Glossary of Terms

Kamau Thugge, and Anthony Boote
Published Date:
December 1999
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Bilateral creditors. These creditors are governments. Their claims are loans extended by, or guaranteed by, governments or official agencies, such as export credit agencies. Certain official creditors participate in debt reschedulings under the aegis of the Paris Club (see below).

Brady plan. Approach adopted in the late 1980s to restructure debt to commercial banks which emphasizes voluntary market-based debt- and debt-service-reduction (DDSR) operations. The cornerstone of DDSR operations is some combination of a buyback at a discount, and the issuance of “Brady bonds” by the debtor country in exchange for banks’ claims. Such operations complement countries’ efforts to restore external viability through the adoption of medium-term structural adjustment programs supported by the IMF and other multilateral and official bilateral creditors.

Completion point. A point at which the country concerned completes a second three-year track record of good performance under adjustment programs supported by the IMF and the World Bank, at which time additional measures will be taken to assist the country to reach a sustainable level of debt.

Debt sustainability. The position of a country when the net present value of debt (public and publicly guaranteed)-to-exports ratio and the debt service (on public and publicly guaranteed loans)-to-exports ratio are below certain country-specific target levels within ranges of 200-250 percent and 20-25 percent, respectively. Country-specific targets within these ranges would be determined for the completion point in light of vulnerability factors, such as the concentration and variability of exports, and with particular attention to the fiscal burden of external debt service.

Debt sustainability analysis (DSA). A study jointly undertaken by staff of the IMF and the World Bank and the country concerned, in consultation with creditors, at the decision point. On the basis of this DSA the country’s eligibility for support under the HIPC Initiative will be determined.

Debt service-to-exports ratio. Scheduled debt service (interest and principal payments due on public and publicly guaranteed debt during a year) for the same coverage of debt as in the NPV debt-to-exports ratio, expressed as a percentage of exports for that year.

Decision point. A point at which a HIPC completes its first (three-year) track record of good performance under adjustment programs supported by the IMF and the World Bank, and when, based on the debt sustainability analysis, a country’s eligibility for the HIPC Initiative is determined.

Heavily indebted poor countries (HIPCs). As used at present: a group of 41 developing countries, including 32 countries with a 1993 GNP per capita of US$695 or less and 1993 present value of debt to exports higher than 220 percent or present value of debt to GNP higher than 80 percent. Also includes 9 countries that have received concessional rescheduling from Paris Club creditors (or are potentially eligible for such rescheduling). However, this concept will evolve in the course of implementing the Initiative to include all countries eligible under the ESAF and IDA only that face unsustainable debt situations even after traditional debt-relief mechanisms are applied fully. Countries must also undertake adjustment programs supported by the IMF and the World Bank.

HIPC Initiative. Framework adopted jointly by the IMF and the World Bank for action to resolve the external debt problems of heavily indebted poor countries. The Initiative envisages comprehensive action by the international financial community, including the multilateral institutions, to achieve debt sustainability, provided a country builds a track record of strong policy performance.

HIPC Trust Fund. The HIPC Trust Fund will provide debt relief to eligible HIPCs on debt owed to participating multilaterals. It will either prepay, or purchase a portion of the debt owed to a multilateral creditor and cancel such debt, or pay debt service as it comes due. The HIPC Trust Fund will be administered by IDA and receive contributions from participating multilateral creditors and from bilateral donors. Contributions can be earmarked for debt owed by a particular debtor or to a particular multilateral creditor. Donors can also provide contributions to an unallocated pool and would participate in decisions regarding the use of these unallocated funds. The overall structure of the Trust Fund allows multilateral creditors to participate in the Trust Fund in ways consistent with their financial policies. It also addresses the resource constraints for certain multilateral creditors and the potential requirements of donors.

International Development Association (IDA). IDA is the concessional lending arm of the World Bank Group. IDA assistance is available to low-income member countries.

Multilateral creditors. These creditors are multilateral institutions such as the IMF and the World Bank, and other multilateral development banks.

Naples terms. Concessional debt-reduction terms for low-income countries approved by the Paris Club in December 1994 and applied on a case-by-case basis. Countries can receive a reduction of eligible external debt of up to 67 percent in net present value terms.

Net present value (NPV) of debt The sum of all future debt-service obligations (interest and principal) on existing debt, discounted at the market interest rate.

Whenever the interest rate on a loan is lower than the market rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element.

Net present value (NPV) of debt-to-exports ratio. Net present value (NPV) of outstanding public and publicly guaranteed external debt at the end of the period, expressed as a percentage of exports of goods and services.

Official development assistance (ODA). ODA is defined by the Organization for Economic Cooperation and Development (OECD) as grants or loans extended by a government on concessional terms to developing countries with the promotion of economic development and welfare as the main objective.

Paris Club. Informal group of creditor governments mainly from industrial countries (i.e., the OECD) that has met on a regular basis in Paris since 1956 with the French Treasury providing the Secretariat. Creditors meet with debtor countries in order to agree with them on restructuring their debts as part of the international support provided to a country that is experiencing debt-servicing difficulties and is pursuing an adjustment program supported by an arrangement with the IMF.

Structural Adjustment Facility (SAF)/Enhanced Structural Adjustment Facility (ESAF). The SAF, established in 1986 and no longer operational, and the ESAF, established in 1987 and extended and enlarged in 1993, are the concessional loan windows of the IMF. These facilities are available to low-income member countries.

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