IMF and World Bank Announce Debt Relief to the Republic of CongoPress Release No. 10/20
January 28, 2010
The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have agreed to support US$1.9 billion in debt relief for the Republic of Congo, which includes US$255.2 million of debt relief from the two institutions.
The decision by the Boards of Directors of both institutions will generate total debt service savings of US$1.9 billion, which include US$1.7 billion from Enhanced Heavily Indebted Poor Countries (HIPC), and US$201.3 million from the Multilateral Debt Relief Initiative (MDRI). The Boards determined that the country has taken the necessary steps to reach its completion point under the HIPC Initiative. The authorities have fully implemented measures related to the national poverty reduction strategy, macroeconomic stability, public financial management, oil sector management, governance, as well as implementing reforms in the health and education sectors, and debt management. Despite their stringency, all the triggers for the completion point were met. The Republic of Congo becomes the 28th country to reach the completion point under the Initiative. The completion point marks the end of the HIPC process, which started in March 2006 when the Executive Boards of the IMF and the World Bank agreed that Congo had met requirements for reaching the decision point.
“We are very pleased that the Boards of the Bank and the Fund have approved full debt relief for the Republic of Congo under the HIPC initiative and MDRI,” said Marie-Françoise Marie-Nelly, World Bank Country Director for the Republic of Congo. “This is a recognition of the remarkable progress made by the Congolese authorities in undertaking major and difficult reforms that have led to significant improvements in the country’s fiscal and economic management. This is important as Congo is emerging from conflict and continues toward economic and social recovery. My Fund colleagues and I congratulate the Congolese authorities on this achievement, and urge them to maintain momentum by using this debt relief for making the economy more diversified and competitive, and for improving social outcomes for the people of Congo,” she added.
Robert York, IMF Mission Chief for the Republic of Congo, noted that "the conditions for reaching the completion point were set very high for Congo. The intent was to support the authorities’ efforts to prioritize public expenditures, firm up public financial management, combat corruption, and bolster governance and transparency in the management of its oil resources. This clearly demonstrates that the authorities are determined to lay a firm foundation for enhancing growth and reducing poverty, which is very encouraging”. He added that a key challenge going forward is "to maintain a sustainable external and domestic debt position through careful borrowing and prudent fiscal policy”. Both institutions will continue to work closely with the Congolese authorities to help them realize their medium-term economic objectives.
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 28 (including the Republic of Congo) 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 closely linked to it operationally. Under the MDRI, three multilateral institutions - the World Bank's IDA, the IMF, and the African Development Fund - provide 100 percent debt relief on eligible debts to countries having reached the HIPC completion point3. 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.
At the conclusion of the IMF Executive Board's discussion on the Republic of Congo's HIPC Completion Point, which was held on January 27, 2010, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, issued the following statement:
“The Republic of Congo has satisfied all the conditions for reaching the completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Consequently, Congo qualifies for additional assistance under the Multilateral Debt Relief Initiative (MDRI). It is important that all Congo’s creditors, including non-Paris club and those under litigation, fully participate in providing debt relief to Congo in the framework of the HIPC Initiative.
“The forthcoming assistance under the HIPC Initiative and MDRI would help provide further fiscal space for growth-enhancing and poverty-reducing spending. Congo’s external debt burden indicators will decline significantly following the debt relief and will be well below the HIPC thresholds. This relief will strengthen the resilience of the country’s debt indicators to external shocks. However it will be important that the authorities build an ambitious debt management capacity and maintain a conservative external borrowing policy to safeguard long-term debt sustainability.
“It is important that the authorities maintain their commitment to fiscal discipline and improved governance, as well as implement key structural reforms while reducing poverty. The implementation of the Fund-supported program and reforms initiated under the HIPC framework should put Congo in a strong position to sustain macroeconomic stability”.