1- What is comparability of treatment?
Comparability of treatment is one of the Paris Club’s key principles. It states that the debtor country cannot grant to another creditor a treatment less favourable for the debtor than the consensus reached in the Paris Club. For more details about comparability of treatment and the way it is assessed, follow this link .
2- Why is comparability of treatment important in the framework of the HIPC initiative?
The requirement on all debtor countries, including HIPCs, to undertake to seek comparable treatment from their non-Paris Club creditors is a fundamental principle of the Paris Club.
Debt relief provided to HIPC countries by the Paris Club is composed of traditional debt relief (Naples terms, including a 67 percent reduction in the net present value of commercial debt) complemented by HIPC debt relief (calculated on the basis of the common reduction factor defined by the IMF and the World Bank). Different methods can be used to achieve these reductions in the net present value of eligible debt, including debt stock cancellation and concessional debt rescheduling.
Non-cooperative creditors who refuse to provide comparable treatment are free-riding on the efforts of the Paris Club. They seek to profit from the delivery of relief by the Paris Club and other participating creditors to obtain the full payment of their claims. Such behaviour is not acceptable to Paris Club countries. It is of particular concern where the debtor country is a HIPC, as this free riding diverts the benefit of debt relief away from its intended use: the fight against poverty in some of the world’s poorest countries.
Further, obtaining comparable debt treatments is crucial for HIPC countries as it guarantees that their debts will be reduced to a sustainable level. This is because, whilst participation in the HIPC Initiative is voluntary, the amount of debt relief provided by the international community under HIPC is based on the ‘common reduction factor’.
This is defined by the IMF as the level of debt relief needed to get a HIPC country back to a sustainable debt situation, assuming all creditors take part in the initiative. The failure of some creditors to provide comparable treatment could therefore result in HIPC countries continuing to face unsustainable debt situations, undermining their prospects for economic development and poverty-reduction.
