The World Bank launched the Debt Management Facility to help developing countries prevent future debt problems. The Bank also called on donor countries to meet their debt relief commitments.

"The debt relief provided by the World Bank and other creditors to heavily indebted poor countries has been key to help them reduce poverty and achieve development goals," said Carlos Primo Braga, World Bank Director for Economic Policy and Debt. "The current financial crisis, however, is creating new challenges for debt management and may reduce the resources available for further debt relief."

Thanks to the Heavily Indebted Poor Countries (HIPC) Initiative, and its companion, the Multilateral Debt Relief Initiative (MDRI) supported by the World Bank and other creditors, the decrease in debt service for 34 countries that reached the decision point under the HIPC Initiative has been accompanied by a marked increase in their poverty reduction spending. Likewise, as a result of overall debt relief, the external debt stock of the 34 post-decision-point HIPCs is expected to be reduced more than 90 percent.

"Many developing countries, especially low income economies receiving debt relief, are facing the risk of re-accumulation of debt emerging from the current financial and economic pressures," said Danny Leipziger, World Bank Vice President for Poverty Reduction and Economic Management. "The debt outlook remains vulnerable to shocks, particularly in countries with a low export base concentrated in few commodities, and to the terms of new financing."

According to the World Bank, debt sustainability for low income countries depends on achieving sustainable growth through export diversification, sound borrowing policies, and a strong capacity to manage their public debt as they go forward.

In a joint seminar with the IMF during the United Nations Financing for Development Conference in Doha, Qatar, the World Bank called on all creditors to participate in the debt relief initiatives and ensure their appropriate funding. Likewise, the World Bank reiterated its commitment to providing developing countries with the appropriate debt management tools and technical assistance on a collaborative basis through instruments such as the Debt Management Facility (DMF).

The facility will increase and accelerate the implementation of the World Bank’s debt management program in partnership with several leading suppliers of debt management technical assistance, including the International Monetary Fund, with the objective of strengthening debt management capacity and institutions in developing countries.

The DMF will focus its technical assistance on low income countries. It is being funded through the support of the governments of Austria, Belgium, Canada, The Netherlands, Norway, and Switzerland, which have made initial commitments to the Facility for up to US$12 million.

Background Information

Currently, 34 out of 41 eligible countries have reached the decision point under the HIPC Initiative, which means they have qualified for HIPC initiative assistance. Of those, 23 countries have reached the completion point and qualified for irrevocable debt relief under the HIPC Initiative and the MDRI.

Assistance in the amount of US$77 billion in end-2007 net present value (NPV) terms has been committed to the 34 post-decision point HIPCs, which represents on average about 50 percent of these countries 2007 GDP.

The debt relief of the HIPC Initiative debt relief for all eligible countries is estimated at US$71 billion in end-2007 NPV terms, while MDRI is expected to contribute an additional US$28 billion. For the 23 countries that have reached the HIPC Initiative completion point, World Bank’s contribution to debt relief is expected to total approximately US$24 billion in 2007 NPV terms. If all 41 potentially-eligible countries qualify for the HIPC Initiative and MDRI, total World Bank debt relief is estimated to rise by an additional US$9 billion to about US$33 billion in end-2007 NPV terms.