The Opportunities
An analysis of the debt situations of Global Fund recipient countries under a range of possible circumstances—from donations by the original holders to purchase on a secondary market—suggests that debt conversion and debt restructuring opportunities can be prioritized based on:
- feasibility (matching interests, political commitments, solvency)
- transaction costs (cost of write-off, reputational risk, staff time)
- amount of financing that can be expected to be generated.
There are basically five types of debt that can be turned into new resources for health under Debt2Health:
1. Bilateral official claims that have not been subject to Paris Club agreements
All bilateral official claims (concessional and non-concessional) that have not been subject to Paris Club agreements can be made available under Debt2Health without any limitations or restrictions.
2. Bilateral official claims that have been subject to Paris Club agreements
Bilateral official claims (concessional and non-concessional) that have been subject to Paris Club agreements such as rescheduling or partial write-off can be made available under Debt2Health as these agreements contain a swap clause. Most relevant for Debt2Health are those countries which received debt rescheduling under the Houston terms. Currently, these are:
- Côte d’Ivoire
- Dominican Republic
- Ecuador
- Egypt (Agreement equal to Houston terms.)
- El Salvador
- Georgia
- Guatemala
- Indonesia
- Jamaica
- Jordan
- Kenya
- Moldova
- Morocco
- Philippines
- Peru
Three additional countries – Pakistan, Serbia and Montenegro - have ad hoc arrangements with the Paris Club, which also contain a swap clause.
3. Non-performing commercial claims on non-HIPCs
Debt held by private creditors can be converted. In fact, private creditors have been pioneering debt conversion through (tax-deductible) donations or through sales at steep discounts or at symbolic prices in countries that are not part of the HIPC Initiative or MDRI. As of end 2004, the arrears to private creditors were estimated to be approximately US$ 2 billion (World Bank 2006). Countries in this category include:
- Albania
- Angola
- Dominican Republic
- Grenada
- Guatemala
- Jamaica
- Kenya
- FYR Macedonia
- The Solomon Islands
- Syria
- Ukraine
- Uzbekistan
- St. Vincent and The Grenadines
- Zimbabwe
4. Commercial and bilateral official claims on HIPCs
Despite a Paris Club policy on the comparability of treatment many bilateral official creditors and private creditors have not participated in the two large multilateral debt relief initiatives for a variety of reasons. Nearly all 41 HIPCs have claims against them that have yet to be cancelled according to HIPC terms. As of 30 September 2007, 22 bilateral official creditors had delivered only partial relief, with up to US$ 1 billion still being held. An additional 21 bilateral creditors had not delivered any relief at all and still hold a total of US$ 1.2 billion (in 2006 net present value (NPV) terms) in official bilateral debt. Commercial creditors are expected to bear US$ 1.6 billion (in end 2006 NPV terms) of the total HIPC relief of US$ 67.7 billion. Yet World Bank surveys indicate they have only delivered US$ 63 million to three countries. Under Debt2Health, commercial creditors could donate some of their claims based on a tax deduction incentive and simultaneously support the fight against AIDS, tuberculosis and malaria.
5. Remaining multilateral claims on HIPCs
While the HIPC Initiative has helped to ensure equal or at least comparable treatment by multilateral creditors, this principle is largely absent in the MDRI. Except for the Inter-American Development Bank (IDB), no multilateral creditor other than the original participants - IMF, IDA, and the African Development Bank - has provided any relief under the MDRI. However, a number of incentives could prompt some regional creditors to donate those claims to the Global Fund. In total, five regional creditors hold around US$ 10.2 billion in debt (in nominal terms). Should these multilateral creditors decide to participate in Debt2Health, countries that have received full HIPC debt relief could benefit from this opportunity:
- Benin
- Bolivia
- Burkina Faso
- Burundi
- Cameroon
- Chad
- Democratic Republic of Congo
- Republic of Congo
- Côte d’Ivoire
- Eritrea
- Ethiopia
- The Gambia
- Ghana
- Guinea
- Guinea-Bissau
- Guyana
- Haiti
- Honduras
- Madagascar
- Malawi
- Mali
- Mauritania
- Mozambique
- Nepal
- Nicaragua
- Niger
- Rwanda
- Sao Tomé and Principe
- Senegal
- Sierra Leone
- Tanzania
- Uganda
- Zambia