Debt Relief for the Poorest Countries: Milestone Achieved
Joint Statement by IMF Managing Director Horst Köhler and World Bank President James D. Wolfensohn
December 22, 2000
Summing Up by the Chairman of the IMF Executive Board Enhanced Initiative for Heavily Indebted Poor Countries (HIPC) and Poverty Reduction Strategy Papers (PRSP) -- Progress Reports and Review of Implementation
Progress Report on the Heavily Indebted Poor Countries (HIPC) Initiative and Poverty Reduction Strategy Papers (PRSP) Program and Work Priorities
Prepared by the Bank-Fund Joint Implementation Committee|
Febrary 6, 2001
Table of Contents
Annex 2. Update on the PRSP Program (pdf)
(Use the free Adobe Acrobat Reader to view the Annexes.)
This is the fourth progress report on the implementation of the HIPC Initiative and PRSP program. The next progress report will be prepared for the Spring Meetings. Section II of the report provides an update of country progress in calendar year 2000. As requested by Executive Directors, Section III also sets out the staffs' work program through the 2001 Spring Meetings, drawn from the Executive Boards' work programs.
II. Progress in Implementing the HIPC Initiative and PRSP Program
There has been considerable progress since September 2000 in terms of the number of HIPC Initiative Decision Points achieved and countries which have begun the process of developing poverty reduction strategies. The following provides a summary. Detailed tables are in Annexes 1 (HIPC) and 2 (PRSP).
A total of 22 countries reached their Decision Point under the enhanced HIPC Initiative by end-December 2000. Of these, 12 were brought forward during the last quarter of 2000.2 A total of $20.3 billion of debt relief in NPV terms ($33.6 billion in nominal debt service relief) has been committed to these 22 countries under the HIPC Initiative. Combined with traditional debt relief and likely additional bilateral debt forgiveness, the HIPC Initiative will reduce the debt stock of the 22 countries by almost two-thirds from $53 billion in NPV terms to roughly $20 billion. Further details are in Annex 2.
HIPC assistance has achieved a major objective of lowering debt service payments in the countries that have reached their Decision Point. Debt service payments will be cut by one third on average from around $3 billion in 1998 and $2.5 billion in 1999 to $1.8 billion in 2001 and $1.9 billion in 2002. The ratio of debt service to exports will be cut from 20 percent in 1998 and 15 percent in 1999 to less than 10 percent in 2001and beyond. The fiscal burden will be reduced by one half over the same period.
The Bank and the Fund are making a substantial financial contribution to this effort. In total, debt service relief from IDA will amount to close to $8 billion and is expected to average $375 million a year over the next decade. All interim debt relief agreements provided by IDA have been signed and are effective. Average IDA debt service by the 22 HIPCs which have passed their Decision Point will be reduced by about two-thirds during the interim period. The IMF has committed $1.7 billion (NPV terms) for the 22 countries. The Fund has begun to disburse assistance to all countries except Honduras and Nicaragua, which are awaiting sufficient financing assurances from other creditors.
Good progress has also been made in financing the Initiative. Total pledges to the HIPC Trust Fund, administered by IDA, have reached $2.5 billion. Paid-in contributions are almost $1 billion. A key step forward in the last quarter was the US Congress's appropriation of $360 million to the Trust Fund, which will help the Inter America Development Bank, the Central America Bank for Economic Integration, and the African Development Bank meet their financing requirements. The US Congress also approved legislation allowing the IMF to use the balance of investment income generated from IMF gold sales (about $800 million) for the PRGF-HIPC Trust.
At the time of the Annual Meetings, the Boards had considered 13 interim PRSPs and two full PRSPs (Burkina Faso and Uganda)3. Since the Annual Meetings, 16 countries have presented I-PRSPs to the two Boards, and two (Tanzania and Mauritania) full PRSPs. Three quarters of the interim strategies have been brought forward in connection with the HIPC Initiative. As expected, I-PRSPs have varied widely in terms of both content and process. All of them lay out a road map for developing the full poverty reduction strategy, which is the requirement for I-PRSPs. However, a few countries have gone beyond the minimum requirement and set out more detailed analyses of the poverty situation and have proposed specific reform measures. Some countries have also described existing participatory processes on which the I-PRSP was based.
III. Looking Ahead to the 2001 Spring Meetings
In the coming months we will increasingly focus on two issues—(1) supporting the development and implementation of high quality poverty reduction strategies in all low income countries, including HIPCs working towards their Completion Point; and (2) bringing the remaining eligible HIPCs forward to their Decision Point, wherever possible.
Substantial Bank and Fund staff resources will be needed to assist governments with the process and content of their poverty reduction strategies. As many as 25 countries—18 of them HIPCs—are planning to produce full PRSPs, embodying the principles of the Comprehensive Development Framework (CDF), in 2001. For the HIPCs, the successful implementation for one year of a full PRSP will be the main requirement for reaching the Completion Point under the Initiative, which brings with it irrevocable debt relief.4 For other countries, the PRSP will determine their access to Bank and Fund concessional lending. The challenge for the Bank and Fund will be to support countries to build effective poverty reduction strategies, developed through broad-based participation, to adapt our programs in the light of these strategies, and as we do so, to improve the division of labor between the institutions—each focusing on its areas of core competence.
To that end, staff will focus on a number of key issues in the first half of 2001:
Supporting Countries' Poverty Reduction Strategies
Extending HIPC Initiative Debt Relief