Haiti Reaches Decision Point Under the Enhanced HIPC Debt Relief InitiativePress Release No. 06/261
November 22, 2006
The World Bank's International Development Association (IDA) and the International Monetary Fund (IMF) have determined that the Republic of Haiti qualifies for debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative by reaching the decision point under the Initiative. The Republic of Haiti becomes the 30th country to reach its decision point under the Initiative.
The Government of the Republic of Haiti will receive interim debt relief from certain creditors, but in order to qualify for irrevocable debt relief at the completion point, Haiti will be implementing a broad set of reforms. In particular, Haiti has launched and is expected to implement an economic program supported by the IMF's Poverty Reduction and Growth Facility (PGRF), prepare and implement a Poverty Reduction Strategy for at least one year, and implement key structural and social reforms, including in the areas of economic governance and debt management.
In addition to HIPC debt relief, the Republic of Haiti will be eligible for Multilateral Debt Relief Initiative (MDRI) assistance when it reaches the HIPC completion point. This will further increase the resources available to the Government in order to reduce poverty.
Takatoshi Kato, Deputy Managing Director of the IMF, said: "Haiti has made good progress in strengthening macroeconomic performance and introducing key structural reforms. Together with the recent successful elections, the progress achieved so far provides an opportunity for a reversal of the trends of the past decades and sustained pro-poor growth. Haiti's external debt situation will remain difficult even after HIPC debt relief, and strong economic policies, prudent debt management, and continued donor support on highly concessional terms will be needed to ensure a sustainable external debt in the medium term."
Caroline Anstey, the World Bank Country Director for the Republic of Haiti, said: "The objective of debt relief is to free up resources to reduce poverty. The Haitian authorities have recently introduced important reforms in economic governance. Sustaining and building on those improvements will be needed to ensure that resources are used effectively, efficiently and transparently to improve the delivery of education, health and basic services for poor people. How donors can support Haiti in these areas will be central themes at the Haiti Donor's Conference to be held in Madrid, Spain on November 30."
Specifics of the Debt Relief Operation
Haiti's public and publicly guaranteed external debt was estimated at US$1.3 billion in nominal terms as of end-September 2005, equivalent to US$932.9 million in net present value (NPV) terms.1
Debt relief under the enhanced HIPC Initiative will be approximately US$140.3 million in NPV terms, equivalent to a 15.1 percent reduction of its debt after traditional debt relief mechanisms. Over time, this will reduce Haiti's debt service payments by about US$212.9 million.
IDA's share of enhanced HIPC assistance to Haiti amounts to US$52.8 million in NPV terms, including US$33.1 million already provided through an arrears clearance operation undertaken in early 2005. Immediately following the approval of the decision point by the Boards of IDA and the IMF, IDA will begin to provide the remaining assistance (US$19.7 million). The IMF will provide assistance of US$3.1 million (equivalent to SDR 2.101 million) in NPV terms. Under the enhanced HIPC Initiative's burden sharing approach, other creditors of Haiti will provide the remainder of the Initiative's debt relief.
MDRI debt relief from IDA could amount to US$243.3 million in NPV terms or approximately US$464.4 million over time, assuming that Haiti reaches its completion point by end-September 2008. Haiti is not expected to have any eligible IMF debt for MDRI relief.
Note to Editors:
Haiti is the poorest country in the Latin America and Caribbean region and amongst the poorest in the world. About 54 percent of Haiti's population lives below the US$1 a day poverty line and 78 percent below US$2 a day. After years of political deadlock following the disputed parliamentary elections of the year 2000 and a two-year period of political transition, presidential and parliamentary elections were held in February and April 2006, respectively. This provides an opportunity for Haiti to overcome the legacy of past decades.
The HIPC Initiative
In 1996, the World Bank and IMF launched the HIPC Initiative to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world's poorest and most heavily indebted countries, and thereby reduce the constraints on economic growth and poverty reduction imposed by the debt-service burdens 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 become eligible for debt relief and some countries have become 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; and
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, 30 HIPC countries have reached their decision points, of which 20 have reached completion point.
1 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 borrowing terms 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. Nominal terms means the actual dollar value of debt service forgiven over a period of time.