Press Release: Senegal to Receive Around US$800 Million in Debt Service Relief: IMF and World Bank Support Debt Relief Under the Enhanced HIPC Initiative
June 23, 2000
The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) agreed to support a comprehensive debt reduction package for Senegal under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Total relief from all of Senegal's creditors is worth around US$800 million. This is equivalent to about $450 million in net present value (NPV) terms, or approximately 18 percent of the total NPV of debt outstanding after the full use of traditional debt relief mechanisms. IDA will start providing interim debt relief on July 1, 2000. The IMF will begin providing interim relief once satisfactory assurances have been obtained from Senegal's other creditors.
Senegal will reach its completion point under the Initiative and receive the remainder of its debt relief from all creditors once it has fulfilled a number of steps designed to strengthen and broaden economic growth and reduce poverty. Senegalese authorities will outline these measures in a Poverty Reduction Strategy Paper (PRSP), drafted in consultation with a broad cross section of local civil society and the support of international partners. Country authorities estimate this will be completed by end 2001.
Senegal was first considered for debt relief under the original HIPC Initiative framework in early 1998, but it was determined at the time that other sources of debt relief (i.e. a 67 percent reduction of eligible bilateral debt in the Paris Club of bilateral creditors) were sufficient for Senegal to attain a sustainable debt position as defined under the terms of the original HIPC Initiative framework. In September 1999, the international community endorsed major enhancements to the Initiative designed to deliver deeper, broader and faster relief, which lowered the qualifying threshold. (Countries are now eligible for assistance if the NPV of external debt exceeds either 150 percent of exports or 250 percent of fiscal revenue). Under this enhanced framework, Senegal qualifies under both criteria.
The debt relief provided by IDA of US$149 million (US$116 NPV) will cover 50 percent of Senegal's debt-service obligations to IDA in each of the next nine years. The debt relief committed by the IMF of US$51 million ($42 million NPV) will be delivered over a seven-year period, and will cover on average 20 percent of debt-service obligations to the Fund.
Senegal's eligibility for debt relief under the enhanced HIPC Initiative is a recognition by the international community of the progress made in implementing economic reforms and developing its poverty reduction strategy. Assistance provided under the enhanced HIPC Initiative will help Senegal to advance its poverty reduction programs and stimulate widely shared and sustainable economic development.
Senegal has made substantial progress in implementing an economic reform program. Supported by successive IMF Enhanced Structural Adjustment Facility (ESAF) arrangements and an IDA lending program, Senegal has sustained balanced growth, improved its external balance and consolidated public finances with encouraging results. Over the past four years, average real GDP growth exceeded 5 percent, while annual inflation remained below 3 percent. There has also been a steady improvement in the government's fiscal position. Since 1995, after several years of deficit, the basic fiscal balance showed surpluses that remained above 1.5 percent of GDP between 1996 and 1999. Senegal has also made a strong structural adjustment effort in recent years, including far-reaching reforms in the external, commercial, and public sectors.
Senegal has pursued a comprehensive poverty reduction program, developed in collaboration with local civil society and support from international donors. This program, which has been integrated into an Interim Poverty Reduction Strategy, has been focusing on gathering critical poverty data necessary for improving the availability and quality of social infrastructure in poor communities, especially basic health care and primary education, and increasing access of rural communities to basic agricultural services such as credit, potable water and appropriate technologies.
Reform Steps to be Taken Before the Completion Point
The full assistance from the IMF and IDA will be delivered to Senegal when it has been determined that the following conditions have been met as part of an overall satisfactory pace of progress in poverty reduction:
- Completion of a poverty reduction strategy paper through a participatory process, which needs to be broadly endorsed to by the Executive Boards of the IMF and the World Bank.
- Maintenance of a stable macroeconomic environment, as evidenced by satisfactory performance under a program supported by an arrangement under the IMF's Poverty Reduction and Growth Facility, and specific structural reform measures as part of the policy dialogue with IDA.
- Implementation of a set of other measures specifically related to poverty reduction, including improvements in the poverty database and monitoring capacity; implementation of the IDA-supported Quality Education for All program, including increased allocation of the education budget to primary education and the recruitment of teachers; and continued implementation of health sector reforms, with a focus on increasing child immunization rates, expanding the provision of pre-natal care to pregnant women, and increasing utilization of primary health care centers.
- Confirmation of the participation of other creditors in the debt relief operation.
The HIPC Initiative was launched by the World Bank and the IMF in 1996 as the first comprehensive effort to eliminate unsustainable debt in the world's poorest, most heavily indebted countries. In October 1999, the international community agreed to make the Initiative broader, deeper and faster by increasing the number of eligible countries, raising the amount of debt relief each eligible country will receive, and speeding up its delivery. The enhanced Initiative aims at reducing the net present value (NPV) of debt at the decision point to a maximum of 150 percent (reduced from a range of 200-250 percent) of exports and 250 percent of government revenue, and will be provided on top of traditional debt relief mechanisms (Paris Club debt rescheduling on Naples terms, involving 67 percent debt reduction in NPV terms and at least comparable action by other bilateral creditors).
Eligible countries will qualify for debt relief in two stages. In the first stage, the debtor country will need to demonstrate the capacity to use prudently the assistance by establishing a satisfactory track record, normally of three years, under IMF- and IDA-supported programs. In the second stage, after reaching the decision point under the Initiative, the country will implement a full-fledged poverty reduction strategy, which has been prepared with broad participation of civil society, and an agreed set of measures aimed at enhancing economic growth.
During this stage, the IMF and IDA grant interim relief, provided that the country stays on track with its IMF- and IDA-supported program. In addition, Paris Club creditors, and possibly others, are expected to grant debt relief on highly concessional terms. At the end of the second stage, when the floating completion point has been reached, the IMF and IDA will provide the remainder of the committed debt relief, while Paris Club creditors will enter into a highly concessional stock-of-debt operation with the country involved. Other multilateral and bilateral creditors will need to contribute to the debt relief on comparable terms.
Some 36 countries could qualify for assistance under the enhanced HIPC Initiative, of which 29 are in sub-Saharan Africa. As of June 15, 2000, debt relief packages have been approved for ten countries. Six countries have now reached their decision points under the enhanced framework (Bolivia, Mauritania, Mozambique, Senegal, Tanzania and Uganda), with total committed assistance estimated at more than US$13 billion, representing an average NPV stock-of-debt reduction of about 45 percent on top of traditional debt relief mechanisms. In addition, three countries had reached their decision points under the original framework (Burkina Faso, Cote d'Ivoire, and Mali), while Guyana has already reached its completion point. Total assistance under the HIPC Initiative committed to these four countries amounted to US$1.6 billion, and will be reassessed under the enhanced Initiative. It is expected that, depending on country circumstances, debt relief packages will be committed to up to 20 countries by the end of 2000.
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