Thank you for contacting me about debt relief for developing countries.
Maintaining sustainable debt levels is a critical part of helping to reduce poverty in developing countries. I am pleased that many developing countries have seen a marked improvement in their debt position over the last 15 years as a result of the Highly Impoverished Poor Countries initiative and the Multilateral Debt Relief Initiative, both of which were set up with strong UK leadership. While many countries have borrowed sensibly over recent years I know that some countries' debt levels are rising at an unsustainable rate.
I can reassure you that the Department for International Development (DFID) will continue to be a predominantly grant-based organisation. There is no intention to adopt a policy requiring bilateral UK aid to take the form of loans. Any use of sovereign loans would be on a case-by-case basis, but so far no such cases have been approved by the Government. DFID's contributions to the International Financial Institutions are used to provide concessional finance to developing countries. For example, countries receiving support from the International Development Association (IDA) that are at high risk of, or in, debt distress, receive assistance from the World Bank only in the form of grants. For countries at low or moderate risk of debt distress, World Bank loans are provided at highly concessional rates; the IDA's interest rate is 0 per cent.
I welcome the recent change in the International Monetary Fund's (IMF) debt limit policy to take account of all public external debt in its setting of debt limits for countries which are at risk of unsustainable debt. I also understand the IMF is reviewing the way they analyse debt sustainability. Recent discussions at the Paris Forum, G20 and at the third Conference on Financing for Development (FFD) in Addis Ababa are important in recognising the vital role of both lenders and borrowers acting responsibly to promote debt sustainability.
Thank you again for taking the time to contact me.
