Press Release: IMF and World Bank Support US$ 1.1 Billion In Debt Service Relief For Mauritania: West African Country Reaches Completion Point Under Enhanced HIPC Initiative
June 20, 2002
IMF and World Bank Support US$ 1.1 Billion In Debt Service Relief For Mauritania: West African Country Reaches Completion Point Under Enhanced HIPC Initiative
The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) agreed that Mauritania has reached its completion point under the enhanced framework of the Heavily Indebted Poor Countries (HIPC) Initiative.1 Mauritania becomes the sixth country to reach this point (joining Bolivia, Burkina Faso, Mozambique, Tanzania and Uganda).
Debt service relief under the enhanced HIPC Initiative from all of Mauritania's creditors will amount to approximately US$1.1 billion over time (US$622 million in net present value [NPV] terms).2 As a result of HIPC assistance, the net present value of Mauritania's total external debt is reduced by some 50 percent, providing a good basis for long-term debt sustainability. This, however, will require continued efforts to monitor the debt level and to apply prudent debt management policies.
Debt service payments are cut substantially-from about US$88 million in 1998 (actually paid before HIPC assistance) to an average of US$35 million in 2003, and averaging approximately US$39 million per year over 2002-2011, with HIPC and additional sources of debt relief included. As a result, debt service as a percentage of government revenue is reduced from 35 percent in 1998 to an annual average of 11 percent during the same period. Resources made available by debt relief provided under the HIPC Initiative are being allocated to fund key anti-poverty programs, which are outlined in Mauritania's Poverty Reduction Strategy Paper (PRSP).
Multilateral creditors are to provide debt relief amounting to US$361 million in NPV terms. IDA will provide debt relief under the enhanced HIPC Initiative of US$100 million in NPV terms. This amounts to US$173 million in debt service relief, to be delivered through a 65 percent reduction in debt service on IDA credits (disbursed and outstanding as of end-1998) from 2000 through 2019. The IMF will provide debt relief of some US$47 million in NPV terms, which will be delivered through a 55 percent reduction in debt service from 2000 to 2007.
Bilateral creditors are expected to provide relief amounting to US$261 million in NPV terms. Mauritania has negotiated a debt rescheduling agreement with the Paris Club on Cologne terms (a debt reduction of 90 percent) and a number of Paris Club creditors have indicated that they would provide debt relief beyond that required under the HIPC Initiative. Approximately US$124 million of Mauritania's HIPC relief is expected to be delivered by non-Paris Club and commercial creditors. Progress has been made, albeit slowly, in establishing agreement with many of these creditors for their full participation in the Initiative, and the Mauritanian authorities will continue their efforts to obtain comparable treatment from these creditors.
Steps Taken to Reach the Completion Point Under the Enhanced HIPC Initiative
Mauritania's eligibility for debt relief under the enhanced HIPC Initiative underscores recognition by the international community of its satisfactory progress in implementing sound macroeconomic and structural policies.
Upon reaching its decision point under the enhanced framework of the HIPC Initiative in January 2000, Mauritania committed to undertake work in three areas in order to reach the completion point and receive irrevocable debt relief under the enhanced framework:
(i) Completion of a full PRSP and implementation of the poverty reduction strategy for at least one year;
(ii) Continued implementation of strong macroeconomic and structural policies supported by an IMF Poverty Reduction and Growth Facility (PRGF) program; and,
(iii) Implementation of a set of social, structural and institutional reforms.
Poverty Reduction Strategy Paper: Mauritania's PRSP, which was completed in a broad participatory manner in early 2001, has been welcomed within Mauritania and by the donor community as an important step forward in identifying the key priorities and setting out a clear road map toward reaching ambitious poverty goals. The PRSP is based on four main pillars: (i) accelerating growth; (ii) anchoring growth in the sphere of the poor; (iii) promoting human resources; and (iv) promoting institutional development based on good governance. The document has become the principal framework for policy discussions within the government and with donors and development partners, including with IDA and the IMF.
Poverty and Social Sectors
At the time of its decision point, Mauritania set an ambitious target of reducing poverty to 40 percent of the population by completion point. This would represent a reduction from 50 percent in 1996 and 56 percent in 1990. Although good progress was made in reducing poverty to 46 percent in 2000 according to the most recent household survey data, the ambitious 10 percentage point reduction hoped for has not been realized. This target, as well as other social targets, are now seen to have been unrealistically ambitious. In this context, the government's PRSP progress report has revised these targets for 2004.
In the health sector, Mauritania has met most of the objectives identified at the decision point. The establishment of a central procurement facility for essential drugs and contraceptives was completed in 2001, and an aggressive HIV/AIDS information campaign was launched to prevent an increase in the incidence of HIV/AIDS, which to date is not endemic in Mauritania. In February 2002, the rate of vaccination (tuberculosis, mumps, diphtheria and tetanus) reached 67 percent, which is up from 30 percent in 1996 and just short of the target of 70 percent, thanks to the aggressive immunization program pursued by the government since June 2001.
In education, the government has undertaken important initiatives to improve the efficiency of, and accessibility to, primary education. Here too, progress, while falling short of ambitious targets, has been significant. The gross primary education enrollment rate reached 88 percent in 2001 (up from 82 percent in 1996 and 46 percent in 1990), and similar improvements in retention rates represent a major achievement in meeting international development goals.
The Economic Program:
Mauritania has established a very strong record of economic performance over the past several years. GDP growth increased to 4.8 percent in 2000/01 (up from 4.2 percent average over 1995-1999) despite the adverse impact of global economic conditions in the second half of 2001. Inflation remained in check, averaging around 4 percent in 2000 and 2001, and the current account deficit remained under control at about 6 percent of GDP in 2001.
Key Policy Measures and Reforms:
Overall, Mauritania has made substantial progress in carrying out the specific structural reforms and institutional strengthening which the authorities identified at the time of the decision point, including the simplification of the taxation system by, among other things, unifying VAT rates and eliminating exemptions except for those that protect the poor. In governance and financial management, important steps have been taken to improve public expenditure execution and procurement.
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 HIPC Initiative aims at reducing the NPV of debt at the decision point to a maximum of 150 percent of exports or 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 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. Debt relief packages are now in place for 26 countries under the enhanced HIPC Initiative framework: Benin, Bolivia, Burkina Faso, Cameroon, Chad, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tome & Príncipe, Senegal, Sierra Leone, Mauritania, Uganda and Zambia, for total committed assistance estimated at more than US$36 billion, representing, with other sources of debt relief, an average NPV stock-of-debt reduction of nearly two-thirds.
1 The completion point is when the debt relief committed by all creditors under the HIPC Initiative is committed irrevocably. The decision point, which precedes the completion point, is when debt relief is committed and begins on an interim basis.
2 The Net Present Value (NPV) of debt is the discounted sum of all future debt-service obligations (interest and principal) on existing debt. It is a measure that takes into account the degree of concessionality in the present in the stock of debt. It is defined as the sum of all future debt-service obligations (interest and principal) on existing debt, discounted, under the HIPC Initiative, at market interest rates. 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. or 56 percent of total debt outstanding after the full use of traditional debt relief mechanisms.