Will Debt Relief Make a Difference? Impact and Expectations of the Multilateral Debt Relief Initiative

15 Pages Posted: 30 Apr 2007

See all articles by Todd J. Moss

Todd J. Moss

Center for Global Development

Date Written: May 2006

Abstract

The Multilateral Debt Relief Initiative (MDRI) is the latest phase of debt reduction for poor countries from the World Bank, the IMF, and the African Development Bank. The MDRI, which will come close to full debt reduction for at least 19 (and perhaps as many as 40) qualifying countries, is being presented as a momentous leap forward in the battle against global poverty. However, the analysis in this paper suggests that the actual gains may be more modest and elusive. This is not because, as some anti-debt campaigners fear, that the initiative is a mere accounting trick. Rather, the limited short-term financial impact of the MDRI on affected countries is because the debt service obligations being relived were themselves relatively insignificant. For example, in 2004 the average African country in the program paid $19 million in debt service to the World Bank, but received 10 times that amount in new Bank credit and more than 50 times as much in total aid. Just as importantly, finances are rarely the binding constraint on poverty and other development outcomes. This is not to say that the MDRI is futile. Indeed the impact could be considerable over the long-term, especially on the ability of creditors to be more selective in the future. But most of the impact of the MDRI will be long-term and difficult to measure. As such, expectations of the effect on indebted countries and development indicators should be kept modest and time horizons long.

Keywords: debt relief, multilateral, foreign aid, poverty, development

JEL Classification: O10, O19

Suggested Citation

Moss, Todd J., Will Debt Relief Make a Difference? Impact and Expectations of the Multilateral Debt Relief Initiative (May 2006). Center for Global Development Working Paper No. 88, Available at SSRN: https://ssrn.com/abstract=983182 or http://dx.doi.org/10.2139/ssrn.983182

Todd J. Moss (Contact Author)

Center for Global Development ( email )

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