Budget and Spending:

Benefits and Costs of the Debt Relief Enhancement Act of 2002

GAO-03-215R: Published: Oct 11, 2002. Publicly Released: Oct 11, 2002.

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Despite years of effort to provide debt relief to the world's poorest countries, these countries' debt problems still have not been resolved. In response to this situation, Congress introduced Senate Bill 2210, the Debt Relief Enhancement Act of 2002, to reduce these countries' debt service payments to manageable levels. The act proposes that no qualified country pay more than 10 percent of its revenue on external debt service or no more than 5 percent if the country suffers a public health crisis. GAO found that the act would immediately lower the debt service of countries that qualify for relief. It would cost $2.7 billion for 26 countries over the next 3 years and have no effect on long-term debt sustainability. If applied over a 20-year period, the act's provisions would address the long-term debt sustainability of these countries. However, the cost of the proposal would grow to between $7 billion and $12 billion for those 26 countries. An alternative debt proposal, proposed by the Bush administration, is to convert up to 50 percent of future multilateral concessional loans to grants. This proposal does not address the short-term debt service obligations of these countries. However, it its sustainability improves their prospects of achieving long-term debt sustainability. The cost of implementing this proposal would be $9.7 billion over 40 years and would lower the debt burdens of all 65 countries that are eligible to borrow only from the World Bank's concessional resources.

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