Press Release: IMF and World Bank Cut $590 Million in Debt Service for Guyana
November 17, 2000
The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) have agreed to support a comprehensive debt reduction package for Guyana under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. This debt relief package will save Guyana about US$590 million in debt service over the coming years, and is equal to US$329 million in net present value (NPV) terms. This amount is in addition to relief committed under the original Initiative, worth US$440 million in debt service relief, or US$256 million in NPV terms. The combined relief from the original and enhanced HIPC Initiative will reduce Guyana's outstanding debt in NPV terms by 54 percent.
The IMF, the World Bank, and most other multilateral creditors, as well as the Paris Club of bilateral creditors have delivered their full share of assistance under the original HIPC Initiative. The IMF and the World Bank and will start providing the additional debt relief under the enhanced HIPC Initiative effective immediately as interim relief. IDA's assistance under the enhanced Initiative amounts to US$71 million (US$40.7 million in NPV terms). IMF assistance under the enhanced HIPC Initiative amounts to US$46 million (US$39.5 million in NPV terms), combined with the assistance provided under the original HIPC Initiative, the IMF's HIPC assistance will amount to a total of US$95 million. Combined with about US$60 million of assistance under the original Initiative, IDA is delivering to Guyana over US$130 million in debt service relief. The Inter-American Development Bank, Guyana's largest multilateral creditor, has already delivered US$105 million in relief (US$52 million in NPV terms) under the original HIPC Initiative and has agreed on a framework that will enable it to meet its obligation of US$64 million in NPV terms under the enhanced HIPC Initiative in the near future.
Guyana will receive the full amount of assistance under the enhanced HIPC initiative when it satisfies the requirements for a floating completion point, including the completion of a poverty reduction strategy paper (see Annex) prepared with the full participation of all stakeholders.
Track record and poverty
Guyana has made substantial progress in implementing economic reforms since 1988. These reforms focused on privatization of public entities, enhancing private sector participation, strengthening the financial and regulatory frameworks, improving access to basic education, and increasing social sector spending. Over the last ten years, 12-month rate of inflation came down from over 80 percent in 1991 to 5 ½ percent in September 2000, while public sector deficits as a percentage of GDP were reduced from 23 percent in 1991 to 1 percent in 1999. Guyana has made significant improvements in reducing the incidence of poverty from 43 percent in 1993 to 35 percent in 1999. In addition, substantial improvements in other social indicators have been recorded during the 1990s, most notably rising school enrolment.
The full assistance under the enhanced HIPC Initiative from both institutions will be delivered to Guyana once important actions have been taken to help achieve the Government's objectives of sustainable growth and reducing poverty within a stable macroeconomic environment. The actions focus on:
· Implementation of an agreed set of social and public sector reforms, and maintenance of financial stability;
· 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 of debt at the decision point to a maximum of 150 percent of exports and 250 percent of government revenue, and will be provided on top of traditional debt relief mechanisms.
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. 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 to the country involved to provide their share of the relief. Other multilateral and bilateral creditors will need to contribute to the debt relief on comparable terms, on the basis of their overall exposure to the country.
Thirty-six countries are expected to qualify for assistance under the enhanced HIPC Initiative, of which 29 are sub-Saharan African countries and 4 are in Latin America. Including Guyana, 12 countries have now reached their decision points under the enhanced framework (Benin, Bolivia, Burkina Faso, Cameroon, Guyana, Honduras, Mali, Mauritania, Mozambique, Senegal, Tanzania and Uganda), with total committed assistance estimated at over US$19 billion, representing an average stock-of-debt reduction of about 50 percent on top of traditional debt relief mechanisms.