Press Release: IMF and World Bank Approve US$1.2 Billion Debt Relief for Haiti
July 1, 2009Press Release No. 09/243
July 1, 2009
Haiti was granted US$1.2 billion of debt relief by reaching the completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative approved by the Boards of the International Development Association (IDA) and the International Monetary Fund (IMF). Haiti is now the 26th country to reach the completion point under the Initiative. Debt service savings result from the HIPC Initiative (US$265 million) and the Multilateral Debt Relief Initiative (MDRI) (US$972.7 million).
To reach the completion point, Haiti carried out a number of reforms despite a challenging environment marked by major natural disasters, a food and fuel crisis, difficult political conditions, and the impact of the global economic downturn. These reforms were aimed at establishing a more stable macroeconomic environment and at implementing its national poverty reduction strategy. Haiti strengthened public expenditure management by better focusing poverty reduction spending, producing audited government accounts, ensuring commitment to an asset declaration law, and adopting a law on public procurement.
In addition, Haiti strengthened tax and customs administration and improved debt management and reporting. In education, Haiti established a financing mechanism to allow over 50,000 children to attend school, allocated over 20 percent of recurrent spending to education, and made progress toward implementing the teacher training program. In health, Haiti approved an HIV/AIDS prevention and treatment plan and improved immunization rates for measles and DPT3.
“We are very pleased that the Boards of the Bank and the Fund have granted Haiti debt relief. This will significantly reduce Haiti’s debt burden and effectively free resources for growth and poverty reduction” said Yvonne Tsikata, the World Bank’s Director for the Caribbean. “We congratulate the Haitian authorities on this achievement. Going forward, Haiti must take advantage of this opportunity by managing future borrowing prudently, and continuing its efforts and progress towards stronger public expenditure management and public procurement,” Tsikata added.
Debt relief under the Enhanced HIPC Initiative amounts to US$140.3 million in end-September 2005 net present value (NPV) terms1. Haiti is expected to receive the equivalent of US$265 million of debt relief in nominal terms2 under the HIPC Initiative and expected additional bilateral relief. Haiti’s public debt as of end-September 2008 amounted to 36 percent of GDP, most of which—about 28 percent of GDP—is owed to external creditors. The largest share of Haiti’s external debt is owed to the Inter-American Development Bank (41 percent of total external debt), the World Bank (27 percent), and bilateral creditors (24 percent).
By reaching the HIPC completion point, Haiti now is eligible under the MDRI for further debt relief from IDA and the Inter-American Development Bank (IADB). MDRI relief would save Haiti US$972.7 million in debt service of which US$486.7 million owed to IDA and US$486 million to the IADB. While the IMF is a participant in the MDRI, Haiti does not have any MDRI-eligible debt to the IMF.
“This is a very positive development for Haiti”, said Finance Minister Daniel Dorsainvil. “The debt relief will help us invest in growth and poverty reduction programs. Haiti has demonstrated over the past four to five years that it can commit itself to a menu of reforms and respect this commitment.”
“To reach the completion point under the Enhanced HIPC Initiative is a key milestone, and the authorities are to be commended for this important achievement amid severe external shocks,” said Corinne Deléchat, mission chief for Haiti in the IMF’s Western Hemisphere Department. “Debt relief will significantly reduce Haiti’s debt burden and make it possible to increase poverty-reducing spending, allowing further progress toward the Millennium Development Goals. In spite of the debt relief, Haiti’s vulnerability to shocks remains high. A major challenge ahead will be to lock in the gains of debt relief through prudent fiscal policy, improved quality and efficiency of public spending, strengthened domestic revenue mobilization, and donor grant financing.”
IMF and Haiti
The IMF approved a first three-year Poverty Reduction and Growth Facility in November 2006 in the amount of SDR 73.71 million (about US$114.4 million); In June 2008, an augmentation of SDR 16.38 million (about US$25.4 million) was approved to help Haiti cope with the impact of high international food and fuel prices.
A second increase in financial assistance, of SDR 24.57 million (about US$38.1 million), was approved by the Executive Board in February 2009 to help mitigate the negative effects caused by a series of hurricanes in 2008 as well as the global downturn.
World Bank and Haiti
Beyond debt relief, the World Bank approved a disbursement of US$13 million in June 2009 as the second installment of a US$ 23 million Economic Governance Reform Operation program. The grant, which was approved on January 30, 2007, supports Haiti's efforts to increase transparency and efficiency in the use of public resources and external assistance.
Since January 2005, the World Bank has provided a total of US$278 million in grants for Haiti. In addition, approximately US$20 million have been granted from trust funds.
The Heavily Indebted Poor Countries Initiative
In 1996, the World Bank and IMF launched the Heavily Indebted Poor Countries (HIPC) Initiative to create a framework in which all creditors, including multilateral creditors, could 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, 35 HIPC countries have reached their decision points, of which 26 (including Haiti) have reached the completion point.
The Multilateral Debt Relief Initiative
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 this Multilateral Debt Relief Initiative was to reduce further the debt of HIPCs and provide additional resource to help them reach the Millennium Development Goals.
The MDRI is separate from the HIPC Initiative but linked to it 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. 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. 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.
1 Net present value of debt is the discounted sum of all future debt service obligations (interest and principal).
2 Nominal terms refer to the actual dollar value of debt service forgiven over a period of time.