Press Release: IMF and World Bank Support The Gambia's Completion Point Under the Enhanced HIPC Initiative and Approve Debt Relief Under the Multilateral Debt Relief Initiative
December 20, 2007Press Release No. 07/302
The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have agreed that The Gambia has made sufficient progress and taken the necessary steps to reach its completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The Gambia becomes the 23rd country to reach the completion point under the Initiative.
Debt relief to The Gambia under the Enhanced HIPC Initiative amounts to US$66.6 million in net present value (NPV) terms1, equivalent to a 27.2 percent NPV reduction of The Gambia's debt after traditional debt relief. The US$66.6 million in reduced debt is attributable to all creditors. Total assistance under the Enhanced HIPC Initiative is estimated to correspond to approximately US$140 million in nominal terms.2
In reaching the HIPC completion point, The Gambia also becomes eligible for further debt relief from the IMF, IDA, and the African Development Fund (AfDF) under the Multilateral Debt Relief Initiative (MDRI). Total debt service savings under the MDRI will amount to approximately US$373.5 million in nominal terms over the next 43 years.
As a result of reaching HIPC completion point, The Gambia is expected to receive in total the equivalent of US$514 million in nominal debt relief under both the Enhanced HIPC Initiative and the MDRI, on principal as well as interest payments.
The World Bank's IDA committed itself to provide assistance of US$35.9 million in nominal terms, of which US$9.1 million has already been delivered. Under the MDRI, the World Bank's IDA will cancel a debt stock of approximately US$183 million of debt disbursed before end-2003 and still outstanding on December 31, 2007, corresponding to a total of approximately US$202 million in debt service savings.
The IMF committed itself to provide MDRI/HIPC debt relief totaling SDR 9.4 million (US$14.2 million). Under the MDRI, the IMF will provide 100 percent debt relief on obligations incurred before end-2004 and still outstanding at the completion point.
To reach the completion point, The Gambia met a number of triggers aimed at maintaining macroeconomic stability, ensuring commitment to the national poverty strategy, strengthening public expenditure management, improving the poverty database and monitoring capacity, raising the quality and coverage of education, improving health outcomes, and promoting development of the private sector. In addition, the authorities have taken steps to revitalize the groundnut sector through liberalization reforms.
Madani Tall, World Bank Country Director for The Gambia noted that "in achieving the HIPC completion point, The Gambia significantly lowers its debt burden and effectively frees up resources to redeploy towards growth and poverty reduction. In order to achieve optimum results," he added, "The Gambia must take this opportunity to ensure that future borrowing is prudently managed in order to prevent a reoccurrence of debt distress, and to continue implementing reforms outlined in the government's groundnut sector roadmap."
"The Gambia has made good progress toward securing macroeconomic stability and has established a good track record of policy implementation in 2007," said Tsidi Tsikata, IMF Mission Chief for The Gambia. "Looking forward, a key challenge is to maintain a sustainable external and domestic debt position through careful borrowing and prudent fiscal policy. Debt relief at completion point under the enhanced HIPC Initiative and MDRI is an important milestone for The Gambia toward debt sustainability while providing more resources for poverty reduction and the attainment of the Millennium Development Goals."
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, 32 HIPC countries have reached their decision points, of which 23 (including The Gambia) have reached completion point.
At the July 2005 G8 Summit in Gleneagles, Scotland, G8 leaders pledged to cancel the debt of the world's most indebted countries, most of which are located in Africa. The aim of the Multilateral Debt Relief Initiative (MDRI) is to reduce further the debt of HIPCs and provide additional resources to help them reach the Millennium Development Goals (MDGs).
Although the MDRI is separate from the HIPC Initiative, the two are closely linked operationally. Under the MDRI, three multilateral institutions - the World Bank's International Development Association, the International Monetary Fund, and the African Development Fund - provide 100 percent debt relief on eligible debts to countries having reached the HIPC completion point.3 Unlike the HIPC Initiative, the MDRI is not comprehensive in its creditor coverage. It does not involve participation of official bilateral or commercial creditors, or of multilateral institutions other than the above mentioned three.
1 The Net Present Value (NPV) of debt is the discounted sum of all future debt service obligations (interest and principal).
2 Nominal terms refers to the actual US dollar value of debt service forgiven over a period of time.
3 The Inter-American Development Bank (IaDB) Board of Governors approved in March 2007 the "Multilateral Debt Relief and Concessional Reform at the Inter-American Development Bank" proposal to provide debt relief beyond HIPC to the Latin American countries that reach completion point. Effective January 2007, 100 percent debt relief was provided to the four completion point countries (Bolivia, Guyana, Honduras, and Nicaragua).
The IMF also provided MDRI debt relief to non-HIPCs whose income per capita is below US$380 in order to ensure uniformity of treatment in the use of IMF resources.