Press Release: Benin to Receive Around US$460 Million in Debt Service Relief
July 18, 2000
IMF and World Bank Support Debt Relief for Benin
Under the Enhanced HIPC Initiative
The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) agreed to support a comprehensive debt reduction package for Benin under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Total relief from all of Benin's creditors is worth around US$460 million. This is equivalent to US$265 million in net present value (NPV) terms, and about 31 percent of the total NPV of debt outstanding at end-1998 after the full use of traditional debt relief mechanisms. The Fund and IDA will start providing interim debt relief by August 1, 2000.
Under the enhanced HIPC Initiative, countries with a satisfactory track record of macroeconomic and structural policy implementation and a NPV of external debt exceeding 150 percent of exports are eligible to receive debt relief. With a debt NPV debt-to-export ratio of 218 percent at end 1998, debt relief equivalent to $265 million in NPV terms will bring the ratio down to 150 percent and below 100 percent from 2011 onward, freeing up considerable resources for anti-poverty programs.
Of the level provided under the enhanced framework, bilateral creditors will be responsible for US$77 million, while multilateral creditors will provide the remaining US$189 million. IDA will provide debt relief amounting to US$124.3 million (US$84.4 million in NPV terms) and covering about 50 percent of Benin's debt-service obligations to IDA over the next 15 years.
The debt relief of US$24.3 million committed by the IMF will be delivered over a seven-year period, and will cover on average 31 percent of debt-service obligations to the Fund.
Benin will reach its completion point under the Initiative and receive the remainder of its debt relief from all creditors once it has achieved satisfactory progress in implementing a number of monitorable actions. This includes the completion of a Poverty Reduction Strategy Paper (PRSP), which will be drafted in a broad consultative process with civil society groups and the support of international partners. The Government of Benin expects to complete the PRSP by April 2001.
Benin's eligibility for debt relief under the enhanced HIPC Initiative is a recognition by the international community of the progress made in implementing an ambitious program of economic reforms. The assistance under the enhanced HIPC Initiative will complement ongoing efforts to combat poverty by improving health and education and build momentum toward the achievement of the development goals.
Since mid-1990s, Benin has been implementing an ambitious program of economic reforms, which has received broad support from the international community. Overall, progress was made in reestablishing financial stability, restoring economic growth, and strengthening the efficiency of the economy. More recently, the government has made further advances in reforming the budget process, refining social sector strategies, and liberalizing the cotton sector. The combination of a sustained increase in per capita income and reforms in social policies resulted in an improvement in social indicators in such areas as primary education, immunization rates, health services, and water quality. Yet much remains to be done to reduce significantly poverty and improve living standards. With a per capita income estimated at US$380 in 1999, Benin is still among the poorest countries in the world, and according to official data, about one-third of the population falls below the absolute poverty line.
II. Reform Steps to be Taken Before the Completion Point
The full assistance under the enhanced HIPC Initiative from the IMF and IDA will be delivered to Benin when action has been taken in following areas:
(i) Completion of the Poverty Reduction Strategy Paper (PRSP) through a participatory process.
(ii) Maintenance of a satisfactory macroeconomic framework as supported by the IMF PRGF arrangement.
(ii) Satisfactory implementation of a number of key structural and social reforms with high poverty impact in the areas of governance, government financial management, cotton liberalization, immunization rates, the fight against HIV/AIDS, and school enrollment and learning outcomes in primary education.
III. HIPC Background
The HIPC Initiative was launched by the IMF and the World Bank 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 of exports, 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 granted 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.
Thirty-six countries are expected to qualify for assistance under the enhanced HIPC Initiative, of which 29 are sub-Saharan African countries. Nine countries have reached their decision point under the enhanced framework (Benin, Bolivia, Burkina Faso, Honduras, Mauritania, Mozambique, Senegal, Tanzania and Uganda), with total committed assistance estimated at about US$15.5 billion, representing an average NPV stock-of-debt reduction of 45 percent on top of traditional debt relief mechanisms.
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