Guyana and the IMF
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The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have agreed that Guyana has taken the steps necessary to reach its completion point under the enhanced framework of the Heavily Indebted Poor Countries (HIPC) Initiative. Guyana becomes the ninth country to reach this point, joining Bolivia, Burkina Faso, Mauritania, Mali, Mozambique, Tanzania, Uganda and Benin.1
Debt relief under the enhanced HIPC Initiative from all of Guyana's creditors amounts to US$334.5 million in net present value (NPV2) terms. This estimate has been adjusted upward by US$5.9 million from the calculation made at the time of the decision point in November 2000, on account of new information from non-Paris Club and commercial creditors and new calculations. This relief comes in addition to US$256.4 million in NPV that Guyana received when it reached the completion point under the original HIPC framework in May 1999. The total debt relief under the original and enhanced HIPC Initiatives reduces the debt stock (after traditional debt relief) by 54 percent, based on cumulating both relief totals at end 2002.
Multilateral creditors are to provide debt relief amounting to US$202 million in NPV terms, which includes US$40 million from the IMF and US$41.2 million from the World Bank. Bilateral creditors are expected to provide relief amounting to US$132 million. Guyana 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$37 million in NPV of Guyana's debt relief is expected to be delivered by non-Paris Club and commercial creditors. Progress has been made, albeit slowly, in establishing agreement with a few of these creditors, and the Guyanese authorities will continue their efforts to obtain comparable treatment from them.
Debt relief, in addition to bilateral assistance beyond HIPC relief (US$13 million in NPV terms) lowers Guyana's debt to revenue ratio to about 213 percent in 2003, 37 percent below the sustainability threshold for countries that qualify under the fiscal window. The debt is expected to build up over the next few years to peak at about 242 percent of revenues in 2007, associated with a large sugar investment currently taking place in Guyana. However, over the long run, the ratio is projected to decline considerably, to about 150 percent in 2022. The debt service burden is projected to decline sharply by 10 percentage points of revenue following enhanced HIPC relief, to 14 percent in 2004, with a further decline to about 12 percent of revenues over the long run.
Beyond debt relief, the World Bank disbursed US$13.35 million in zero-interest financing from a Poverty Reduction Support Credit on December 11, 2003. The credit, which was approved on December 17, 2002, supports Guyana's efforts to stimulating economic growth; increase the country's productivity in key sectors such as sugar; improve the accountability and transparency of the public sector; and improving the delivery of public services, including health, education, and water supply.
Steps Taken to Reach the Completion Point Under the Enhanced HIPC Initiative
Guyana'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 November 2000, Guyana committed to undertake work in the following 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
(ii) Continued implementation of strong macroeconomic and structural policies supported by an IMF Poverty Reduction and Growth Facility (PRGF) program and an IDA Poverty Reduction Support Credit (PRSC), under both of which funds were disbursed in recent months; and,
(iii) Implementation of a set of social, structural, and institutional reforms.
Poverty Reduction Strategy Paper: Guyana's PRSP, which was completed in November 2001, was developed in wide consultation with civil society and is an important step forward in identifying the key priorities and setting out a clear road map toward reaching poverty goals. The PRSP is based on a number of strategic pillars: (i) broad-based growth, (ii) stronger institutions, (iii)investment in human and physical capital, (iv) improved targeting of poverty measures, (v) environmental protection. Since the completion of the PRSP, progress has been made in several areas.
Governance: Actions have been taken to improve the government procurement process through a new act which was passed in July 2003 and to improve the investment climate through a new tax law approved in August 2003 and a new investment act which was tabled in Parliament.
Health: The number of health workers has increased by about 5 percent per annum over 1999-2002 and infant mortality rates are below the objective initially set out in the PRSP. Efforts to fight HIV/AIDS have been intensified, with the elaboration of a HIV/AIDS National Strategic Plan encompassing education, counseling, and the adoption of treatment guidelines and access to antiretroviral drug therapy.
Education: Although a number of Guyanese emigrate each year contributing to high vacancy rates and many unqualified teachers in the education sector, the number of unqualified secondary teachers has fallen by 12 percentage points since 2000. Moreover, the number of teachers has increased by about 5 percent per annum over the same period. In this sector, future priorities include teacher training and retention, facilities management, and provision of books and school supplies, and accessibility and affordability of school attendance for families.
The Economic Program: While the real exchange rate has remained fairly stable, and inflation has remained in single digits, output growth has been sluggish in recent years. After averaging over 7 percent per annum between 1992 and 1997, output growth has slowed subsequently to less than 1 percent per annum, partly associated with the difficult security situation. For 2004, growth is expected to bounce back to 2 percent, boosted by a revival in the bauxite industry and a recovery in services. The current account deficit is projected to rise to over 18 percent of GDP on account of the sizeable imports associated with the sugar investment.
Key Policy Measures and Reforms: Guyana has made satisfactory progress in carrying out the structural reforms identified at the time of the decision point . The Guyana National Commercial Bank was successfully privatized in March 2003. A major restructuring plan for the sugar company GUYSUCO was initiated, including a reduction in the cost of production (through downsizing and wage containment) and a shift in incentives from production to profits. Guyana has also made progress in reforming its civil service through staff audits, a computerized public service payroll and pension system and a series of organizational diagnostic studies.
2. The HIPC Initiative
In 1996, the World Bank and the International Monetary Fund launched the HIPC Initiative to create a framework for all creditors, including multilateral creditors, to provide debt relief to the world's poorest and most heavily indebted countries, and thereby reduce the constraint on economic growth and poverty reduction imposed by the debt build-up in these countries. The Initiative was modified in 1999 to provide three key enhancements:
• Deeper and Broader Relief. External debt thresholds were lowered from the original framework. As a result, more countries became eligible for debt relief and some countries became eligible for greater relief.
• Faster Relief. A number of creditors began to provide interim debt relief immediately at the "decision point." Also, the new framework permitted countries to reach the "completion point" faster.
• Stronger Link Between Debt Relief and Poverty Reduction. Freed resources were to be used to support poverty reduction strategies developed by national governments through a broad consultative process.
To date, 26 countries3—two-thirds of the HIPCs—have reached their "decision points" and are receiving debt relief from all sources that will amount to more than US$40 billion over time, and an average NPV stock-of-debt reduction of nearly two-thirds.
Of these 26, nine countries—Benin, Bolivia, Burkina Faso, Guyana, Mauritania, Mali, Mozambique, Tanzania and Uganda—have now reached their completion points.
1 The completion point under the HIPC Initiative is when creditors commit irrevocably to debt relief. 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). It is a measure that takes into account the degree of concessionality of a country's debt stock. 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.
3 Benin, Bolivia, Burkina Faso, Cameroon, Chad, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mauritania, Mali, Mozambique, Nicaragua, Niger, Rwanda, São Tome & Príncipe, Senegal, Sierra Leone, Tanzania, Uganda and Zambia.
IMF EXTERNAL RELATIONS DEPARTMENT