Funding provided Africa - AFDB Benin 8.712.786 Burkina Faso 19.387.762 Cameroon 38.030.000 Central African Republic 6.356.500 Chad 7.004.684 Congo Rep of 10.642.400 Dem Rep of Congo 38.499.547 Ethiopia 146.343.312 Ghana 47.183.134 Guinea 16.000.000 Guinea-Bissau 8.286.433 Madagascar 22.753.275 Malawi 57.555.178 Mali 20.141.524 Mauritania 31.521.317 Mozambique 8.974.648 Niger 22.822.132 Rwanda 41.663.466 Senegal 14.691.670 Sierra Leone 22.638.830 Sao Tome and Principe 17.972.097 Tanzania 54.724.528 Uganda 24.000.000 Zambia 58.400.000 (744.305.222) Latin America Bolivia-CAF 10.000.000 Bolivia-FONPLATA 4.000.000 Guyana-IADB 10.343.268 Guyana-IFAD 1.009.704 Honduras-CABEI 12.000.000 Nicaragua-CABEI 16.569.991 Nicaragua-IFAD 9.502.794 (63.425.757) Balance as of November 30, 2008 66.921.861 9 The contribution of 7.5 million mentioned in Table 6 earmarked for the interim relief on IFAD loans in favour of Nicaragua stems from the country allocation of the EC Budget. The refund mentioned concerns 9 million earmarked for Asia, and the investment income for Latin America, that were unused at the date of expiration 9 of the Contribution Agreement from the EC budget. 14

7. Conclusions and Recommendations EC as a creditor The EIB HIPC account is sufficiently funded for the present (see Table 7 underneath). Disbursement of the outstanding amounts from the 2003 Finacing Agreement will be made on the basis of treasury requirements. It is proposed that interim relief to eligible countries be continued under the conditions stated in the financing agreements (i.e. being on track within the HIPC framework as defined by the Bretton Woods Institutions, and not being subject to suspension of financial cooperation on the basis of Art 96 and 97 of the Cotonou Agreement). Table 7 - EC acting as a creditor - Forecasts (million ) as of December 31 st, 2008 Forecast CP countries 2009 Burundi (CP early 2009) 15 CAR (CP mid-2009) 2 1. Total forecast CP 17 Interim Relief 2009 15 2. Total Interim relief 15 Assumed topping-up 10 3. Total assumed topping-up 10 4. Total needs 42 5. Balance of account at Dec. 31, 2008 80,7 EC as a donor The disbursement of last 100 million tranche of the contribution to the HIPC Trust will be made on the basis of treasury requirements as necessary. MDRI As far as the MDRI proposal is concerned, there are no direct financial consequences for the Community as a creditor, given that the debts covered are only those of the IMF, IDA, Inter-American Development Bank and African Development Fund. 15

Table 8 - Status of Implementation of EC Assistance as a Creditor, by country - in EUR Cut-off Date Decision point Completion Point NPV at cod Reduction factor 10 Debt relief letter of commitment Status of delivery of EC assistance ENHANCED HIPC Benin DEC 98 JUL 00 MAR 03 17.967.803 31.30% 5.623.923 11 25 OCT 01 Full relief in place JUL 03 Burkina DEC 99 JUL 00 APR 02 26.428.571 28% 12 9.240.000 16 AUG 01 Full relief in place MAR 03 Burundi DEC 04 AUG 05 26.416.838 91.5% 24.170.000 18 AUG 06 Interim relief in place Cameroon JUN 99 OCT 00 APR 06 46.919.035 26.9% 12.620.000 10-DEC-01 Full relief END 06 CAR DEC 06 SEP 07 68% 2.120.000 13 07-JUL-08 Interim relief in place Chad DEC 00 MAY 01 4.973.934 30% 1.490.000 10-DEC-01 Interim relief in place Ethiopia JUN 01 NOV 01 APR 04 60.770.761 47.20% 28.683.799 21-SEP-05 Full relief OCT 05 Congo DRC DEC 02 JUL 03 64.120.000 80% 51.296.000 06-JAN-04 Interim relief in place Congo Rep. DEC 04 MAR 06 21.756.752 32.4% 7.100.000 28 SEP 07 Interim relief in place Gambia DEC 99 DEC 00 DEC 07 6.878.973 27% 1.860.000 10-DEC-01 Full relief early 08 Ghana DEC 00 FEB 02 JUL 04 27.285.000 56.2% 15.335.000 03-OCT-04 Full relief Guinea DEC 99 DEC 00 94.172.009 31.6% 29.760.000 08-JAN-02 Restored in 08 (Art. 96 to be lifted Apr 08) Guinea Bissau DEC 99 DEC 00 6.922.140 85% 5.910.000 11-JAN-02 Interim relief to be resumed in 2008 Guyana DEC 98 NOV 00 DEC 03 21.257.919 39.7% 8.440.000 22 OCT 01 Full relief in place Liberia JUN 07 MAR 08 5.907.373 90.5% 1.910.000 14 Interim relief in place Madagascar DEC 99 DEC 00 OCT 04 26.761.657 40.2% 10.750.000 10-MAR-05 Full relief Malawi DEC 99 DEC 00 AUG 06 54.995.710 44% 24.200.000 10-DEC-01 Full relief concluded 2007/2008 Mali DEC 98 SEP 00 MAR 03 38.646.647 29% 11.200.000 22 OCT 01 Full relief in place AUG 03 Mauritania DEC 98 FEB 00 JUN 02 44.325.097 50% 22.160.000 10-02-2002 Full relief in place NOV 02 Mozambique DEC 98 APR 00 SEP 01 29.730.998 11% 3.270.651 02-JUL-02 Full relief in place NOV 02 Niger DEC 99 DEC 00 APR 04 26.750.035 53.5% 14.310.000 10-DEC-01 Full relief END 06 Rwanda DEC 99 DEC 00 APR 05 29.443.906 71.3% 20.990.000 12-02-2002 Full relief END 06 Sao Tome &P DEC 99 DEC 00 FEB 07 1.036.285 83% 2.821.078 10-DEC-01 Full relief in 2007 Senegal DEC 98 JUN 00 APR 04 59.944.409 19.30% 11.569.271 30 OCT 01 Full relief in place Sierra Leone DEC 00 MAR 02 NOV 06 26.750.000 81.4% 21.570.000 31 MAR 03 Full relief in 2007 Tanzania JUN 99 APR 00 NOV 01 61.537.037 54% 33.230.000 22 OCT 01 Full relief in place JUN 02 Togo DEC 07 NOV 08 19% 8.482.433 15 In progress (only LDC coverage) Uganda JUN 99 FEB 00 MAY 00 32.605.233 37.52% 12.233.484 30 OCT 01 Full relief in place JUN 02 Zambia DEC 99 DEC 00 APR 05 93.572.561 62.6% 58.580.000 03-DEC-01 Full relief END 06 10 As a percentage of the NPV calculated at the cut-off date 11 This amount does not include "LDC initiative" relief, which is worth EUR 3,9 million 12 After the provision of assistance under original HIPC; Actual reduction factor is higher : relief under HIPC II is 5.850.000 (instead of 5.430.000 ) plus topping-up of 3.390.000. This total to 9.240.000 13 This amount corresponds to the HIPC entitlement minus the support provided for arrears clearance via budget support ( 1.116.302,31) 14 This amount corresponds to the HIPC entitlement minus the support provided for arrears clearance via budget support ( 3.439.733,08) 15 Togo will only benefit from the LDC coverage. No HIPC relief as the arrears clearance provided by budget support exceeds the HIPC entitlement C:\Documents and Settings\tshiaau\Local Settings\Temporary Internet Files\OLKE\2008 HIPC Status report_final.doc