Rwanda and the IMF
Heavily Indebted Poor Countries -- A Factsheet
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Rwanda to Receive US$810 Million in Debt Service Relief:
The IMF and World Bank Support Debt Relief for Rwanda Under the Enhanced HIPC Initiative
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 Rwanda under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. This debt relief package will save Rwanda about US$810 million in debt service over the coming years, and is equal to US$452 million in net present value (NPV1) terms. The relief from the enhanced HIPC Initiative will reduce by 71 percent the NPV of Rwanda's debt outstanding at end-1999 after the full use of traditional debt relief mechanisms.
The IMF and the World Bank will start providing the debt relief under the enhanced HIPC Initiative effective immediately as interim relief. IDA's assistance under the enhanced Initiative amounts to US$405 million (US$228 million in NPV terms). IMF assistance under the enhanced HIPC Initiative amounts to US$55 million (US$44 million in NPV terms). The African Development Bank, Rwanda's largest multilateral creditor after IDA, will deliver US$75 million in NPV terms under the enhanced HIPC Initiative in the near future.
Rwanda 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
Poverty worsened dramatically due to the genocide with the proportion of households living below the poverty line rising to 70 percent in 1997 from 40 percent in 1985 and 53 percent in 1993. Although not without some slippages and delays, Rwanda has made substantial progress along an ambitious path of reconstruction, national reconciliation and economic reform since the 1994 genocide.
The resettlement of displaced people and returned refugees, and the strong international support have contributed to the recovery of real output to virtually pre-1994 levels. Inflation has subsided, while the fiscal deficit has improved. Structural measures have been implemented and include the liberalization of the trade and exchange rate regimes, the introduction of treasury bill auctions, improved tax administration and an improved environment for private sector development.
To build on recent success in reducing poverty and accelerating growth, the government has begun a broad-based participatory process to formulate a prioritized and costed poverty reduction strategy by next year. An interim PRSP has already been produced by the Rwandese authorities, articulating their commitment to poverty reduction and outline a road map for the preparation of the full-fledged PRSP.
The full assistance under the enhanced HIPC Initiative will be delivered by the IMF and IDA 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:
- Completion and successful implementation for one year of a participatory poverty reduction strategy paper, as evidenced by a joint assessment by the staffs of the IMF and the World Bank;
- Implementation of an agreed set of social and public sector reforms, and maintenance of macroeconomic stability;
- Confirmation of the participation of other creditors in the debt relief operation.
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 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.
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. Debt relief packages are now in place for 22 countries under the enhanced HIPC Initiative framework (Benin, Bolivia, Burkina Faso, Cameroon, The Gambia, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tome & Príncipe, Senegal, Tanzania, Uganda and Zambia), with total committed assistance estimated at some US$34 billion, representing an average NPV stock-of-debt reduction of nearly 48 percent on top of traditional debt relief mechanisms.
For more information on HIPC, visit:
1The 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.
IMF EXTERNAL RELATIONS DEPARTMENT