The Multilateral Debt Relief Initiative (MDRI)

The Multilateral Debt Relief Initiative (MDRI) provides for 100 percent relief on eligible debt from three multilateral institutions to a group of low-income countries. The initiative is intended to help them advance toward the United Nations' Millennium Development Goals (MDGs), which are focused on halving poverty by 2015.


What is the Multilateral Debt Relief Initiative (MDRI)?
In June 2005, the Group of 8 (G-8) major industrial countries proposed that three multilateral institutions—the IMF, the International Development Association (IDA) of the World Bank, and the African Development Fund (AfDF)—cancel 100 percent of their debt claims on countries that have reached, or will eventually reach, the completion point under the joint IMF-World Bank enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative). The HIPC Initiative entailed coordinated action by multilateral organizations and governments to reduce to sustainable levels the external debt burdens of the most heavily indebted poor countries. The MDRI goes further by providing full debt relief so as to free up additional resources to help these countries reach the MDGs. Unlike the HIPC Initiative, the MDRI does not propose any parallel debt relief on the part of official bilateral or private creditors, or of multilateral institutions beyond the IMF, IDA, and the AfDF. However, in early 2007, the Inter-American Development Bank also decided to provide similar debt relief to the five HIPCs in the Western Hemisphere.

How is the IMF implementing the MDRI?
Although the MDRI is an initiative common to several international financial institutions, the decision to grant debt relief is ultimately the separate responsibility of each institution, and the approach to coverage and implementation may vary. In deciding to implement the MDRI, the IMF Executive Board modified the original G-8 proposal to fit the requirement, specific to the IMF, that the use of the IMF’s resources be consistent with the principle of uniformity of treatment. Thus, it was agreed that all countries with per-capita income of US$380 a year or less (whether HIPCs or not) will receive MDRI debt relief financed by the IMF’s own resources through the MDRI-I Trust. HIPCs with per capita income above that threshold will receive MDRI relief from bilateral contributions administered by the IMF through the MDRI-II Trust.

MDRI relief covers the full stock of debt owed to the IMF at end-2004 that remains outstanding at the time the country qualifies for such relief. There is no provision for relief of debt disbursed after January 1, 2005.

Which countries are eligible for the MDRI? Which have already qualified?
All countries that reach the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative), and those with per capita income below US$380 and outstanding debt to the Fund at end-2004, are eligible for the MDRI. The list of eligible countries is detailed in Table 1.

In December 2005, IMF staff assessed whether the group of 20 countries that were already eligible according to the criteria explained above effectively qualified for MDRI relief. To qualify, the IMF Executive Board required that these countries be current on their obligations to the IMF and demonstrate satisfactory performance in (1) macroeconomic policies; (2) implementation of a poverty reduction strategy; and (3) public expenditure management. The Board determined that 19 countries qualified for immediate MDRI relief. They included 17 HIPCs that had reached the completion point, and two non-HIPC countries whose per capita income was below the established threshold. These countries benefited from MDRI relief in January 2006. Following the implementation of corrective actions, Mauritania qualified for and received MDRI relief in June 2006.

Countries that have not yet reached the completion point under the HIPC Initiative will qualify for MDRI relief upon reaching the completion point. That was the case of Cameroon (April 2006), Malawi (September 2006), Sierra Leone (December 2006), and São Tomé and Príncipe in March 2007. In all, 24 countries have qualified for, and received MDRI relief from the Fund.

How much debt relief will be provided by the Fund?
The estimate of the total cost to the IMF of MDRI debt relief and remaining HIPC Initiative assistance, at end-December 2005, is around SDR 5.3 billion (about US$8 billion; figures are in end-2005 NPV terms). Of this amount, SDR 2.7 billion (equivalent to US$3.9 billion) has been delivered as of end-May 2007.

The G-8 has committed to ensure that proposed debt forgiveness does not undermine the ability of the three multilateral institutions to continue to provide financial support to low-income countries, nor the institutions’ overall financial integrity. In this context, the G-8 has provided SDR 100 million (in end-2005 NPV terms) to the IMF as additional subsidy resources for PRGF-ESF lending in the wake of the MDRI. Additional contributions will be needed to cover the cost of HIPC Initiative and MDRI debt relief to newly identified HIPCs and to countries with protracted arrears to the IMF. In this context, the G-8 committed that donors will provide the extra resources necessary for full debt relief for these countries.

Follow-up and monitoring
The IMF and the World Bank are cooperating closely in the implementation and monitoring of the MDRI, particularly as regards assessing qualification for MDRI relief and monitoring MDG-related spending after provision of debt relief. The first progress report on the IMF’s implementation of the MDRI was presented to the IMF Board in April 2006. The second report was prepared with the Bank and folded into the regular joint Bank-Fund HIPC Initiative status of implementation report. It was discussed by the Fund’s Board in September 2006.