Good debt management is essential to economic development. It has become ever more important as developing countries – particularly in Africa – find it easier to issue debt and are building it up at a fast pace.   It is more important  to target long-term gains – addressing infrastructure gaps and deploying a mix of economic incentives and investments into countries’ human potential – than to engage in short-sighted spending in which few dividends are used to fight poverty.

The World Bank Group (WBG) works to help ensure that the debt burdens of developing countries do not overwhelm their ability to reduce poverty or provide essential government functions. While high-profile debt relief programs have helped Africa exhibit fiscal discipline and grow faster, vital-but-less-high profile tasks remain: training civil servants in borrowing strategies, debt accounting, loan auditing, cash-flow forecasting, and data reporting. WBG experts, who oversee debt relief programs, also advise countries on these important elements of debt management.


Debt Sustainability and Debt Management

The WBG helps low-income countries achieve their development goals without creating future debt problems.

  • An essential initiative in this endeavor is the joint Bank-IMF Debt Sustainability Framework (DSF), which allows creditors to tailor their financing in a way that anticipates future risks, and helps clients balance the need for funds with the ability to repay their debts.

  • A second initiative is the Joint Bank-IMF Debt Management Facility (DMF). Now in its second phase of funding (DMFII), this joint WBG-IMF multi-donor trust fund supports work that strengthens debt management capacity and institutions in developing countries to reduce their vulnerability to shocks and safeguard debt sustainability.

Debt Relief

In 1996, the WBG and the International Monetary Fund (IMF) launched a debt-relief program, the Heavily Indebted Poor Countries (HIPC) Initiative, in response to accumulation of unsustainable, developing-country debt in the 1970s and 1980s.  It called for voluntary debt relief by all creditors, and gave eligible countries a fresh start on foreign debt that had placed too great a burden on resources for debt service.  Thirty-nine countries were eligible for HIPC debt relief, and by September 2014, 35 of them had reached the “completion point,” receiving the full amount of irrevocable debt relief for which they qualified.

In 2006, recognizing that countries that had graduated from HIPC were struggling to make progress towards the UN Millennium Development Goals (MDGs), a second phase of debt relief was launched to help meet these goals. It is the Multilateral Debt Relief Initiative (MDRI), which offers full debt relief for eligible debt held by low-income countries that have completed the HIPC process.

Another initiative is the Debt Reduction Facility (DRF), which focuses on assistance to countries in the buy-back of commercial debt. The WBG also helps low-income countries reduce their external commercial debt burden through the DRF, administered by the International Development Association (IDA), the WBG’s fund for the poorest countries. The DRF provides grants to HIPC countries to develop comprehensive external commercial debt-reduction strategies, and buy back eligible public, and publicly guaranteed external commercial debt claims at deep discounts. Since its establishment in 1989, the Debt Reduction Facility has helped IDA-only countries to reduce their external commercial debt considerably as part of a comprehensive debt resolution program. 


Debt Sustainability and Debt Management

The WBG’s debt experts have developed a range of tools and guidelines for best practices in debt management and for helping to ensure that a country’s debt load is sustainable:

  • Debt Sustainability Analysis (DSA), deployed in countries on a regular basis as part of the Debt Sustainability Framework to examine the country’s debt load and payment plans.

  • Debt Management Performance Assessment (DeMPA), which evaluates strengths and weaknesses in public debt management in a “snapshot” of existing policies, practices, and capacity.

  • The Medium-Term Debt Management Strategy (MTDS), which provides a framework for formulating and implementing a debt management strategy over approximately three to five years. It helps determine the appropriate composition of the debt portfolio, taking into account macroeconomic indicators and the market environment.

  • The Debt Management Reform Plan, which lays out a detailed, country-owned, capacity-building plan for policy and institutional reform, based on a comprehensive analysis of public debt management operations. The goal of the plan is to alleviate the weaknesses identified by assessments of debt management performance.

  • Domestic Debt Market Development: intensive technical assistance is provided to help clients develop and deepen their debt markets.

A team of debt management experts provides training in these tools, as well as on-site technical assistance and other support to debt managers in developing countries. The DMF, which recently formalized a partnership between the WBG and IMF, supports this work in the poorest countries. The work adjusts to meet countries’ needs, including developing programs to help countries develop domestic debt markets while maintaining sustainable debt levels, and formulating overall risk management plans for debt portfolios. 








Debt Relief

If all 39 potentially eligible countries complete the HIPC process, total debt relief provided by the WBG and all participating creditors will be about US$42.8 billion and US$116.4 billion, respectively, in end-2013 Present Value (PV) terms.

  • As of September 2014, of 39 countries eligible for the HIPC Initiative, 35 had reached the “completion point:” Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic,Chad, Comoros, Cote d’Ivoire, Democratic Republic of the Congo, Ethiopia, the Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Republic of Congo, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Tanzania, Togo, Uganda, and Zambia.

  • Total debt relief received by the 36 ‘completion point’ countries amounts to US$99 billion in end-2013 PV terms.

  • For the 36 post-decision-point HIPCs, the average debt-service payment relative to GDP has dropped from three percent of GDP in 2001, to 1.4 percent of GDP in 2014.

  • The decrease in debt-service has been accompanied by an increase in poverty-reducing expenditures in areas including health, rural infrastructure, and education. Such expenditures have increased on average from 6.8 percent of GDP in 2001, to 9.0 percent of GDP in 2014.

Debt Sustainability and Debt Management

To date, the World Bank’s debt management experts have worked with over 65 countries and several subnational governments eligible to improve their debt sustainability and debt management. This number includes 35 countries in Sub-Saharan Africa and all 35 countries that have graduated from HIPC. Debt managers from 22 countries have participated in the World Bank Group’s Debt Management Practitioners Program, which brings successful applicants to shadow experts at the World Bank’s Washington DC office.

Debt Reduction Facility

The DRF has played a key role in promoting greater creditor participation and equitable burden sharing among creditors under the HIPC Initiative, supporting 25 external commercial debt reduction operations in 21 countries. Through these operations, an estimated US$10.3 billion of external commercial debt obligations have been erased in the beneficiary countries, of which US$5.05 billion was external commercial debt principal outstanding and US$5.22 billion was accrued interest, arrears and penalties.