Debt Relief - the Hope of the Poor
Melaku Demissie, All Africa, Apr 10
How poor is Ethiopia is really an interesting question in monetary aspects. To begin with, national accounts and household surveys is very much easier to show how the country is managing the least economy in the world. For instance, consumption per capita, according to the national account, is almost 40 percent less than what is observed in the household surveys, at 126 USD dollars per capita, the bottomline, Ethiopia stands among the poorest countries of the world remains.
According to a recent World Bank report, wealth is rather equally distributed in Ethiopia compared to other countries in the world with only 16 countries out of 126 with a lower Gini coefficient than Ethiopia. This is also reflected in the different ranking Ethiopia takes depending on one US dollar and two a day poverty lines. While it ranks 73rd out of 96 countries when using one US dollar a day poverty line, it ranks 84th when using two US dollars a day poverty line. Together the different monetary indicators suggest that Ethiopia is equal, but equal poor. Ethiopia's ranking in the Human Development Index (170 out of 177 countries) and the Human Poverty Index (92 out of 95 countries) also include the non-monetary indicators of poverty.
By operating the actual population and sectoral growth rates on the income distribution, the World Bank estimated that 24.3 million people or 36.2 percent of the total population were poor in 2004. The micro and macro evidence point a picture of limited to no decline in consumption poverty incidence in the past 15 years. There is a growing consensus that poverty incidence in urban areas is increasing, while rural poverty incidence may have decreased slightly, by one or two percentage points. Overall, consumption inequality in Ethiopia remains low, though inequality in urban areas is on the rise. The reasons behind these broad trends are largely found in the disappointing performance of the agricultural sector, which barely kept up with rural population growth. Whatever poverty reduction occurred in rural areas probably resulted from improved access to services and infrastructure.
These days Ethiopia and other poor countries are engaged in massive all-round poverty reduction programme to meet the Millennium Development Goals (MDGs) set by the United Nations. While these poor countries are exerting their effort to pull out from the vicious circle of poverty, they are also looking for more aid and debt cancellation in order to achieve the targets of MDGs. It was last week that the World Bank emerged to announce the approval of its board of executive directors of the USD 37 billion for multilateral debt relief initiative.
The World Bank said that the board of the executive directors approved financing and implementation details for its contribution toward the Multilateral Debt Relief Initiative (MDRI), which will cancel the International Development Association (IDA) debt of some of the world's poorest countries starting on July 1, 2006. At the start of the Bank's new fiscal year, IDA is expected to provide more than USD 37 billion in debt relief over 40 years.
Paul Wolfowitz, president of the World Bank, said this is a historic agreement combining increased financing with debt relief which help poor countries meet the MDGs. "I am particular pleased that the Bank's shareholders have agreed on a funding package that will help to preserve the IDA's role as a cornerstone in development finance for the poor countries of the world."
According to the World Bank, the IDA board of governors is now expected to consider and vote on a resolution of approval, which Wolfowitz urged to occur quickly to assure debt cancellation can be implemented over the summer.
It is to be recalled that at the July 2005 G8 Summit in Gleneagles, Scotland, G8 leaders pledged to cancel the debt of the world's most indebted countries, most of which are located in Africa. Debt cancellation will be provided by the IDA of the World Bank. the International Monetary Fund (IMF) and the African Development Fund (ADF) to countries that have graduated (called reaching the "completion point") from the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
The World Bank noted that initially 17 HIPC countries will be eligible for 100 percent debt cancellation. These are Benin, Bolvia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mozambique, Nicaaragua, Niger, Rwanda, Senegal, Tanzania, Uganda and Zambia. Mauritania has completed the HIPC program, but will qualify for relief after implementing key public expenditure management reforms. The remaining HIPC countries will be eligible for debt cancellation once they have completed the requirements of the HIPC Initiative.
Now donors have agreed to a financing package that calls for additional donor contributions over time to ensure delivery of fresh resources poverty reduction. Compensatory financing over the duration of the cancelled loans will be based on strong indicative pledges already made, and donors are undertaking the necessary steps in their home countries to provide their financing commitments, according to the World Bank.
Wolfowitz said that IDA deputies have agreed to financing that exceeds the threshold the World Bank initially set for funding debt relief. "The deal reflects what has been under discussion all along: that there will be firmer commitments for most countries over the near term and more qualified long-term commitments, especially for the last 30 years." According to him, the long-term commitments simply reflect the reality of parliamentary and legislative procedures in most countries.