IMF and World Bank Consider the Union of the Comoros Eligible for Assistance Under the Enhanced Heavily Indebted Poor Countries (HIPC) InitiativePress Release No. 10/140
April 9, 2010
The Executive Boards of the International Monetary Fund (IMF) and the World Bank’s International Development Association (IDA)1 have deemed, on a preliminary assessment, that the Union of the Comoros is eligible for assistance under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.2 The assessment is a step towards forgiveness of the majority of the country’s foreign debt stock, which is estimated at US$285.9 million as of end-2009 (US$248.8 million in net present value (NPV) terms).
To qualify for debt relief under the HIPC Initiative at the decision point, Comoros will need to demonstrate satisfactory performance under the government’s economic program by completing the first review under the current IMF Extended Credit Facility (ECF) arrangement, and reach understandings on appropriate completion point triggers.
In addition to the standard requirements on implementation of the country’s poverty reduction strategy paper (PRSP) and macroeconomic stability, possible completion point triggers include policy measures aimed at improving public financial management and governance; strengthening health and education social sectors; supporting growth; and improving debt management.
On reaching the completion point under the HIPC initiative, Comoros would qualify for unconditional debt relief under the HIPC Initiative. It would also qualify for the Multilateral Debt Relief Initiative (MDRI) from the IDA and the African Development Fund (AfDF). Debt relief would free up resources for poverty-reducing spending in the authorities’ priority areas, notably education and health.
Following the IMF Executive Board discussion on March 29, 2010, Mr. Naoyuki Shinohara, IMF Deputy Managing Director and Acting Chair, said:
“The Union of the Comoros is potentially eligible for debt relief under the Enhanced HIPC Initiative and could reach the decision point under the Initiative in mid-2010. Achieving this milestone is subject to satisfactory completion of the first review under the ECF and agreement by the authorities on appropriate completion point triggers to be included in the decision point document.
“In the last year, the government has made encouraging efforts in implementing economic reforms with IMF support under the Emergency Post-Conflict Assistance and ECF. In September 2009, the authorities adopted their first full Poverty Reduction Strategy Paper. Going forward, they are encouraged to strengthen fiscal performance, particularly by improving revenue mobilization and enhancing control over the wage bill. Efforts will also be needed in the period ahead to enhance the effectiveness of the PRSP, notably by focusing on key projects and reforms, consistent with implementation capacity and mobilized financial resources.”
Following the IDA Executive Board discussion on April 8, 2010, World Bank Country Director for Comoros, Johannes Zutt, said:
“The need for debt relief in Comoros is particularly salient, because the resources available to support the most basic public investments in physical and human capital have been constrained. We are encouraged by the government’s economic reform efforts and look forward to continuing working with the country so that the people of Comoros can benefit from debt relief.”
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, thirty five countries have reached their decision points under the enhanced HIPC Initiative, of which twenty eight have reached the completion point.
Note to Editors:
• Comoros is emerging from a long period of political instability punctuated by violent transfers of presidential powers since independence in 1975.
• Comoros’s public and publicly-guaranteed external debt is estimated at US$285.9 million as of end-December 2009 (US$248.8 million in net present value (NPV) terms after assuming full application of traditional debt relief mechanisms).
• The country’s NPV of debt-to-exports ratio was 332.3 percent at end-December 2009 (after traditional debt relief mechanisms are applied), more than double the HIPC Initiative threshold of 150 percent.
• Comoros had a nominal per capita gross national income of about US$750 in 2009 (using the World Bank’s Atlas methodology).
• The World Bank (International Development Association) Interim Strategy Note for 2010–12 aims to help Comoros reach the enhanced HIPC completion point by end-2012.
• Comoros benefited from IMF support under Emergency Post-Conflict Assistance (EPCA) and the Exogenous Shocks Facility-Rapid Access Component (ESF-RAC) in 2009, and is currently supported by the Fund under the Extended Credit Facility (ECF) (See Press Release No. 09/315)