Press Release: IMF and World Bank Support US$460 Million in Debt Service Relief for Benin
March 25, 2003
The International Monetary Fund (IMF) and World Bank's International Development Association (IDA) agreed this week that Benin has taken the steps necessary to reach its completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Debt relief under the enhanced HIPC Initiative from all of Benin's creditors amounts to approximately US$460 million over time. Benin becomes the eighth country to reach its completion point under the enhanced framework of the HIPC Initiative, joining Bolivia, Burkina Faso, Mauritania, Mali, Mozambique, Tanzania and Uganda1.
The International Development Association (IDA) will provide debt relief under the enhanced HIPC Initiative amounting to a total of US$124 million in debt service relief (US$84.4 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$28.5 million (SDR18.4 million in NPV terms), which will be delivered through a 32 percent reduction in debt service until 2007. The remaining creditors are also now expected to provide their share of relief required under the Enhanced HIPC Initiative.
"Benin's HIPC completion point reflects the Government's strong track record of reform", said Antoinette Sayeh, World Bank Country Director for Benin. "Resources made available under the HIPC Initiative have been used to commendable effect in education, health, the fight against HIV/AIDS and rural water and sanitation."
In recognition of the Government's satisfactory progress in implementing sound macroeconomic and structural policies, under the enhanced HIPC Initiative, Benin's total external debt is to be reduced by approximately 31 percent in net present value terms. Debt service payments for Benin will be cut by more than a third over the next decade.
"This debt relief, together with the Government's commitments to structural reforms and macroeconomic stability, provide Benin with a sound basis for future pro-poor growth in the country," according to Pierre Ewenczyk, IMF Mission Chief for Benin.
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 Benin's Poverty Reduction Strategy Paper (PRSP). Benin's PRSP is the result of broad-based consultations and presents the Government's objectives and priority measures for reducing poverty over the next three years.
Following a decade of economic decline in the 1980s, the government of Benin has made significant progress in improving its economy, maintaining a 5 percent annual growth rate since 1991. However, the economy remains highly vulnerable to external factors such as the decline in world price of cotton, which represents about 70 percent of Benin's exports of goods.
Steps Taken to Reach the Completion Point Under the Enhanced HIPC Initiative
Upon reaching its decision point under the enhanced framework of the HIPC Initiative in July 2000, Benin 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.
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 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 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 $40 billion over time, and an average NPV stock-of-debt reduction of nearly two-thirds.
Of these 26, eight countries — Benin, Bolivia, Burkina Faso, Mauritania, Mali, Mozambique, Tanzania and Uganda — have 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.