Press Release: IMF and World Bank Support the Central African Republic's Completion Point under the Enhanced HIPC Initiative and Approve Debt Relief under the Multilateral Debt Relief Initiative
June 30, 2009Press Release No. 09/245
June 30, 2009
The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have agreed that the Central African Republic (C.A.R.) has made sufficient progress and taken the necessary steps to reach the completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The C.A.R. becomes the 25th country to reach the completion point under the Initiative.
Debt relief under the Enhanced HIPC Initiative from all of C.A.R.'s creditors has been revised downward to US$578 million in net present value (NPV) terms1 from US$583 million estimated at the time of the decision point. HIPC debt relief from IDA and the IMF amounts to US$207 million and SDR 17.19 million (US$ 26.77 million) in NPV terms, respectively.
In reaching the HIPC completion point, C.A.R. also becomes eligible for further debt relief from the IMF, IDA, and the African Development Fund (AfDF) under the Multilateral Debt Relief Initiative (MDRI). MDRI relief net of HIPC assistance would lead to a nominal2reduction of debt owed to IDA and the IMF by US$182 million and SDR 1.9 million (US$ 2.9 million) respectively.
To reach the completion point, the C.A.R. completed a number of measures aimed at preparing and implementing a national poverty reduction strategy and maintaining a stable macroeconomic environment. In addition, the authorities have made good progress in implementing measures in the area of transparency, structural reforms in the forestry and mining sectors, civil service reform, public debt management, social sectors and HIV.
Martin Petri, IMF Mission Chief for C.A.R., noted that "the authorities are to be commended for reaching this important milestone. Despite a difficult post-conflict environment, they have undertaken important reforms to reach the Completion Point for debt relief under the HIPC Initiative. Debt relief will reduce significantly C.A.R.'s debt burden and free up resources to finance spending in areas critical to meeting the Millennium Development Goals."
"We are very pleased that the Boards of the Bank and the Fund have approved full debt relief for C.A.R. under the HIPC Initiative and MDRI," said Mary Barton-Dock, World Bank Country Director for CAR. "This confirms C.A.R.'s commitment to improve governance, foster transparency in public finance and debt management, accelerate reforms in the forestry and mining sectors, and strengthen social programs, as reflected in the Completion Point triggers. These reforms are critical for fostering increased economic growth and improved living standards in CAR. My Fund colleagues and I congratulate the C.A.R. authorities on this achievement. At the same time we urge them to maintain momentum toward the goals of their national poverty reduction strategy," she added.
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, 35 HIPC countries have reached their decision points, of which 26 (including C.A.R.) have reached the 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 this Multilateral Debt Relief Initiative (MDRI) was to reduce further the debt of HIPCs and provide additional resource to help them reach the Millennium Development Goals (MDGs)
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.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 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 reduction in debt stocks.
3 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.