DEBT REDUCTION FACILITY (DRF) and external commercial debt buyback operations Annual Meeting of Multilateral Development Banks on Debt Issues Washington, DC - July 10-11, 2012 THE WORLD BANK
Plan 1. DRF support modalities 2. DRF Performance 3. Potential future clients
1. DRF support Objective: help IDA-only, reforming, HIPC countries reduce their sovereign external commercial debt (ECD) as part of a broader debt resolution program, through ECD buyback operations at a deep discount. Established in July 1989, extended, current closing date July 31, 2017. Support Grants (Board Approved) : Preparation Grants: Legal and Financial advisors: claim reconciliation, eligibility, buyback strategy. Implementation Grants: finance up to 50% of cost of ECD buyback operation, buyback implementation, closing. Remaining financed by client and/or bilateral donors.
Country Eligibility criteria: IMF program, HIPC membership, capacity to formulate debt reduction strategy. Debt Eligibility criteria: non-collateralized, non-guaranteed, external (not domestic) obligations, special cases. Detailed evaluation during Preparation Grant. Since April 2008: 1. DRF support HIPC Pre-decision point countries eligible for Preparation Grants, HIPC decision-point for Implementation Grants Participation rates normally not below 90%
1. DRF support Governance structure: Under Economic Policy and Debt Department (PRMED) of World Bank, a DRF Oversight Committee (DRFOC) provides overall guidance, MD s seal Bank Management decisions, World Bank. Board needs to approve. Linked to HIPC: Common Reduction Factor, repurchase of claims at deep discount, maximum commercial creditor participation, including litigating creditors. Financing: from IBRD net income transfers + grant contributions (especially bilateral donors) + investment income (returns on TF balances).
Since 1989: 2. DRF Performance Number of operations (21 IDA countries) 25 Total ECD bought back (billion US$) 10,3 Average cost (cents/us$) 8.1 Range of discount: Lowest: Liberia, 2009-2010 3.1 cents/us$ Highest: Albania, 1995 20 cents/us$ Average Participation rate 88.7 Total resources utilized (million US$) 753
2. DRF Performance Distribution of ECD extinguished through DRF In 000 US$ 2,000 NIC 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 ST&P NIC LIB MOZ LIB 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1991 NGR 2000 GUI MOZ 2001 YEM 1992 GUY HON 1993 UGA 2003 CAM BOL 2004 TAN 1994 ST&P 2008 NIC ZAM 2009 MOZ 1995 ALB LIB SLE 2010 LIB NIC 1996 ETH MAU SEN 1997 TOG 1998 CdI 1999 GUY
2. DRF Performance Cents/US$ 20 18 16 14 12 10 8 6 4 2 0 16.5 6.1 Discount: Cents/US$ 20 10.8 10.1 8.5 9.1 9.3 12.7 7.6 6.8 5.7 6 4.8 15.7 4.3 8.8 6.7 1.5 5.8 4.8 4.5 9 3.13.1 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1991 NGR 2000 GUI MOZ 2001 YEM 1992 GUY HON 1993 UGA 2003 CAM BOL 2004 TAN 1994 ST&P 2008 NIC ZAM 2009 MOZ 1995 ALB LIB SLE 2010 LIB NIC 1996 ETH MAU SEN 1997 TOG 1998 CdI 1999 GUY
2. DRF Performance % Participation rate (%) 100 90 80 70 60 50 40 30 20 10 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 1991 NGR 2000 GUI MOZ 2001 YEM 1992 GUY HON 1993 UGA 2003 CAM BOL 2004 TAN 1994 ST&P 2008 NIC ZAM 2009 MOZ 1995 ALB LIB SLE 2010 LIB NIC 1996 ETH MAU SEN 1997 TOG 1998 CdI 1999 GUY
2. DRF Performance On average, buyback prices on DRF-supported operations have declined, and creditor participation rates have remained high. 14.0 12.0 85 10.0 Repurchase price (cents to US$) 8.0 95 85 98 Participation rates (%) 100 90 80 70 60 6.0 12.8 50 4.0 2.0 8.2 3.9 4.1 40 30 20 0.0 1991-1995 1996-1999 2000-2004 2005-2010 Weighted averages Source: World Bank staff estimates. 10
Nicaragua (2008) Date Accepted Tenders Debt Tendered Payment Hold-outs SOEs Suppliers Total (US$ million) (US$ million) First Closing Dec-07 12 0 8 20 1,325.7 59.7 Second Closing Feb-08 0 2 16 18 9.4 0.6 Third Closing Sep-08 0 1 0 1 14.7 0.7 Fourth Closing Dec-08 0 2 0 2 21.1 1.1 Total 12 5 24 41 1,370.9 62.0 Liberia (2009) 2. DRF Performance Value, costs and financing FIRST BUYBACK SECOND CLOSING TOTAL Total value of claims extinguished (as of HIPC cut-off date June 30, 2007) (in US$) 1,213,262,649 43,889,330 1,257,151,979 Discount rate (= cents to the US Dollar) 3.135 3.135 3.135 Total cost of repurchase of claims (in US$) 37,791,196 1,384,505 39,175,701 Total financing (in US$) 37,791,196 1,384,505 39,175,701 o/w Liberia DRF Trust Fund (in US$) 37,791,196 1,208,804 39,000,000 Government of Liberia's own resources (in US$) 175,701 175,701 Contributions to the Liberia DRF Trust Fund In (%) of total In US$ IBRD net income 44.2 17,246,613 Germany 16.7 6,515,000 Norway 13.4 5,238,387 United Kingdom 12.8 5,000,000 United States 12.8 5,000,000 Total 100.0 39,000,000
Overall contributions (in US$ millions and %) 2. DRF Performance Financing of DRF - Supported Buyback Operations (total up to December 2011) Total donor contributions and direct funding-- US$ 247 million (in % of total donor contributions) Governments contributions ($239.7 mill., 32%) Donor grants and direct contributions ($246.9 mill., 33%) IBRD ($266.4 mill., 35%) Sweden 10% EU 10% Netherlands 13% Norway 15% UK 8% Germany 8% France 7% Switzerland 21% Other 8% USA 5% Canada 0.16% Finland 1% Japan Russia 0.24% 2% Source: World Bank staff estimates.
3. Potential future clients Total extinguished and estimated ECD, potentially DRF-Eligible (US$ mill.) Potentially eligible clients 12,000 10,000 8,000 6,000 4,000 2,000 0 Others, $4,716 mill. Liberia, $1,257 mill. Nicaragua, $3,193 mill. Cote d' Ivoire, $1,110 mill. Total ECD extinguished Others, $1,122 mill. Clients with large stocks, $10,047 mill. Estimated total ECD outstanding as of end 2010 Source: World Bank staff estimates based on authorities data. Post-completion point Afghanistan Benin Bolivia Burkina Faso Burundi Cameroon Central African Republic Congo, Rep. of Congo, Dem. Rep. of the Ethiopia Gambia, The Ghana Guinea-Bissau Guyana Haiti Honduras Liberia Madagascar Malawi Mali Mauritania Mozambique Nicaragua Niger Rwanda São Tomé and Príncipe Senegal Sierra Leone Tanzania Togo Uganda Zambia Interim period Chad Comoros Côte d'ivoire Guinea Pre-decision point Eritrea Somalia Sudan
For further information please contact: Paul Moreno-Lopez Sr. Economist and Program Manager - DRF Email: pmorenolopez@worldbank.org Tel: +1 202 473 4331 www.worldbank.org/debt