Senegal and the IMF
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IMF and World Bank Support US$850 million in Debt Service Relief for Senegal
The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have agreed that Senegal has taken the necessary steps to reach its completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Senegal becomes the 12th country to reach this point, joining Benin, Bolivia, Burkina Faso, Guyana, Mali, Mauritania, Mozambique, Nicaragua, Niger, Tanzania, and Uganda.1
Total debt relief under the enhanced HIPC Initiative from all of Senegal's creditors amounts to US$850 million in nominal terms. This assistance is equivalent to a reduction in net present value (NPV2) terms of US$488 million as agreed at the decision point, which now becomes irrevocable. Senegal qualified under the fiscal criterion and the debt relief was calculated to bring the NPV of debt-to-fiscal revenue ratio down to the HIPC threshold of 250 percent.
Of the total HIPC relief of US$488 million in NPV terms, about US$276 million would be provided by multilateral creditors, US$126 million by Paris Club creditors, and US$86 million by non-Paris Club creditors and commercial creditors. The World Bank (IDA) is delivering its share of HIPC assistance by providing US$163.8 million in debt service reductions during 2000-10. The IMF is delivering close to US$50 million in debt service grants through the PRGF-HIPC Trust. In addition, many Paris Club creditors have indicated their intention to provide additional relief beyond the HIPC Initiative (estimated to total about US$400 million in NPV terms). As participation of all creditors is critical to the achievement of Senegal's debt sustainability, it will be important for the Senegalese government to maintain active dialogue with remaining creditors in order to expedite full delivery of HIPC debt relief.
Debt relief, together with bilateral assistance beyond HIPC relief, will lower Senegal's debt-to-export ratio to 116 percent, and its debt-to-revenue ratio to 157 percent. Those levels are 34 percentage points and 93 percentage points, respectively, below the HIPC thresholds. Over the long run, Senegal is set to exit from the enhanced HIPC Initiative with significantly improved chances to achieve and maintain sustainable debt levels. Provided Senegal adheres to sound macroeconomic policies, persists with its reform strategy and secures borrowing predominantly on highly concessional terms, the debt ratios after the provision of enhanced HIPC assistance should continue to improve steadily with the ratios of NPV of debt-to-exports, NPV of debt-to-revenue and the NPV of debt-to-GDP averaging 73 percent, 82 percent and 17 percent, respectively, in the years 2013-2022.
Resources made available by debt relief under the HIPC Initiative are being allocated to pro-poor expenditure programs, as outlined in Senegal's Poverty Reduction Strategy Paper (PRSP). Senegal's PRSP, which was completed in June 2002 using an extensive participatory approach, has four strategic pillars: (i) wealth creation through economic reform and private sector development; (ii) capacity building and development of social services; (iii) improvements in the living conditions of the poor ;and (iv) implementation of the strategy and monitoring of its outcomes.
With democratically-elected presidents since 1983 and a smooth transition of power after the 2000 presidential election, Senegal is politically stable. In recent years, the authorities have implemented stability-oriented macroeconomic policies and broad ranging structural reforms, with the support of donors, including the World Bank and the IMF. The regional central bank's monetary policy has secured price stability and the authorities' prudent financial policies have strengthened Senegal's fiscal position. Structural reforms have included measures that have reduced the role of the state in the economy, improved the business environment, promoted trade and strengthened public sector performance.
These policies have contributed to strong sustained growth and poverty reduction over the past decade. Since 1994, Senegal's real GDP growth has averaged 5 percent, resulting in GDP per capita growth of over 2 percent during this period, in sharp contrast to the preceding decades after independence, when GDP per capita fell. GDP per capita was US$476 in 2001. The share of the population living in poverty decreased from 68 percent in 1994 to 57 percent in 2001. The UNDP Human Development Index ranked Senegal 156th out of 175 countries in 2003.
Steps Taken to Reach the Completion Point Under the Enhanced HIPC Initiative
Approval to irrevocable debt relief to Senegal 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 June 2000, Senegal committed to undertake reforms in four areas in order to reach the completion point and receive irrevocable debt relief under the enhanced framework:
(i) preparation of a full PRSP through a participatory process, and concurrent improvements in the poverty database and poverty-monitoring capacity;
(ii) maintenance of a stable macroeconomic environment, as evidenced by a satisfactory performance under the programs supported by the IMF's Poverty Reduction and Growth Facility (PRGF), as well as compliance with specific macroeconomic targets;
(iii) implementation of measures in social services, tax administration, and the energy sector; and of steps to reduce the state's role in production and improve the business climate; and
(iv) achievement of key social objectives, particularly in the health and education sectors.
The HIPC Initiative
In 1996, the International Monetary Fund and the World Bank 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, 12 countries—Benin, Bolivia, Burkina Faso, Guyana, Mauritania, Mali, Mozambique, Nicaragua, Niger, Senegal, 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.
IMF EXTERNAL RELATIONS DEPARTMENT