Press Release: Niger To Receive US$890 Million In Debt Service Relief: The IMF and World Bank Support Debt Relief for Niger Under the Enhanced HIPC Initiative
December 20, 2000
Washington, December 20, 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 Niger under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Total relief from all of Niger's creditors is worth about US$890 million, corresponding to aboutUS$520 million in Net Present Value (NPV) terms, 1 which is equivalent to 53.5 percent of total debt outstanding after the full use of traditional debt relief mechanisms.
The debt relief provided under the enhanced HIPC framework reduces significantly Niger's annual debt service obligations, freeing about $40 million per year over the coming years for expenditures on basic health care, primary education HIV/AIDS prevention, rural infrastructure and other programs geared at poverty reduction. The overall impact on Niger's budget is substantial. Debt service as a percentage of government revenue will be slashed from nearly 44 percent in 1999 to 10.9 percent in 2003 and average 4.3 percent during 2010-2019. It cuts debt service as a percentage of export revenue from more than 23 percent today to 8.4 percent in 2003, and decrease to about 5 percent in later years.
IDA will provide debt relief amounting to US$302 million, covering about 66.5 percent of Niger's debt-service obligations to IDA over the coming 20 years. The debt relief of US$34.3 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.
Track Record in Social Policies and Macroeconomic Reform
The program of economic and financial structural adjustment policies, launched in 1996 with the support of the IMF, the World Bank and the international community of donors, had resulted in substantial progress in correcting Niger's major macroeconomic and budgetary imbalances, as well as introducing structural reforms focusing on private sector development, privatization, and civil service reform. However, achievements between 1996 and 1998 suffered a setback following the Coup d'etat of April 1999. The economic and financial consequences of this instability were aggravated by the almost total withdrawal of external financial assistance from Niger during the transition period.
After transparent and democratic elections at end-1999, the newly elected authorities quickly established the economic, social, and political agenda aimed at restoring financial stability, stimulating economic growth and reducing poverty. While resuming financial relations with its development partners, the government also restored transparency and accountability in public finance, implemented a tight cash management system to prevent budgetary slippage, revived important structural reforms and prepared an interim Poverty Reduction Strategy Paper (interim PRSP) to support its commitment to fight poverty. In this context, Niger has focused particular effort toward addressing key social areas, such as increasing primary school enrollment, improving infrastructure in rural areas and broadening access to health services, with a strong focus on confronting the growing crisis of HIV-AIDS. The interim PRSP provides an adequate framework for the use of the resources freed by the enhanced HIPC Initiative.
Reform steps to be taken before the completion point
· Completion and a one-year satisfactory implementation of a fully participatory poverty reduction strategy paper .
· Implementation of an agreed set of measures in the context of the government's poverty reduction strategy in the areas of primary education, basic health care and the fight against HIV/AIDS. Specific targets include the construction of classrooms and deployment of teachers in rural areas, the expansion of the immunization coverage for children; and the adoption of a national strategy to fight HIV/AIDS.
· 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 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 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.
Some three-dozen 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 Niger, 17 countries have now reached their decision points under the enhanced framework (Benin, Bolivia, Burkina Faso, Cameroon, The Gambia, Guinea-Bissau, Guyana, Honduras, Mali, Mauritania, Mozambique, São Tomé and Príncipe, Senegal, Tanzania, Uganda, and Zambia), with total committed assistance estimated at nearly US$25 billion, representing an average stock-of-debt reduction of about 45 percent on top of traditional debt relief mechanisms.
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. 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.