Developing Countries: The United States Has Not Fully Funded Its Share of Debt Relief, and the Impact of Debt Relief on Countries' Poverty-Reducing Spending Is Unknown
Highlights
In 1996, the Heavily Indebted Poor Countries (HIPC) Initiative was created to provide debt relief to poor countries that had reached unsustainable levels of debt. In 2005, the Multilateral Debt Relief Initiative (MDRI) expanded upon the HIPC Initiative by eliminating additional debt owed to four international financial institutions (IFI): the International Monetary Fund (IMF), World Bank's International Development Association (IDA), African Development Fund (ADF), and Inter-American Development Bank (IaDB). These four IFIs are projected to provide $58 billion in total debt relief to 41 countries. GAO (1) analyzed the U.S. financing approach for debt relief efforts; (2) reviewed the extent to which MDRI might affect resources available to countries for poverty-reducing activities; and (3) assessed revisions to the analyses conducted by the World Bank and IMF to review and promote future debt sustainability. GAO analyzed Treasury, IFI, and country documents and data, and interviewed officials at Treasury and the four IFIs.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Treasury | To address limitations in the U.S. approach for financing MDRI, the Secretary of the Treasury should consider the use of different funding options that clarify the priority between paying U.S. arrears owed to IDA and paying MDRI obligations, such as requesting separate appropriations from Congress. |
Treasury responded that it was open to considering alternative Multilateral Debt Relief Initiative (MDRI) funding approaches. In 2009, through Public Law 111-32, Congress created separate MDRI funding. The law amended the International Development Association Act, through which the International Development Association (IDA) and MDRI are funded, to create separate funding for IDA and MDRI as we recommended. Congress' action was only applicable to 2009. Treasury independently requested a separate and permanent appropriation for MDRI in its budget justification materials for fiscal year 2012. A senior official from the Treasury's International Debt Policy Office told GAO that his staff had consulted GAO's report when developing their fiscal year 2012 budget request.
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