Rwanda and the IMF
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International Monetary Fund and World Bank Support
US$1.4 billion in Debt Service Relief for Rwanda
The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have agreed that Rwanda has taken the necessary steps to the reach the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC). Rwanda is the 18th country to reach this point, joining Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Senegal, Tanzania, Uganda and Zambia.1
Total debt relief under the enhanced HIPC Initiative from all of Rwanda's creditors is estimated at US$1.4 billion in nominal terms.2 This assistance is equivalent to a reduction in net present value (NPV) 3 terms of US$452.4 million agreed at the decision point, plus a topping-up of the assistance in an amount equivalent to US$243.1 million in NPV terms, approved at the completion point. In the first ten years after the Completion Point, Rwanda would save approximately US$48 million annually in debt service costs.
The additional assistance under the topping-up framework has been approved by the Boards of the World Bank's IDA and the IMF, as Rwanda's debt prospects had deteriorated primarily due to exogenous factors that have led to fundamental changes in the country's economic circumstances, since the Decision Point. The largely unexpected decline in Rwanda's export prices and a fall in international interest rates were the factors that contributed most to the increase in the NPV of debt-to-exports ratio, which at end-2003 stood substantially above the 150 percent target set out under the enhanced HIPC framework.
Including topping-up of the HIPC Initiative assistance, multilateral creditors would provide debt relief of about US$1.1 billion in nominal terms and bilateral creditors another US$0.3 billion. The World Bank will provide a total of US$0.7 billion in debt service savings over time and the IMF will deliver debt relief equivalent to a reduction in NPV terms of US$43.8 million agreed at the Decision Point, plus a topping up of the assistance in an amount equivalent to US$19.6 million in NPV terms, approved at the Completion Point. Since the Decision Point, part of the assistance has already been provided.
"The HIPC completion point is an important achievement for Rwanda, and reflects major and sustained efforts to improve the delivery of social services and other reforms over several years," said Pedro Alba, the World Bank's Country Director for Rwanda. "The budget savings from this debt relief are an important contribution to further improvements in social indicators and more generally to reduce poverty in the years ahead."
"Rwanda has largely achieved macroeconomic stability and established a good track record of policy implementation in 2004," said Kristina Kostial, the IMF's mission chief for Rwanda. "Looking forward, the key challenge for Rwanda is to raise the economic growth rate while maintaining macroeconomic stability and debt sustainability. Reaching the completion point is thus an important milestone for Rwanda toward debt sustainability while providing more resources for poverty reduction and the attainment of the MDGs."
Resources made available by debt relief under the enhanced HIPC Initiative are being allocated to fund pro-poor expenditure programs, as outlined in Rwanda's Poverty Reduction Strategy Paper (PRSP). The PRSP, which was completed in June 2002 after extensive consultations with civil society, is based on six strategic pillars: (i) rural development and agricultural transformation, (ii) human development, (iii) economic infrastructure, (iv) good governance, (v) private sector development, and (vi) institutional capacity building.
Rwanda is a small landlocked country with a population of 8.4 million and with a per capita income of US$220 in 2003 and widespread poverty. In the years since the devastating 1994 genocide, Rwanda's output has recovered and the country broadly succeeded in maintaining macroeconomic stability, as evidenced by price stability and a comfortable level of international reserves.
Rwanda's domestic political situation has stabilized, and substantial progress has been made toward rebuilding the institutions of an effective state, including through the adoption of a new constitution in May 2003, followed by a presidential election and legislative polls in the same year. Looking forward, improving regional stability in the Great Lakes region will be a key factor for achieving the country's development potential.
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 December 2000, Rwanda committed to undertake reforms in several areas as preconditions for reaching its completion point under the Initiative and thus receive irrevocable debt relief under the enhanced framework:
(i) substantial achievements in social indicators, related to education, health, gender equality, and the combat of HIV/AIDS;
(ii) adoption of a full PRSP and its successful implementation for at least one year;
(iii) satisfactory progress in implementing structural reforms in the tea sector; and
(iv) satisfactory performance under IDA and IMF-supported reform programs.
1 The completion point under the enhanced HIPC Initiative is when creditors irrevocably provide debt relief under the enhanced HIPC Initiative. The decision point-when assistance is committed-precedes the completion point, and provision of debt relief in the interim period to the completion point is voluntary.
2 Nominal terms means the actual dollar value of debt service forgiven over a period of time.
3 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 prevailing market rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element.
IMF EXTERNAL RELATIONS DEPARTMENT