Press Release: IMF and World Bank Approve Debt Reduction Package for Guyana
December 23, 1997
The International Monetary Fund (IMF) and the World Bank have agreed to support a debt reduction package for Guyana under the Initiative for Heavily Indebted Poor Countries (HIPC)1. The total assistance to be provided to Guyana by all of its external creditors will reduce the country’s external debt burden by a quarter, US$253 million in Net Present Value (NPV) terms. This is estimated to translate into debt-service relief over time of close to US$500 million. The IMF and World Bank will provide assistance with an NPV value of US$35 million and US$27 million, respectively. In recognition of Guyana’s exceptional achievements in implementing reform it was agreed that the completion point for the delivery of the debt reduction package will be one year from now in December 1998. This is an acceleration of the normal three-year waiting period under the HIPC Initiative.
The delivery of the debt reduction package from the IMF and World Bank is subject to confirmation from Guyana’s other creditors that they will provide their share and satisfactory implementation of reforms agreed by the Government. The IMF will provide its assistance at the completion point in the form of a grant into an escrow account to be used to pay debt-service falling due to the IMF. The World Bank will use the special HIPC Trust Fund, to which it has already contributed US$750 million, to purchase debts owed by Guyana to IDA. These debts will then be canceled. The fiscal resources released will be used by the government to strengthen and broaden its social programs, especially in basic health and education.
Commenting on the announcement, Guyana’s Minister of Finance Mr. Bharrat Jagdeo, said: "In a country where around 45 percent of total revenues is used to service debt, the news of the approval of this initiative for Guyana is welcome. Apart from the positive developmental impact that these additional resources will have, they will also enhance our capacity to reduce poverty, improve the access to and quality of education and health and accelerate civil service reforms. This approval is recognition of the progress that Guyana has made over the last several years. We thank the World Bank, the IMF, and other participating countries especially Trinidad and Tobago for their contribution in this debt relief initiative. This is good news for all Guyanese."
Guyana is the fourth country to benefit under the HIPC Debt Initiative, raising the total debt relief committed under this Initiative in 1997 to about US$1.2 billion in NPV terms, or about US$2 billion in debt service reduction over time.
Guyana is also the first country to qualify under the fiscal/openness criteria which were established under this Initiative in April 1997 for highly open economies with a heavy fiscal burden of external debt despite strong efforts in mobilizing revenue. In the special case of a country with an open economy that is making a substantial effort to collect fiscal revenues, the net present value of debt-to-exports target may be set below 200 percent, with the target set so that the net present value of debt-to-fiscal revenues would be 280 percent at the completion point. Consistent with this fiscal/openness criteria, Guyana’s target for the present value of its external debt was set at 107 percent of exports, compared to a projected ratio of 143 percent before assistance.
1The HIPC Initiative entails coordinated action by the international financial community, including multilateral institutions, to reduce to sustainable levels the external debt burden of heavily indebted poor countries which pursue IMF- and World Bank-supported adjustment and reform programs, but for whom traditional debt relief mechanisms are insufficient.