Press Release: IMF And World Bank Support US$ 675 Million in Debt Service Relief for Mali: West African Country Reaches Completion Point Under Enhanced HIPC Initiative
March 7, 2003
The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have agreed that Mali should be granted irrevocable debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative amounting to approximately US$675 million over time . The International Development Association (IDA) will provide debt relief under the enhanced HIPC Initiative amounting to a total of US$213 million in debt service relief (US$143 million in net present value (NPV) terms2), to be delivered through a 50 percent reduction in debt service on IDA credits from 2000 through 2014. The IMF will provide debt relief of approximately US$63 million (US$45 million in NPV terms), which will be delivered through a 38 percent reduction in debt service from 2000 to 2008. The remaining creditors are also now expected to provide their share of relief required under the Enhanced HIPC Initiative. Mali becomes the seventh country to reach its completion point under the enhanced framework of the HIPC Initiative, joining Bolivia, Burkina Faso, Mauritania, Mozambique, Tanzania and Uganda1.
"The reform process in Mali is beginning to have a significant impact in cutting poverty", said (David Craig, World Bank Country Director for Mali). "This debt relief package, combined with the broader reforms being carried out by the government, contributes towards Mali's sustained growth and poverty reduction in the future."
In recognition of the Government's satisfactory progress in implementing sound macroeconomic and structural policies, under the enhanced HIPC Initiative Mali's total external debt is to be reduced by approximately 29 percent in net present value terms 2/, or a total of 37 percent, including the relief already agreed under the original HIPC Initiative in September 2000. Debt service payments for Mali will be cut substantially — debt service as a percentage of exports is expected to be reduced from 12 percent in 1999 to an annual average of 5.5 percent over the next decade.
"Now that Mali has succeeded in achieving a stable macroeconomic environment, HIPC debt relief will contribute to sustained growth in the country," According to Cyrille Briançon, IMF Mission Chief for Mali.
Resources made available by debt relief provided under the HIPC Initiative are being allocated to fund key pro-poor growth programs, which are outlined in Mali's Poverty Reduction Strategy Paper (PRSP). Mali's PRSP is based on three main pillars: (i) institutional development and improved governance and participation; (ii) human development and strengthening access to basic social services; and (iii) development of infrastructure and support for key productive sectors.
The common image of Mali is of a land-locked country with limited natural resources, sparsely populated, one of the poorest social and economic performance indicators, and an economic dependence on primary sector production notably of cotton. While the resource base is limited and highly vulnerable to climatic and commodity price shocks, since 1988, Mali has managed a successful dual transition of political and economic liberalization.
As a result, Mali's economy has become more competitive. Cotton production increased rapidly over the 1990s to make Mali the second African exporter of cotton behind Egypt. Gold production also increased rapidly to overtake cotton as Mali's first export product, placing Mali third among African gold exporters, behind South Africa and Ghana. Despite high annual volatility, Mali's real economic growth has averaged about 5 percent a year since 1994, contributing to a reduction in the incidence of poverty by 7½ percentage points between 1996 and 2000. Social indicators and access to social services have improved, particularly in rural areas and among the poorest segments of the population.
Steps Taken to Reach the Completion Point Under the Enhanced HIPC Initiative
Mali'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 September 2000, Mali 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 through a participatory process, and satisfactory assessment by the Bank and Fund;
(ii) Continued implementation of strong macroeconomic and structural policies supported by an arrangement with the IMF under the Poverty Reduction and Growth Facility (PRGF); and,
(iii) Implementation of a set of social and structural reforms.
In 1996, the World Bank and the International Monetary Fund (IMF) 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 have 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 countries* — two-thirds of the HIPCs — have reached their "decision points" and are benefiting from debt relief under the HIPC Initiative. Together with traditional debt relief mechanisms and additional bilateral debt forgiveness over and beyond the HIPC Initiative, these countries' external debt stocks will be reduced by about two thirds.
Of these 26, seven countries — Bolivia, Burkina Faso, Mali, Mauritania, Mozambique, Tanzania and Uganda — have reached their completion points.
* Benin, Bolivia, Burkina Faso, Cameroon, Chad, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mozambique, Nicaragua, Niger, Rwanda, São Tome & Príncipe, Senegal, Sierra Leone, Mali, Uganda and Zambia.
1/ The completion point under the HIPC Initiative is when all creditors are required to provide debt relief 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). 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.