Multilateral Debt Relief Initiative (MDRI)

A fisherman in the Lomé harbour, Togo.

In June 2005, the G8 finance ministers agreed on the Multilateral Debt Relief Initiative (MDRI) at the Gleneagles Summit in Scotland. The MDRI builds on the mechanism of the HIPC Initiative. Countries that have reached completion point under the HIPC Initiative can have their debts to the IMF, IDA and ADF written off in full. The Inter-American De­vel­op­ment Bank (IDB) has also taken part in the MDRI since 2007. Other regional de­vel­op­ment banks and multilateral creditors are not covered by the MDRI, however.

By January 2012, 32 countries had reached the HIPC completion point and thus qualified for the MDRI too. Whereas the cancellation ratio for multilateral debt within the HIPC Initiative is around 50 per cent, under the MDRI outstanding debt with the IMF, IDA and ADF is being cancelled in full. This gives participating states significantly more scope for increasing pro-poor spending and investment with a view to achieving internationally agreed de­vel­op­ment goals. The total costs of pledged debt relief under the Multilateral Debt Relief Initiative amount to around 47.1 billion US dollars (as of early 2012).

Additional incentives for reform

The Multilateral Debt Relief Initiative is designed to give highly indebted poor countries an additional incentive to push ahead with their reforms. In order that all low-income countries should be treated equally, the agreed additional multilateral debt relief is imputed to the beneficiary countries in the provision of new assistance by the IDA and the African De­vel­op­ment Fund.

The G8 countries have undertaken to provide additional donor contributions to fill the financing gap caused by debt write-offs at the IDA and the ADF. These compensatory payments will then be allocated to IDA and ADF recipient countries on a new basis, namely on a performance basis (Performance Based Allocation, PBA).

Whether and to what extent countries benefit from the performance-based allocation of IDA and ADF resources will depend on a number of criteria, including reform orientation and good governance. According to the World Bank, HIPCs are benefiting disproportionately from this arrangement.

Germany’s contribution

To finance the MDRI, Germany will contribute a total of some 3.3 billion euros up to 2054 to make up for anticipated shortfalls at the World Bank and the African De­vel­op­ment Fund as a result of the non-repayment of loans. The aim of the compensatory payments is to preserve the financial strength of these institutions beyond the debt relief initiative so that they can continue in future to help the low-income countries to achieve the Millennium De­vel­op­ment Goals.

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