Efforts to provide debt relief to the world’s poorest and most heavily indebted countries continued to make good progress in fiscal 2003. As one part of a comprehensive development strategy, the HIPC Initiative is well on the way to achieving its fundamental goal of giving a fresh start to HIPC by cutting their external debt to a manageable level. Twenty-six countries — two-thirds of the eligible HIPC—are now receiving relief that will amount to more than $40 billion from all creditors over time. Of these countries, Benin and Mali recently completed the program, bringing to eight the total number of countries that have reached the point of program completion. The other six countries that have completed the program are Bolivia, Burkina Faso, Mauritania, Mozambique, Tanzania, and Uganda.

Key challenges facing the HIPC Initiative include (a) encouraging countries, many of which are conflict-affected, to reach the decision point while maintaining the policy performance standards in the framework; (b) encouraging countries in the interim period to proceed expeditiously toward meeting the requirements of the completion point; (c) working within the Poverty Reduction Strategy Paper (PRSP) framework after the completion point to achieve the MDGs in heavily indebted countries while maintaining long-term debt sustainability; (d) improving participation by certain non–Paris Club official bilateral, commercial, and some small multilateral creditors; and (e) continuing to support heavily indebted countries’ pro-poor growth strategies, recognizing that the Initiative is one instrument that will contribute to achieving this objective. Figure 2.20 shows HIPC debt relief. Trends in social spending before and after HIPC relief are shown in figure 2.21.

A major focus of attention in fiscal 2003 has been to develop strategies that ensure that low-income countries do not relapse into problems of indebtedness. Workshops have been organized in collaboration with bilateral donors to address longer-term issues of debt sustainability, and it is expected that those initiatives will become a continuing feature of Bank work. Complementary to those efforts, the Bank’s CASs for HIPC and some other low-income countries now include assessments of debt sustainability.

Most of the countries that are still unable to participate in the program have been affected by conflict. The HIPC Unit is working closely with the Low-Income Countries Under Stress (LICUS) Initiative to address the special problems of these countries. The Bank is also supporting other initiatives, including a Transitional Support Strategy in Burundi; country reengagement strategies in both the Central African Republic and Sudan; postconflict funds in the Republic of Congo; and the Somalia Aid Coordination Body.

Countries eligible for HIPC debt relief must prepare Interim Poverty Reduction Strategy Papers (I-PRSPs) to reach completion points. The PRSP provides a nationally owned framework within which savings from debt relief can be redirected to support programs for reducing poverty. These programs reflect locally established priorities prepared on the basis of a broad consultative process that incorporates the views of country stakeholders, including civil society organizations. The PRSP process, with its emphasis on pro-poor growth, long-term poverty reduction, and working toward achieving the MDGs, has extended beyond countries eligible for the HIPC Initiative to cover a wider group of countries that receive IDA financing. For those countries, Bank CASs are now normally expected to be based on country-owned PRSPs.

Poverty Reduction Support Credits

The PRSP approach enables development strategy and development assistance to be grounded in a broad-based, participatory, and country-owned process. PRSCs are designed to support this process in countries with good policies and sound public institutions. PRSCs provide customized support to country-developed and country-owned reform programs after extensive consultations among stakeholders. They focus on building government capacity and institutions, particularly those that serve poor people.

PRSCs have been approved this year for Burkina Faso, Ghana, Guyana, Sri Lanka, Tanzania, Uganda, and Vietnam. Continued dialogue with representatives from PRSP countries, development partners, and civil society organizations reinforces the importance of adapting PRSP processes to specific country circumstances, setting realistic priorities and targets in country-owned PRSPs, and supporting their implementation through improved harmonization of donor policies.

Afghanistan

The $108 million Emergency Transport Rehabilitation Project financed by an IDA credit will help remove transportation bottlenecks and promote rehabilitation of the country’s highway and aviation networks. The fiscal 2002 $42 million Emergency Public Works and Community Empowerment Project provided for the rehabilitation of the Salang Tunnel. The tunnel covers a critical section of the highway connecting the city of Kabul to eight provinces and is Kabul’s only entry point for humanitarian aid and other goods and for refugees returning from the north.

Iraq

In line with Development Committee discussions in April 2003, the Bank’s Board authorized its management to undertake a needs assessment for Iraq, including dispatching fact-finding missions to Iraq to assess rebuilding needs. The Bank is assessing the most pressing needs for the country’s reconstruction, working with the United Nations, the Islamic Development Bank, and the European Union, among others. (See "Regional Perspectives - Middle East and North Africa".)