Press Release: The IMF and the World Bank Support US$1.2 Billion in Debt Relief for Niger Under the Enhanced HIPC Initiative
April 8, 2004
The International Monetary Fund (IMF ) and the World Bank's International Development Association (IDA) have agreed this week that Niger has taken the steps necessary to reach its completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Niger becomes the eleventh country to reach this point, joining Benin, Bolivia, Burkina Faso, Guyana, Mauritania, Mali, Mozambique, Nicaragua, Tanzania, and Uganda.1
Total debt relief under the enhanced HIPC Initiative from all of Niger's creditors amounts to US$1.2 billion in nominal terms. This assistance is equivalent to a reduction in net present value (NPV2) terms of US$520.6 million agreed at the decision point, plus a topping-up of the assistance in an amount equivalent to US$142.5 million in NPV terms, approved at the completion point. The additional assistance under the topping up framework has been exceptionally granted on account of exogenous factors that have fundamentally changed Niger's economic circumstances and thereby adversely affected Niger's debt sustainability, raising the NPV of debt-to-exports ratio at end-2002 substantially above the 150 percent target set out under the enhanced HIPC framework. These factors included: (i) a decline in uranium exports, (ii) lower SDR and U.S. dollar discount rates, and (iii) a shortfall in external grant financing, which was partially compensated for with an increase in disbursements from highly concessional loans. Despite the implementation of prudent policy responses, Niger's external debt situation could have become unsustainable without the provision of additional assistance under the topping up framework.
Multilateral creditors would provide debt relief amounting to about US$680.2 million in nominal terms, of which US$408.7 million from the World Bank and US$59.9 million from the IMF. Paris Club creditors are expected to grant debt relief amounting to US$300 million. In addition, several Paris Club creditors have indicated their intention to provide additional relief beyond the HIPC Initiative (estimated to total about US$33.0 million) and three of them are already providing that complementary relief, namely France, the United Kingdom and the United States. Non-Paris Club creditors are expected to provide debt relief estimated at US$210.3 million.
Resources made available by debt relief under the HIPC initiative are being allocated to pro-poor expenditure programs, which are outlined in Niger's Poverty Reduction Strategy Paper (PRSP). Niger's PRSP was completed in January 2002, using an extensive participatory approach. It is based on four strategic pillars: (i) the creation of a macroeconomic environment to promote economic growth, (ii) the development of the productive sectors, especially in rural areas, to reduce vulnerability and increase income generation; (iii) the improvement in access of the poor to quality social services, and, (iv) the strengthening of human and institutional capacities, promotion of good governance, and decentralization.
Niger, a landlocked country located on the southwestern edge of the Sahara desert, is one of the poorest countries in the world. GDP per capita was only about US$200 in 2002. Two-thirds of the population live below the poverty line, while one-third can be considered extremely poor. The UNDP Human Development Index ranked Niger 174th out of 175 countries in 2003. The country has a very narrow national resource base and is highly vulnerable to external shocks such as droughts.
Following a period of political instability in 1996-1999 characterized by coups d'état and mutinies, democratic elections took place at end 1999. With technical support from the Fund and the World Bank, the newly elected government quickly developed a comprehensive economic, social, and political agenda and resumed financial relations with its development partners. Since then, the authorities have maintained a strong record of implementing sound structural and social policies and continued to make progress in restoring macroeconomic stability and putting the economy on the path to stronger growth. Real GDP is estimated to have grown at an annual average rate of 4.7 over the 2001-2003 period. Simultaneously, Niger has managed to enhance access to social services and improve its social indicators, albeit those remain still at low levels in regional comparison.
Steps Taken to Reach the Completion Point Under the Enhanced HIPC Initiative
Niger'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 December 2000, Niger 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 through a participatory process and its satisfactory implementation for at least one year;
(ii) Preservation of a stable macroeconomic environment; and
(iii) Implementation of key governance reforms and measures in the education and health sectors.
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, 27 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$51 billion over time, and an average NPV stock-of-debt reduction of nearly two-thirds.
Of these 27, eleven countries-Benin, Bolivia, Burkina Faso, Guyana, Mauritania, Mali, Mozambique, Nicaragua, Niger, Tanzania and Uganda-have now reached their completion points.
1 The completion point under the HIPC Initiative is when creditors commit irrevocably to and fully deliver debt relief. The decision point, which precedes the completion point, is when debt relief is committed and begins on an interim and voluntary 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, Democratic Republic of Congo (DRC), 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.