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The ministerial level meeting, organised by the Commonwealth Secretariat in collaboration with the Macroeconomic and Financial Management Institute of East and Southern Africa (MEFMI), of the Commonwealth HIPC Forum was held in Lilongwe, Malawi, on 18-20 February 2002. Of the eleven Commonwealth heavily indebted poor countries (HIPCs), ministers and/or other representatives from Cameroon, the Gambia, Ghana, Kenya, Malawi, Mozambique, Sierra Leone, Tanzania, Uganda and Zambia participated. Ministers/representatives from Australia and Britain as well as from the IMF and the World Bank attended the meeting by special invitation. Ministers from the Commonwealth HIPC Forum issued the following statement.
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Ministers pointed out that the global economic slowdown, worsened by the tragic events of 11 September, had brought home the stark reality that long-term external debt sustainability of countries in the HIPC process could be seriously jeopardised by external shocks. Although the international financial institutions had provided rapid and flexible mitigating assistance, the existing arrangements do not sufficiently respond to swings in export earnings and other exogenous shocks. There was need to develop financing instruments that provided timely highly concessional assistance and that had the appropriate flexibility in application and repayment terms, to ensure that exogenous changes and shocks in a country’s environment did not begin a slide back into unsustainable debt.
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Ministers were concerned that the long-term macroeconomic assumptions for growth and export earnings, on which the debt sustainability projections were made at the decision point, appeared over-optimistic for many countries. They agreed that it was essential to carry out a thorough reassessment of debt sustainability for all countries reaching completion point, with topping up as necessary, and periodic reviews thereafter to determine whether the projections made were actually materialising. They emphasised the need for adequate concessional financing to support strategies designed to achieve sustained growth and development.
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Ministers called for improved access of HIPC products to the markets of developed countries, and a reduction of subsidies by the latter to their agricultural sector, to promote faster export growth in HIPCs. Long term debt sustainability also required HIPCs to diversify and encourage private investment in their economies. In this regard they called upon the Commonwealth Secretariat, in collaboration with other partners, to devise effective ways to more vigorously market the policy achievements and successes of Commonwealth HIPCs.
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Ministers recognised that debt sustainability analysis was incomplete without the consideration of domestic debt. While the HIPC process was designed to deal with the external debt burden, solutions were also needed to deal with the domestic debt burden.
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Ministers noted that although all creditors had agreed to provide comparable treatment under the HIPC process, HIPCs were facing difficulties in resolving the problem of debt owed to some of the non-Paris Club creditors. They called on all creditors that had not already done so to offer HIPC terms or better to HIPCs.
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Ministers noted that although 24 countries have reached the decision point under the Enhanced HIPC Initiative, only 4 have reached completion. They welcomed the link between poverty reduction and the HIPC process. They noted, however, that preparation of a comprehensive and a fully participatory Poverty Reduction Strategy Paper (PRSP), which was one of the conditions for reaching the completion point, was a very demanding process for capacity constrained HIPCs. They stressed the need for the preparation of the initial PRSP without undue delay, and they recognised that while quality was important, the PRSP approach was based on the principle of country ownership and was a long term challenge, requiring continuous learning, sustained efforts at capacity building and iterative improvements over time. Ministers called for close collaboration with the Bretton Woods institutions to avoid delaying the PRSP approval by the Boards of the two institutions.
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Ministers noted that policy slippages were sometimes the result of exogenous shocks which included volatility of donor flows arising often out of non-fulfilment of pledges. There was need for case by case flexibility when examining policy slippages as well as for donors to fulfil their pledges and mechanisms to smooth out volatility of donor flows. Ministers welcomed the streamlining of conditionality by the IMF and called for this streamlining to be applied to all existing programmes.
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Ministers noted the need for continued flexibility in the treatment of conflict-affected HIPCs, which had suffered severe damage to their institutional and administrative capacity and physical and social infrastructure. For them, the immediate need was for post conflict rehabilitation and reconstruction, supported by substantial grant aid, concessional treatment of arrears and front-loaded debt relief.
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Ministers were concerned about the problems created for countries by refugees from neighbouring conflict-affected countries, and called for timely international support to deal with this problem.
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Ministers were of the view that the current conjuncture of events called for the reassessment of the eligibility for relief of those HIPCs, whose debt ratios were deemed potentially sustainable after the application of traditional debt relief mechanisms.
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Ministers recognised that the resources released through debt relief were insufficient to bridge the gap between financing needs and available resources for current poverty reduction initiatives and to meet the millennium development goals. In this connection, HIPC Forum members strongly endorsed the proposal made by the UK Chancellor Gordon Brown for a new Marshall Plan, including an additional $50 billion a year international trust fund with a remit of meeting the millennium development goals. Ministers felt that such a fund should place heavy emphasis initially on assisting those HIPCs and other poor countries which had embarked on designing and implementing poverty reduction strategies. In this regard they called upon the Commonwealth Secretariat, in collaboration with other partners, to undertake a country by country estimate of the resources required by Commonwealth HIPCs to reach the millennium goals, as well as an assessment of capacity constraints. Ministers also agreed that intra-Commonwealth aid and other forms of co-operation needed to be increased and made more effective to assist Commonwealth HIPCs in meeting poverty reduction and other millennium goals.
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Ministers noted that gender issues were not given adequate consideration in designing and implementing poverty reduction strategies and in the formulation of international development targets. They called for the strengthening of gender integration efforts and agreed that this could be best done within the context of a broad gender equality vision at the national level, appropriate policy actions based on available knowledge, and concrete gender related actions in the countries’ medium term expenditure frameworks and donor budgets.
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Ministers agreed that the Secretariat should facilitate the exchange of information and experience on debt management among HIPC countries, including experiences and lessons under the HIPC/PRSP processes and endorsed the proposal for the establishment of a restricted access Commonwealth HIPC website. They emphasised the need for the Commonwealth Secretariat to assist member governments in improving their debt management capacity in collaboration with other partners. Ministers noted the significant improvements in the Commonwealth Secretariat’s software, Commonwealth Secretariat Debt Recording and Management System (CS-DRMS 2000+) for recording and managing of countries’ debt portfolios, and emphasised the need for Commonwealth HIPCs to have early access to the upgraded software.
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Ministers called for the current capacity building initiatives such as those supported by BEAC/BCEAO Pole-Dette, Latin American Centre for Monetary Studies (CEMLA) and MEFMI and West African Institute for Financial and Economic Management (WAIFEM) to be further strengthened and co-ordinated. Ministers undertook to use available domestic capacity in preference to external assistance wherever possible.
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Ministers agreed that their statement should be forwarded to the Commonwealth Heads of Government when they meet in Australia, on 3-5 March. In this regard they requested HE Dr. Bakili Muluzi, President of the Republic of Malawi to present this statement to the Commonwealth Heads.
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Ministers expressed their appreciation to the Government and People of Malawi for their warm hospitality and for the excellent arrangements for the meeting.
Lilongwe, Malawi
20 February 2002
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