Press Release: Mali Qualifies For HIPC Debt Relief Totaling $870 Million: West African Country Completes Original HIPC Initiative and Qualifies for Additional Relief under Enhanced Framework
September 12, 2000
The International Monetary Fund (IMF) and the World Bank Group’s International Development Association (IDA) agreed that Mali has made satisfactory progress in its economic and social programs to reach its completion point under the original Heavily Indebted Poor Countries (HIPC) Initiative framework, and is thereby eligible to begin receiving irrevocably $220 million in debt service relief ($128 million in net present value, or NPV terms).1 Mali was one of the original countries to qualify for assistance under the original HIPC framework when it reached its decision point in September 1998.
The IMF and IDA also agreed that based on its determined efforts in social and structural reform, the commitment to prepare a fully participatory Poverty Reduction Strategy Paper (PRSP), and the continued implementation of IMF- and IDA-supported programs, Mali has qualified for additional assistance under the enhanced framework (adopted in September 1999) amounting to $650 million in debt service relief over time ($401 million in NPV terms). Together with the debt service reduction obtained under the original framework, total savings on IDA debt service is estimated at about $283 million, while the IMF is providing additional savings of about $58 million.
Creditors are expected to proceed speedily with providing debt relief under the original framework. Regarding the enhanced assistance, the IMF and IDA will start providing interim debt relief under the enhanced framework. Mali will reach its completion point under the enhanced Initiative and receive the remainder of its debt relief from all creditors once it has made satisfactory progress to improve key policies, notably in the education and health sectors, and has prepared a costed and prioritized PRSP in consultation with a cross section of local civil society and with the support of international partners (see Annex).
Mali’s completion point under the original HIPC Initiative and eligibility under the enhanced HIPC Initiative is a recognition by the international community of the progress made in implementing economic reforms and in the social sectors. The resources freed by the HIPC Initiative will help support the continuation and strengthening of this progress.
Track Record in Social Policies and Macroeconomic Reform
Mali, with a GNP per capita of $250 in 1998, is among the ten least-developed countries in the world. Its social indicators are significantly weaker than the averages for sub-Saharan Africa. In this context, Mali has made determined efforts to address key social areas, such as setting and meeting targets for budgetary allocation for primary education and health care. These efforts have resulted in moderate improvements in important social indicators. Over the past ten years, for instance, gross primary enrollment has risen from about 32 percent in 1991/92 to about 56 percent in 1999/00. In the area of primary health, early progress has been achieved in developing community health centers and promoting public-private partnerships to develop and consolidate health reforms. The authorities continue to address some systemic problems, including over-concentration of resources in secondary and tertiary care and shortages of personnel and equipment in rural areas.
With the establishment of a democratic government in 1992 and the resolution of the conflict in the northern part of the country, there have been substantial policy reforms aimed at achieving sustainable economic growth and poverty reduction. These policies have resulted in generally promising results over the past few years, though external factors such as unfavorable weather conditions and world oil price increases have caused fluctuations in economic performance. Real GDP growth, estimated at close to 7 percent in 1997, fell to 3½ percent in 1998, but rebounded to an estimated 5½ percent in 1999. Despite these difficulties, Mali has made determined efforts to implement important reforms in tax administration, budget management, privatization and public enterprise reform. These efforts have been complemented by ongoing strengthening in the area of private sector development and financial sector reforms.
2. Reform Steps to be Taken Before the Completion Point Under the Enhanced Framework
While the IMF and IDA, and possibly other creditors, will start delivering the interim HIPC assistance under the enhanced HIPC Initiative, the full assistance from Mali’s creditors will be delivered when it has been determined that the following conditions have been met as part of overall progress in poverty reduction:
- As part of the PRSP, maintenance of a stable macroeconomic environment, with performance to be monitored under the IMF’s Poverty Reduction and Growth Facility (PRGF) arrangement and IDA’s lending program.
- Satisfactory implementation of a set of agreed structural reforms, including continued implementation of reforms under the cotton sector restructuring plan; and pursuit of the privatization program, especially of public utilities and banks.
- Satisfactory implementation of reforms in the education sector, as defined in the government’s ten-year education program, especially with respect to budget allocation and teacher recruitment; and in the health sector, with an emphasis on budget allocation and personnel policy.
- Preparation of a full PRSP through a participatory process, and satisfactory assessment by the IMF and World Bank.
3. 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, for most HIPCs, to reduce the 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). 2
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 programs. 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 three-dozen HIPCs are expected to qualify for assistance under the enhanced HIPC Initiative, the great majority of which are sub-Saharan African countries. So far, 17 countries have been reviewed under the enhanced framework, for packages amounting to some $30 billion in debt service relief over time. Ten countries have now reached their decision point under the enhanced framework (Mali joins Benin, Bolivia, Burkina Faso, Honduras, Mauritania, Mozambique, Senegal, Tanzania and Uganda), with total committed assistance estimated at roughly $16 billion, representing an average NPV stock-of-debt reduction of about 45 percent on top of traditional debt relief mechanisms. Work is underway to have debt relief packages in place for some 20 countries by the end of the year.
1 Net Present Value (NPV) of debt is the discounted sum of all future debt-service obligations (interest and principal) on existing debt. The NPV of debt is a measure that takes into account the degree of concessionality. It is defined as the sum of all future debt-service obligations (interest and principal) on existing debt, discounted, under the HIPC Initiative, at the market interest rate. Whenever the interest rate on a loan is lower than the market rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element.
2 For very open economies where the exclusive reliance on external indicators may not adequately reflect the fiscal burden of external debt: an NPV debt-to-export target below 150 percent can be recommended if the country concerned meets two criteria at the decision point: an export-to-GDP ratio of at least 30 percent and a minimum threshold of fiscal revenue in relation to GDP of 15 percent. For countries meeting these thresholds, the NPV debt-to-export target will be set at a level which achieves a 250 percent of the NPV debt-to-revenue ratio at the completion point. Côte d’Ivoire and Guyana qualified under this criteria under the initial framework.