Glossary of important terms
C2D – Contrats de Désendettement et de Développement
The C2D (Debt-reduction and Development Contracts) is France’s bilateral debt relief instrument to the benefit of HIPCs which have reached the completion point. It concerns the bilateral ODA debt which remains due even after France’s assistance under the enhanced HIPC Initiative. Under a C2D the debtor continues to service the remaining ODA debt, but France refinances the same amount through grants. The resources thereby released are allocated to jointly-identified priorities in the HIPC’s poverty reduction strategy, such as basic education, primary health care, infrastructure, rural development, and natural resource management.
The point at which the IMF and World Bank Executive Boards decide that a country has met the conditions for irrevocable debt relief under the HIPC Initiative. The timing of the completion point depends on:
- the satisfactory implementation of key structural and social policy reforms as agreed at the decision point,
- the maintenance of macroeconomic stability under a PRGF-supported programme and
- the implementation of the PRSP for at least one year.
If the country’s debt situation has deteriorated substantially since the debt sustainability analysis at the decision point, it may qualify for topping up assistance. When a country reaches the completion point HIPC debt relief becomes irrevocable and the country is automatically qualified for MDRI assistance without further conditionality.
Comprehensive Multi-Year Plan (cMYP) for Immunization
This is a single plan which consolidates several immunization activities. It is a key planning and management tool for national immunization programmes. It addresses global, national, and subnational immunization objectives and strategies, and evaluates the costs and financing of the programme in line with the WHO-UNICEF Global Immunization Vision and Strategy 2006-2015. GAVI requires countries to submit a cMYP along with the standard proposal form when applying for GAVI support. In 2006, over 50 countries had developed cMYPs using the WHO-UNICEF cMYP guidelines and costing tool. The cMYP replaces the Financial Sustainability Plan. (GAVI Alliance)
“Debt rescheduling refers to the formal deferment of debt-service payments and the application of new and extended maturities to the deferred amount. Rescheduling debt is one means of providing a debtor with debt relief through a delay and, in the case of concessional rescheduling, a reduction in debt-service obligations.” (IMF 2003)
“Debt service refers to payments of both principal and interest.” (IMF 2003). If debt relief is provided with the intention of freeing up budgetary resources for other (poverty reducing) expenditures, it is important to be aware of the difference between “actual debt service” (i.e. payments actually made) and “scheduled debt service” (i.e. required payments as stipulated in the debt contract). Relief of a particular amount of debt only frees up additional resources in the debtor’s budget to the extent to which the country planned to actually pay the debt service.
Debt-Service (-to-Exports) Ratio
“The ratio of debt service (interest and principal payments due) during a year, expressed as a percentage of exports (typically of goods and services) for that year.” (IMF 2003).
A 'debt swap' (or conversion) is a transaction between the creditor and the debtor that reduces the external liabilities of the debtor. In exchange for a reduction of external debt, the debtor country commits to spend the equivalent amount, or an established proportion of it, on the agreed conditions in the country, in local currency. Therefore it involves the voluntary exchange of debt for cash, another asset or a new obligation with different repayment terms. 'Debt swaps' can be categorized according to the agreed purpose of the counterpart amount, i.e. debt-for-equity, debt-for-exports, debt-for-nature, or debt-for-development swap, etc. The terms 'debt swap' and 'debt conversion' are often used interchangeably.
Of particular interest for the health sector is the Global Fund Debt Conversion mechanism labeled "Debt2Health" which was launched by the Global Fund in September 2007.
The point at which the IMF and World Bank Executive Boards formally decide on a country’s eligibility for assistance under the HIPC Initiative. The country qualifies for assistance if a) on the basis of a debt sustainability analysis, the external debt level is found to be above the established HIPC thresholds even after the full application of traditional debt relief mechanisms (such as Paris Club treatments); b) policy performance under IMF or IDA supported programmes is found to be satisfactory, c) any outstanding arrears are cleared or agreement for clearance has been reached; and d) an Interim Poverty Reduction Strategy Paper has been prepared through a participatory approach.
The amount of total HIPC debt relief is calculated for the country to achieve debt sustainability and the international community enters into a commitment to deliver the established amount of assistance at completion point. At the same time the country authorities need to commit to a set of additional policy requirements and reforms which satisfactory implementation will trigger the completion point. As of the decision point, the country receives interim debt relief from certain creditors.
Heavily Indebted Poor Countries (HIPCs)
As of September 2009, this means a group of 40 developing countries which are classified as being heavily indebted poor countries on the basis of their income and external debt levels. Common characteristics of these countries is their eligibililty for highly concessional assistance from the International Development Association (IDA), and from the IMF’s Poverty Reduction and Growth Facility (PRGF) and that they face an unsustainable debt situation even after the full application of traditional debt-relief mechanisms.
Heavily Indebted Poor Country (HIPC) Initiative
The HIPC Initiative was developed jointly by the International Monetary Fund (IMF) and the World Bank in 1996. It was the first international framework dealing comprehensively with the external debt problem of heavily indebted poor countries since it not only considered bilateral and commercial debt, but also liabilities due to multilateral creditors, such as the IMF, the World Bank and regional development banks. The initiative’s main objective is to reduce eligible countries’ external debt to a level deemed to be sustainable. The original initiative was enhanced in 1999 in order to provide faster, deeper and broader debt relief. At the same time the links between debt relief and poverty reduction were strengthened. All countries with income levels below and debt levels above certain thresholds (based on end 2004 data) are potentially eligible for assistance under the HIPC Initiative. As of September 2009, 40 countries are identified as potentially eligible (31 AFRO, 5 in AMRO/PAHO, 3 EMRO, 1 EURO).
The period between decision and completion point. The country receives conditional interim debt relief from certain creditors. In this period the country needs to implement the policy and social reforms which had been agreed at decision point. The duration of the interim period varies from country to country and depends on the rate of implementation of the above mentioned requirements.
Medium Term Expenditure Framework (MTEF)
The Medium Term Expenditure Framework (MTEF) is a multi-year public expenditure planning exercise which is used to link resources to policy priorities within the ‘discipline’ of an overall macro-economic framework. According to the World Bank’s Public Expenditure Management Handbook “The MTEF consists of a top-down resource envelope, a bottom-up estimation of the current and medium-term costs of existing policy and, ultimately, the matching of these costs with available resources…in the context of the annual budget process.” Overall MTEFs may be complemented by sector MTEFs. (WHO, H&A Learning Toolkit)
Multilateral Debt Relief Initiative (MDRI)
The Multilateral Debt Relief Initiative (MDRI) is a new framework for debt relief to the benefit of HIPCs proposed at the G8 summit in Gleneagles in June 2005. Three multilateral institutions, the International Monetary Fund, the International Development Association (World Bank’s concessional lending arm), and the African Development Fund initially committed to participate in the MDRI and to provide irrevocable upfront debt stock cancellation of eligible debt to HIPCs that complete the HIPC Initiative process (i.e. HIPCs at completion point). By September 2006, the MDRI had been fully implemented by these three institutions and by September 2009 26 HIPCs have qualified. Additionally, in 2007 the Inter-American Development Bank has agreed to provide debt relief under similar terms to the five Latin American HIPCs (Bolivia, Guyana, Haiti, Honduras, and Nicaragua).
Net Present Value of Debt
“The nominal amount outstanding minus the sum of all future debt-service obligations (interest and principal) on existing debt discounted at an interest rate different from the contracted rate. […] In the context of the Paris Club and the HIPC Initiative, sometimes present value is misdescribed as net present value (NPV).” (IMF 2003)
(See Present Value (PV) of Debt)
“The nominal value of a debt instrument is the amount that at any moment in time the debtor owes to the creditor at that moment; this value is typically established by reference to the terms of a contract between the debtor and creditor.” (IMF 2003)
Official Development Assistance (ODA)
“Flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent (using a fixed 10 percent rate of discount). By convention, ODA flows comprise contributions of donor government agencies, at all levels, to developing countries (“bilateral ODA”) and to multilateral institutions. ODA receipts comprise disbursements by bilateral donors and multilateral institutions.” (IMF 2003)
The point at which the IMF and World Bank Executive Boards decide that a country satisfies the established indebtedness and income criteria necessary to become potentially eligible for assistance under the HIPC Initiative. No HIPC debt relief is delivered yet.
Present Value (PV) of Debt
Most loans granted to low-income countries are concessional, i.e. the applied interest rates are below market rates and/or there are longer grace periods. The present value of debt is a measure that takes into account the degree of concessionality. It is defined as the sum of all future debt-service obligations (interest and principal) on existing debt, discounted at a given rate of interest (e.g. the market rate). In the donor's perspective, the PV of a debt represents the amount that would need to be invested at the market interest rate, such that, at the time of maturity, the sum of accumulated interest and principal would be the same as for the concessional loan. Thus, whenever the interest rate on a loan is lower than the market rate, the resulting PV of debt is lower than its nominal value.
Present Value of Debt-to-Exports Ratio (PV/X)
“Present value (PV) of debt as a percentage of exports (usually of goods and services) (X). In the context of the Paris Club and HIPC Initiative, sometimes present value is misdescribed as net present value (NPV). In this context NPV/X has the same meaning as PV/X.” (IMF 2003)
In the context of the HIPC Initiative, the Present Value of Debt-to-Exports Ratio serves as important indicator for the burden of a country’s debt. Ratios above 150% are considered to be unsustainable and trigger eligibility for HIPC Initiative debt relief.
The Paris Club is an informal group of creditor governments who have met regularly since 1956 in order to coordinate the rescheduling of development countries’ bilateral debt owed to them. The Paris Club describes itself as a “non institution” since the group has no legal status or basis. The 19 permanent members are mainly OECD countries. On a case-by-case basis other official creditors are invited to take part in rescheduling sessions.
Poverty Reduction Strategy Paper (PRSP)
Poverty Reduction Strategy Papers, or PRSPs, describe a country's macroeconomic, structural and social policies and programs to promote growth and reduce poverty, as well as associated external financing needs. PRSPs are prepared by governments through a participatory process involving civil society and development partners, including the World Bank and the International Monetary Fund.
In order to reach decision point under the enhanced HIPC Initiative, a country needs to have prepared an Interim Poverty Reduction Strategy Paper. Satisfactorily implementing the PRSP for at least one year figures among the conditions for reaching completion point and accessing irrevocable debt relief under the enhanced HIPC Initiative.
More information on PRSPs is available from: