Benin becomes eighth country to receive debt write-off under HIPC

On March the 25^th 2003 the IMF and World Bank's International Development Association finally admitted Benin to the club of countries that have reached Completion Point under the Heavily Indebted Poor Countries (HIPC) initiative. Benin joins Bolivia, Burkina Faso, Mauritania, Mali, Mozambique, Tanzania and Uganda in receiving debt cancellation and will receive approximately $460m in debt relief from all her creditors.  According to the World Bank and IMF, this will lead to a 31% reduction in the Net Present Value[1] (NPV) of Benin’s debt outstanding at the end of 1998.  Moreover debt service payments for Benin will be cut by more than a third over the next decade.

While Jubilee Research welcomes the release of these resources that can now be used for the benefit of Benin’s people, we would like to point out that, once again, the reality of debt relief under HIPC has not lived up to expectations.

Analysis from Jubilee Research shows that the debt relief committed will not be enough to bring down Benin’s debt level to the 150% debt-to-export target, which is considered a 'sustainable' level of debt under the HIPC initiative.  In fact even the latest estimates produced by the World Bank in 2002 show that the target ratio of 150% will not be obtained until 2006, if no additional debt relief is provided. The deterioration of the debt-to export ratio is the combined result of the world economic situation and the new borrowing undertaken by Benin between Decision Point and Completion Point.

Under the enhanced HIPC Initiative the World Bank and the IMF are committed to providing more debt relief for countries which are still facing unsustainable debt burdens at Completion Point if this is the result of ‘exogenous shocks.’ In Benin’s case, the country is not considered to be ‘worthy’ of additional relief, because the major reason for the increase in debt-to-export ratios in Benin is the substantial increase in borrowing undertaken by Benin over the last few years.

However, Jubilee Research believes that creditors share co-responsibility for lending to Benin. We believe that creditors should not be pushing loans at poor countries which cause their debts to mount to unsustainable levels. It is not fair to hold Benin solely responsible for the excessive loan pushing of rich creditor countries and institutions which ought to know better. Without a fundamental change to the structure of international lending and borrowing, Benin will never achieve that ‘lasting exit’ from unsustainable debt burdens which was – once - the overarching aim of the HIPC initiative.