## Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) — Status of Implementation (update through end-July 2007) (_082807) ## Source details **Canonical URL:** [Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) — Status of Implementation (update through end-July 2007) (_082807)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/2007/eng/_082807.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/2007/eng/_082807.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/2007/eng/_082807.pdf.json) --- ### Overview and Implementation Status - Total number of HIPCs: 41 (with addition of Afghanistan in April 2007). - Sunset clause: took effect December 31, 2006; Executive Boards grandfathered countries assessed to meet income and indebtedness criteria based on end-2004 data. - Country status (as of end-July 2007): - 22 Post-Completion-Point Countries (irrevocable debt relief and MDRI relief received). - 9 Interim Countries (reached decision point but not yet completion point). - 10 Pre-Decision-Point Countries (potentially eligible). - Recent movements since mid-2006: - Three HIPCs reached completion point: Malawi, São Tomé and Príncipe, and Sierra Leone. - Two countries reached decision point: Afghanistan and Haiti. - In 2007, IaDB joined IDA, IMF, and AfDF in providing 100 percent debt relief on eligible debt upon reaching completion point. ### Impact on Debt Service, Debt Stocks, and Poverty-Reducing Expenditures - Debt-service payments per capita (median for 31 post-decision-point HIPCs): decreased from US$9.2 in 2000 to US$6 in 2005. - MDRI annual debt-service savings (2007) for 22 post-completion-point countries: expected to amount to US$1.3 billion, equivalent to about 1 percent of these countries’ GDP on average; country variation: 0.3 percent of GDP for Zambia to 1.8 percent of GDP for Guyana. - Poverty-reducing expenditures: - Increased from under 7 percent of GDP in 2000 to 9 percent in 2006 in post-decision-point HIPCs. - In nominal terms, amounted to US$17 billion in 2006, an increase of US$3 billion since 2005. - Poverty-reducing expenditures are more than five times the level of debt-service payments after debt relief. - Cumulative MDRI debt-service savings: - Post-completion-point countries: US$21.1 billion in end-2006 NPV terms. - Interim and pre-decision-point countries: expected further savings of US$5.7 billion in end-2006 NPV terms upon reaching completion point. - Debt stock reductions: - Debt relief under HIPC Initiative and MDRI expected to reduce debt stock of 31 post-decision-point HIPCs by US$96 billion in end-2006 NPV terms. - Traditional and HIPC assistance projected to reduce total debt stocks of these countries from about US$105 billion to US$40 billion in end-2006 NPV terms. - Voluntary additional bilateral relief and MDRI would further lower debt stocks to about US$9 billion in end-2006 NPV terms. - For 22 post-completion-point countries: debt stocks expected to decline from US$76 billion to US$5 billion in end-2006 NPV terms after MDRI. - Debt-service-to-exports and debt sustainability projections: - Debt-service-to-exports ratios reduced from over 18 percent before the decision point to 8 percent four years after the decision point. - Bank-Fund staff projections: average debt-service-to-exports ratio of post-decision-point HIPCs expected to fall from 9.7 percent in 2005 to 3.3 percent in 2011. - NPV-of-debt-to-exports ratio cumulative reduction over five years: 152 percentage points (24 percentage points due to decrease in debt stocks; 128 percentage points due to increase in exports). ### Costs of Debt Relief — HIPC Initiative (end-2006 NPV terms) - Overall estimated cost for the 41 HIPCs: US$67.7 billion. - Irrevocable debt relief to 22 post-completion-point countries: US$32.8 billion. - Committed cost to nine interim countries: US$12.1 billion. - Estimated cost to ten pre-decision-point countries: US$22.7 billion (US$21.1 billion accounted for by Côte d’Ivoire, Liberia, Somalia, Sudan, and Togo). - Change since 2006 report: - Overall cost increased by US$1.1 billion (1.6 percent). - US$0.6 billion of the increase due to inclusion of Afghanistan and topping-up for Malawi and São Tomé and Príncipe. - US$0.5 billion due to data revisions (discount rate, debt data reconciliations). - Distribution of HIPC Initiative costs by creditor type: - Multilateral creditors: about 46 percent (US$31.0 billion). - IDA: 20 percent of total HIPC Initiative costs (IDA total US$13.8 billion). - IMF: 9 percent (IMF total US$5.8 billion). - AfDB Group: 7 percent (AfDB Group total US$4.8 billion). - Paris Club creditors: 36 percent (Paris Club total US$24.2 billion within bilateral and commercial totals). - Other Official Bilateral creditors: 13 percent (Other Official Bilateral US$8.6 billion). - Commercial creditors: 6 percent (Commercial US$3.9 billion). - Topping-up assistance: - Total topping-up cost: US$2 billion (3 percent of total HIPC Initiative cost). - Five HIPCs received topping-up: Burkina Faso, Ethiopia, Malawi, Niger, and Rwanda. - Topping-up committed to São Tomé and Príncipe but not fully disbursed due to insufficient financing assurances. - Cross-country variation in underestimation of NPV-of-debt-to-exports ratio cited (São Tomé and Príncipe up to 159 percentage points; Burkina Faso 22 percentage points). ### Costs and Delivery — MDRI (nominal terms and delivery status) - Overall MDRI cost for participating multilaterals (IDA, IMF, AfDF, IaDB): US$47.9 billion in nominal terms (additional to HIPC Initiative debt relief). - MDRI assistance already delivered to post-completion-point HIPCs: US$37.6 billion in nominal terms. - Contribution shares to total MDRI debt relief (all HIPCs, nominal terms): - IDA: US$33.0 billion principal (approximately 69 percent of MDRI total to post-completion-point HIPCs). - IMF: US$4.1 billion principal (IMF expected to provide US$4.3 billion in nominal terms). - AfDF: US$7.4 billion principal (AfDF delivered US$6.4 billion to post-completion-point countries). - IaDB (IaDB-07 Initiative): US$3.4 billion principal (IaDB delivered US$3.9 billion in nominal terms to Bolivia, Guyana, Honduras, and Nicaragua; Haiti expected about $0.4 billion upon completion point). - Selected MDRI delivery details: - IDA expected to provide US$33 billion in principal cancelled; 22 post-completion-point countries have received US$28.3 billion in nominal debt relief (US$25.8 billion principal; US$2.5 billion forgone interest). - IMF has disbursed US$3.1 billion to the 22 post-completion-point HIPCs and about US$182 million to Cambodia and Tajikistan. - AfDF delivered US$6.4 billion in nominal terms to post-completion-point countries (US$5.7 billion principal; US$0.8 billion forgone interest). - IaDB has provided US$3.9 billion in nominal terms to four post-completion-point HIPCs (US$3.0 billion principal; US$0.9 billion forgone interest). ### Creditor Participation: Bilateral, Multilateral, and Commercial - Multilateral participation: - 25 out of 32 multilateral creditors participating as of end-July 2007; these account for over 99 percent of multilateral debt relief committed to 31 post-decision-point HIPCs (US$22.7 billion in end-2006 NPV terms). - Paris Club creditors: - Paris Club estimated cost of HIPC debt relief to 31 post-decision-point countries: US$16.6 billion in end-2006 NPV terms. - Paris Club delivered US$7 billion in additional debt relief to post-completion-point HIPCs (about 66 percent increase relative to HIPC Initiative commitments). - Most Paris Club creditors cancel 100 percent of their pre-cutoff claims at completion point; some also cancel part or all post-cutoff claims. - Non–Paris Club official bilateral creditors: - Delivery through June 2007: slightly more than one third of expected share delivered. - Six creditors estimated to have delivered full share. - 23 creditors provided partial relief (accounting for about 66 percent of expected non-Paris Club relief). - 21 creditors have not delivered any relief (accounting for about 34 percent of expected non-Paris Club relief). - Staffs to encourage participation through Article IV consultations, missions, and publication of a “scorecard” identifying debt relief granted by each bilateral creditor. - Commercial creditors: - Aggregate role: about 4 percent of total costs of HIPC Initiative debt relief to 31 post-decision-point HIPCs (variation by country). - Range among HIPCs: zero (Afghanistan, Burkina Faso, the Gambia, Haiti, Mauritania) to 35 percent in the Republic of Congo. - Examples: Ghana 10 percent; Sierra Leone 13 percent; other 23 post-decision-point HIPCs average 3.4 percent. - Future expectations: share from commercial creditors expected to increase in some pre-decision-point countries with large eligible commercial debt (e.g., 25 percent for Côte d’Ivoire; 18 percent for Liberia; 7 percent for Sudan; 6 percent for Central African Republic in end-2006 NPV terms). - Data collection: staffs gathered debt relief data from commercial banks and surveyed HIPCs; Creditors Committee shared buyback terms with 16 HIPCs. ### Commercial Creditor Litigation: Scope, Outcomes, and Risks - Survey (24 respondents): - 11 of 24 respondents reported being targeted with lawsuits by a total of 44 litigating creditors. - Six new legal actions since 2006 survey: five against Nicaragua, one against Ethiopia. - HIPCs facing most litigation cases: Nicaragua (9 lawsuits), Republic of Congo (8), Uganda (6). - Jurisdictions and creditors concentrated in: - United States: seven litigating creditors. - United Kingdom: four. - British Virgin Islands: six. - Major filing locations: New York (10), Paris (7), London (7). - Outcomes and financial impact: - Of 44 litigation cases, 24 creditors obtained court judgments against eight HIPCs (Cameroon, DRC, Republic of Congo, Guyana, Nicaragua, Sierra Leone, Uganda, Zambia). - Court judgments amount to about US$1 billion on original claims of US$434 million. - Some HIPCs reached out-of-court settlements (Republic of Congo, Guyana, Sierra Leone, Uganda). - International commercial arbitration proceedings involve Cameroon, Ethiopia, and São Tomé and Príncipe. - Example case — Donegal versus Zambia: - Original Romanian credit facility: US$15 million (1979). - Donegal purchased debt for US$3.2 million (face value US$30 million), sought compensation of US$42 million in the British Virgin Islands; settlement for Zambia to repay US$14 million over three years. - English High Court ruling (February 2007) favored Donegal but reduced claim to US$15.4 million after ruling some interest as illegal penalty. - Resource implications: - Lengthy overseas court proceedings impose severe budget and institutional burdens on HIPCs; HIPCs typically hire legal firms and advisors in France, the United Kingdom, and the United States. - Insufficient survey responses prevented reliable aggregate estimate of legal costs. ### Challenges for Interim and Pre-Decision-Point Countries - Interim HIPCs: main challenges to meeting completion-point triggers include: - Maintaining macroeconomic stability. - Preparing participatory PRSPs. - Implementing other country-specific triggers. - Pre-decision-point HIPCs: obstacles include: - Internal conflict, governance issues, substantial arrears to multilateral institutions, and difficulties formulating viable macroeconomic and poverty-reduction programs. - Requirement to build track record under IMF- and IDA-supported programs and put in place satisfactory PRSPs. - Examples of country-specific impediments and status of IMF/PRSP programs documented (selected countries include Comoros, Côte d’Ivoire, Eritrea, Kyrgyz Republic, Liberia, Nepal, Somalia, Sudan, Togo, Central African Republic). ### Debt and Public Financial Management: Vulnerabilities and Policy Directions - Risk of debt distress (post-completion-point HIPCs, DSF as of July 2007): - Low Risk: 1 HIPC. - Moderate Risk: 11 HIPCs. - High Risk: 10 HIPCs (textual list clarifies classifications; note staff list indicates moderate for Benin, Burkina Faso, Ethiopia, Guyana, Honduras, Malawi, Mauritania, Nicaragua, Niger, São Tomé and Príncipe, Sierra Leone; high for Rwanda in one place; overall only ten of 22 post-completion-point HIPCs classified as low risk). - Underlying vulnerabilities and priorities: - Diversify exports, strengthen institutions, use external resources efficiently, and ensure prudent borrowing aligned with repayment capacity. - Strengthen public debt management capacity in LICs as access to new non-concessional financing increases. - IMF/World Bank and technical partners assisting HIPCs to: - Develop and implement effective medium-term debt strategies. - Build indicators for international standard performance evaluation. - Key areas for strengthening: - Sound public financial management. - Well-developed public investment selection and monitoring procedures. - Appropriate institutional arrangements for coordination among public entities. - Improved governance. - Strengthening PFM to improve budget formulation, execution and reporting, enabling better tracking of poverty-reducing spending. ### Staff Proposals, Institutional Responses, and Policy Measures - Proposed staff measures for Board consideration: - Encourage official bilateral creditors’ participation by publishing a “scorecard” on the World Bank and IMF external websites identifying debt relief granted by each bilateral creditor. - Support HIPCs by preparing “factual contextual notes” on HIPC Initiative issues at the request of authorities (notes to be neutral, factual, usable by authorities in litigation or other contexts). - International and institutional responses to litigation and participation issues: - G-8 Finance Ministers (May 2007) agreed to work to identify measures to deal with litigations against HIPCs. - Paris Club commitment not to sell claims on HIPCs to creditors who do not intend to provide HIPC relief; Paris Club to intensify work on litigation issues. - Technical and legal support being stepped up: Commonwealth Secretariat HIPC Legal Clinic (September 2006); AfDB exploring legal technical assistance facility; IDA and IMF encouraging broader participation. - Boards encouraged staffs to use moral suasion to promote commercial creditor participation while maintaining neutrality. ### Annex — Country Coverage, Data Sources, and Costing Assumptions - Country coverage: - Post-decision-point countries (31) listed (includes Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Chad, DRC, Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Tanzania, Uganda, Zambia). - Pre-decision-point HIPCs (9): Central African Republic, Comoros, Côte d’Ivoire, Eritrea, Liberia, Nepal, Somalia, Sudan, Togo. - Kyrgyz Republic excluded from cost estimates (indebtedness ratio at end-2006 below HIPC threshold). - Data sources and coverage dates: HIPC decision and completion point documents for 31 post-decision-point countries; preliminary documents or estimates for 9 pre-decision-point HIPCs; data updated through end-July 2007. - Discount and exchange rate assumptions: - Discount rate used to calculate end-2006 NPV terms: 4.6 percent. - MDRI exchange rate: MDRI Trust Fund replenishment rate of 1.47738 US dollars per SDR for IDA and AfDF; IMF used exchange rate at date of delivery or July 01, 2007 where not yet delivered; IaDB used end-2006 US dollar units. - Selected aggregated projections and table highlights (preserved figures): - Poverty-Reducing Expenditures (in millions of U.S. dollars), 2000–2011: 2000 = 5,819; 2001 = 6,657; 2002 = 7,716; 2003 = 9,124; 2004 = 11,153; 2005 = 13,864; 2006 = 17,040; 2007 (Prel./Projections) = 20,097; 2008 = 22,505; 2009 = 24,882; 2010 = 26,916; 2011 = 26,434. - Average Ratios (Debt Service/Exports): 2000 = 16.6; 2006 = 6.4; 2011 = 3.3. - Total HIPC Initiative cost (end-2006 NPV terms): US$67.7 billion. - Total MDRI nominal assistance (all HIPCs): US$47.9 billion. - MDRI nominal assistance delivered to post-completion-point HIPCs: US$37.6 billion. - Cumulative MDRI end-2006 NPV debt-service savings — All HIPCs: IDA 17.3; IMF 3.6; AfDF 3.5; IaDB 2.3; Total 26.7 (figures in end-2006 NPV terms as presented). *Source: Executive Summary and selected sections from IMF staff report “Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI)—Status of Implementation” (update through end-July 2007), content unit _082807.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Overview - Report provides an update on the status of implementation, impact and costs of the enhanced Heavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) since mid-2006, and discusses creditor participation and commercial creditor litigation against HIPCs. - Sunset clause took effect on December 31, 2006; Executive Boards grandfathered all countries assessed (or to be assessed) to have met the HIPC Initiative’s income and indebtedness criteria based on end-2004 data. - With the addition of Afghanistan in April 2007, the total number of HIPCs is 41. ### Progress in Implementation - Country status updates: - 22 Post-Completion-Point Countries (have qualified for irrevocable debt relief and received MDRI relief). - 9 Interim Countries (reached decision point but not yet completion point). - 10 Pre-Decision-Point Countries (potentially eligible). - Recent movements since mid-2006: - Three HIPCs reached completion point: Malawi, São Tomé and Príncipe, and Sierra Leone. - Two countries reached decision point: Afghanistan and Haiti. - In 2007, the Inter-American Development Bank (IaDB) joined IDA, IMF, and the African Development Fund (AfDF) in providing 100 percent debt relief on eligible debt upon reaching completion point. - Sunset-clause implications: - Countries that did not meet the policy performance eligibility criterion by end-2006 may become eligible for HIPC assistance if they adopt, at any time, a qualifying IMF- and IDA-supported program. ### Challenges for Interim and Pre-Decision-Point Countries - Interim HIPCs: main challenges in meeting completion-point triggers include maintaining macroeconomic stability, preparing participatory Poverty Reduction Strategy Papers (PRSPs), and implementing other country-specific triggers. - Pre-decision-point HIPCs: obstacles include internal conflict, governance issues, substantial arrears, and difficulties in formulating viable macroeconomic and poverty-reduction programs. ### Impact of Debt Relief (HIPC Initiative and MDRI) - Debt-service payments have declined as a result of HIPC Initiative and MDRI debt relief; expenditures on pro-poor growth programs have continued to increase. - Debt stock reduction: - Debt relief under the HIPC Initiative framework and the MDRI is estimated to have reduced the debt stock of post-decision-point HIPCs by US$96 billion in end-2006 NPV terms. - Debt sustainability: - Despite improved debt ratios, the risk of debt distress of half of post-completion-point HIPCs remains moderate. - Strengthening public debt management is a priority to prevent rapid re-accumulation of debt. ### Cost of Debt Relief under the HIPC Initiative - Overall estimated cost for the 41 HIPCs: US$67.7 billion in end-2006 NPV terms. - Irrevocable debt relief to the 22 post-completion-point countries: US$32.8 billion. - Committed cost to the nine interim countries: US$12.1 billion. - Estimated cost to the ten pre-decision-point countries: US$22.7 billion. - Change from 2005 to 2006: - Overall cost increased by US$1.1 billion in end-2006 NPV terms. - US$0.6 billion of the increase was due to inclusion of Afghanistan and the topping-up for Malawi and São Tomé and Príncipe. - Distribution of costs by creditor type: - Multilateral creditors: 46 percent of total estimated cost. - Paris Club creditors: 35 percent of total cost. - Non–Paris Club creditors: 13 percent of total cost. - Commercial creditors: 6 percent of total cost. ### Cost of Debt Relief under the MDRI - Overall cost of the MDRI for the four multilaterals: US$47.9 billion in nominal terms (additional to HIPC Initiative debt relief). - Contribution shares to the total MDRI debt relief: - IDA: 69 percent. - IMF: 9 percent. - AfDF: 15 percent. - IaDB: 7 percent. - MDRI assistance already delivered to post-completion-point HIPCs: US$37.6 billion in nominal terms. ### Creditor Participation - Most multilateral financial institutions have provided debt relief under the HIPC Initiative and the MDRI; some small multilaterals still need encouragement to participate. - Paris Club creditors continue to provide debt relief in line with HIPC Initiative commitments, including interim relief at decision point and bilateral relief beyond HIPC commitments at completion point. - Delivery by non-Paris Club and commercial creditors has been improving but remains low; full participation needs to be encouraged. ### Litigation by Commercial Creditors - Commercial creditors’ lawsuits against HIPCs present a growing challenge to HIPC Initiative implementation. - The international community has intensified efforts to discourage litigation against HIPCs. - The World Bank and the IMF have continued efforts to encourage broad and equitable participation by all creditors. ### Issues for Discussion and Proposed Staff Measures - Staff propose to the Boards: - Encourage official bilateral creditors’ participation in the HIPC Initiative by placing on the World Bank and IMF external website a “scorecard” identifying the debt relief granted by each bilateral creditor. - Support HIPCs, whether in the context of litigation or otherwise, by preparing “factual contextual notes” on HIPC Initiative issues at the request of the authorities. *Source: Executive Summary, “Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI)—Status of Implementation” (update through end-July 2007).* ### References to "MDRI" in this report also include the IaDB-07 Initiative, as IaDB relief has similar ### _082807 - References to "MDRI" in this report also include the IaDB-07 Initiative, as IaDB relief has similar ### The Inter-American Development Bank Debt Relief Initiative of 2007 (IaDB-07) — Box 1 - IaDB-07 announced March 2007; provides debt relief beyond the HIPC Initiative to post-completion-point HIPCs in Latin America and the Caribbean. - Parallels the MDRI implemented by IDA, IMF and AfDF: provides 100 percent debt relief on credits disbursed to HIPCs before end 2004 under the IaDB’s concessional window and still outstanding on January 1, 2007, or the date of the completion point. - IaDB expected to finance foregone income with internal resources supplemented by contributions from both borrowing and non-borrowing member countries. - May 2007: debt relief amounting to US$3 billion in principal amount cancelled (in nominal terms) was delivered retroactively to January 1, 2007 to Bolivia, Guyana, Honduras and Nicaragua. - Haiti expected to receive about $0.4 billion in principal amount cancelled (in nominal terms) of IaDB-07 debt relief upon reaching its completion point. ### Progress of Countries Reaching HIPC Decision and Completion Points - Key obstacles for several pre-decision-point HIPCs: internal conflict, governance issues, substantial arrears to multilateral institutions, difficulties formulating viable macroeconomic and poverty-reduction programs. - To qualify for HIPC debt relief, pre-decision-point countries must build a track record under IMF and IDA-supported programs and put in place a satisfactory poverty reduction strategy (PRSP). - Four countries currently have IMF-supported programs: Central African Republic, Côte d’Ivoire, the Kyrgyz Republic, and Nepal. - In Liberia, Somalia, Sudan and Togo the existence of large arrears to multilateral institutions remains an obstacle to engaging in IMF- and IDA-supported programs. - PRSP status: eight of the ten pre-decision-point countries have PRSPs in various stages of preparation; six have already completed an Interim PRSP. - Interim countries: four out of nine are satisfactorily implementing macroeconomic programs and making progress on completion-point triggers (Gambia, Haiti, Afghanistan, Burundi). Five interim HIPCs (Chad, Guinea, Guinea-Bissau, DRC, Republic of Congo) have experienced interruptions and difficulties meeting triggers. - PRSP completion among interim HIPCs: six have adopted a full PRSP (Burundi, Chad, DRC, Gambia, Guinea-Bissau, Guinea). Three others are finalizing PRSPs; Republic of Congo’s final PRSP draft expected by end-2007. Haiti and Afghanistan preparing PRSPs and expect to conclude by end-2007 and early 2008, respectively. - Interim period observations: - Interim periods have ranged from 0.2 years (Uganda, retroactive case) to more than 6 years (São Tomé and Príncipe). - Average interim period: 2 years for original HIPC Initiative participants vs. 3.8 years for those under the enhanced HIPC Initiative. - Post-conflict HIPCs may need longer interim periods to address institutional weaknesses and build political support. ### Impact on Resource Availability and Poverty-Reducing Expenditures - Median debt-service payment per capita for the 31 post-decision-point HIPCs decreased from US$9.2 in 2000 to US$6 in 2005. - In 2007, annual debt-service savings from the MDRI for the 22 post-completion-point countries expected to amount to US$1.3 billion, equivalent to about 1 percent of these countries’ GDP on average. - Country variation: from 0.3 percent of GDP for Zambia to 1.8 percent of GDP for Guyana (Appendix Table 2). - Countries increased budgetary allocations to pro-poor growth programs. Examples: - Malawi: intends to use the relief to increase pro-poor spending in future years and reduce domestic debt levels. - São Tomé and Príncipe and Sierra Leone: incorporated MDRI savings within their budgets for 2007 aligned with PRSP priorities. - Poverty-reducing expenditures: - Increased on average from under 7 percent of GDP in 2000 to 9 percent in 2006 in post-decision-point HIPCs. - In nominal terms, poverty-reducing expenditures amounted to US$17 billion in 2006, an increase of US$3 billion since 2005. - These expenditures are more than five times the level of debt-service payments after debt relief. - Cumulative MDRI debt-service savings to post-completion-point countries estimated at US$21.1 billion in end-2006 NPV terms. - Interim and pre-decision-point countries expected to benefit from further savings of US$5.7 billion in end-2006 NPV terms upon reaching completion point. ### MDRI Debt-Service Savings by Creditor and Country Group (end-2006 NPV terms) - Post-Completion-Point HIPCs: IDA IMF AfDF IaDB Total - 13.6 2.8 2.7 2.0 21.1 - Interim and Pre-Decision-Point HIPCs: - 3.7 0.8 0.9 0.3 5.7 - All HIPCs: - 17.3 3.6 3.5 2.3 26.7 - Non-HIPCs: - 0.0 0.2 0.0 0.0 0.2 ### Impact on Debt Stocks and Debt Sustainability - Debt relief under the HIPC Initiative and the MDRI expected to reduce debt stock of the 31 post-decision-point HIPCs by US$96 billion in end-2006 NPV terms. - Traditional debt relief and HIPC Initiative assistance projected to reduce total debt stocks of these countries from about US$105 billion to US$40 billion in end-2006 NPV terms. - Voluntary additional bilateral debt relief and MDRI would further lower debt stocks to about US$9 billion in end-2006 NPV terms. - For the 22 post-completion-point countries: debt stocks expected to decline from US$76 billion to US$5 billion in end-2006 NPV terms after MDRI. - Debt burden indicators: - Debt-service-to-exports ratios reduced from over 18 percent before the decision point to 8 percent four years after the decision point. - Bank-Fund staff projections: average debt-service-to-exports ratio of post-decision-point HIPCs expected to fall from 9.7 percent in 2005 to 3.3 percent in 2011. - NPV of debt-to-exports ratio declined over four years after the decision point, with cumulative reduction over five years amounting to 152 percentage points: 24 percentage points due to decrease in debt stocks and 128 percentage points due to increase in exports. ### Risk of Debt Distress and Remaining Vulnerabilities - Risk classification (post-completion-point HIPCs, DSF as of July 2007): - Low Risk: 1 HIPC - Moderate Risk: 11 HIPCs - High Risk: 10 HIPCs (note: chart labels indicate distribution; textual list clarifies classifications) - According to latest DSAs, risk of debt distress is moderate for Benin, Burkina Faso, Ethiopia, Guyana, Honduras, Malawi, Mauritania, Nicaragua, Niger, São Tomé and Príncipe, and Sierra Leone; high for Rwanda. - Only ten of 22 post-completion-point HIPCs classified as having a low risk of debt distress; remainder at moderate (11) or high (1) risk. - Underlying vulnerabilities remain: need to diversify exports, strengthen institutions, use external resources efficiently, and ensure prudent borrowing aligned with repayment capacity. ### Case Study: Burkina Faso — Box 2 - Debt declined from about US$1.1 billion to US$259 million in end-2006 NPV terms. - Reduction in the NPV of debt-to-exports ratio of approximately 150 percentage points. - Resulted in substantial reduction in projected debt ratios and reduced risk of debt distress; however, risk classified as moderate due to terms-of-trade volatility. - Structural vulnerability: cotton accounted for nearly 60 percent of the value of exports in 2006; exposure to large price fluctuations and weather shocks causes high economic volatility. - Policy response: long-term debt sustainability depends on increasing resilience via export diversification and institutional strengthening. - In view of moderate risk, IDA and AfDB have shifted financing terms to a mix of 50 percent loans and 50 percent grants. ### Strengthening Debt and Public Financial Management — Policy Directions - Urgent need to improve debt management capacity in LICs, particularly as access to new sources of non-concessional financing by post-MDRI countries is increasing. - World Bank and IMF, with other technical assistance providers, assisting HIPCs and LICs to: - Develop and implement effective medium-term debt strategies. - Build indicators for an international standard to evaluate performance. - Key areas for strengthening: - Sound public financial management. - Well-developed public investment selection and monitoring procedures. - Appropriate institutional arrangements for coordination among public entities. - Improved governance. - Strengthening public financial management needed to improve budget formulation, execution and reporting, enabling better tracking of poverty-reducing spending. *Italic: IMF staff report content from the referenced PDF unit.* ### 16. The overall cost to creditors of HIPC Initiative debt relief for the 41 HIPCs is ### 16. The overall cost to creditors of HIPC Initiative debt relief for the 41 HIPCs is ### Overall cost and breakdown by country group - The overall cost to creditors of HIPC Initiative debt relief for the 41 HIPCs is estimated at US$67.7 billion in end-2006 NPV terms (Table 3). - Of the US$67.7 billion: - US$32.8 billion represents irrevocable debt relief to the 22 post-completion-point countries. - US$12.1 billion is the cost committed to the nine interim countries. - US$22.7 billion is the estimated cost to the ten pre-decision-point countries, of which US$21.1 billion is accounted for by the countries with significant arrears owed to multilateral creditors (Côte d’Ivoire, Liberia, Somalia, Sudan, and Togo). ### Distribution of costs by creditor type - Multilateral creditors account for about 46 percent of the total cost for the 41 HIPCs (US$31 billion in end-2006 NPV terms). - Largest multilateral shares: IDA (20 percent of total HIPC Initiative costs), IMF (9 percent), and AfDB Group (7 percent). - Paris Club creditors account for 36 percent of total cost. - Other Official Bilateral creditors account for 13 percent of total cost. - Commercial creditors account for 6 percent of total estimated cost. - Table 3 (excerpted totals in end-2006 NPV terms): - Multilateral creditors total: US$31.0 billion (post-completion-point US$17.8; interim US$4.9; pre-decision-point US$8.3) - IDA total: US$13.8 billion (post-completion-point US$8.8; interim US$2.0; pre-decision-point US$2.9) - IMF total: US$5.8 billion (post-completion-point US$2.6; interim US$0.7; pre-decision-point US$2.5) - AfDB Group total: US$4.8 billion (post-completion-point US$2.3; interim US$1.5; pre-decision-point US$1.0) - Bilateral and commercial creditors total: US$36.7 billion (Paris Club US$24.2; Other Official Bilateral US$8.6; Commercial US$3.9) - Total Costs: US$67.7 billion (Post-Completion-Point HIPCs US$32.8; Interim HIPCs US$12.1; Total Post-Decision-Point HIPCs US$44.9; Pre-Decision-Point HIPCs US$22.7) ### Change since previous report (2006) - Since the 2006 report, the overall cost increased by US$1.1 billion in end-2006 NPV terms, or 1.6 percent. - Approximately US$0.6 billion of the increase was due to inclusion of Afghanistan and provision of topping-up assistance to Malawi and São Tomé and Príncipe. - Data revisions account for the remaining US$0.5 billion, including changes related to the discount rate and debt data reconciliation efforts primarily related to Liberia and the Central African Republic. - Memorandum items (comparison with previous report totals, end-2006 discounted): - Total Costs from Previous Report: US$66.6 billion - Total Change in Costs (percent): 1.6 percent - Total Change due to New Cases and Topping-up: 0.9 percent - Total Change due to Data Revisions: 0.7 percent ### Topping-up assistance - Total cost of topping-up assistance in end-2006 NPV terms is US$2 billion, representing 3 percent of the total HIPC Initiative cost. - Five HIPCs have received topping-up assistance to date: Burkina Faso, Ethiopia, Malawi, Niger, and Rwanda. - Topping-up assistance has been committed to São Tomé and Príncipe but not fully disbursed due to insufficient financing assurances. - Box 3 findings (topping-up cases analysis): - Topping-up is provided when significant deterioration in debt burden indicators at completion point is primarily attributable to exogenous factors. - Cross-country variation in underestimation of NPV-of-debt-to-exports ratio: São Tomé and Príncipe up to 159 percentage points; Burkina Faso 22 percentage points. - Primary causes: unanticipated changes in exchange and discount rates, or exports; other factors include data revisions and modality changes. ### Participation of multilateral creditors and HIPC assistance costs - Participation: - Twenty-five out of 32 multilateral creditors were participating in the Initiative as of end-July 2007; these account for over 99 percent of multilateral debt relief committed to the 31 HIPCs that have reached decision points (US$22.7 billion in end-2006 NPV terms). - IDA: - Total cost of IDA assistance: US$13.8 billion in end-2006 NPV terms (US$10.8 billion committed to the 31 post-decision-point HIPCs). - Increase since 2006 due to topping-up assistance (US$0.3 billion) and debt relief committed to new decision-point countries (US$0.1 billion). - IDA interim relief limits: one-third standard, can be increased to up to 50 percent case-by-case. - IMF: - Total IMF HIPC Initiative assistance estimated at US$5.8 billion in end-2006 NPV terms (US$3.3 billion committed to 31 post-decision-point HIPCs). - IMF has deposited US$2.6 billion in country-specific accounts for the 22 countries that have reached completion point. - Interim debt relief provided to Burundi, Haiti, and the Gambia; other interim HIPCs not eligible for specified reasons. - Estimated cost to provide HIPC Initiative debt relief to the 10 pre-decision-point countries is US$2.5 billion (IMF component reflected within broader figures). - Other multilaterals (total US$11.4 billion in end-2006 NPV terms): - AfDF total cost: US$4.8 billion (post-decision-point Africa US$3.8 billion; US$2.3 billion already disbursed to post-completion-point HIPCs). - IaDB total cost: US$1.54 billion (US$1.48 billion already delivered to four post-completion-point HIPCs; Haiti estimated US$60.4 million expected upon completion point). - AsDB total cost: US$325 million (Afghanistan US$56.2 million; Nepal US$268.5 million). - Remaining multilaterals total: US$4.8 billion (post-completion-point relief US$2.6 billion; interim US$0.6 billion; pre-decision-point US$1.6 billion). ### MDRI (Multilateral Debt Relief Initiative) costs and delivery by participating multilaterals - Total MDRI debt relief from IDA, IMF, AfDF, and IaDB amounts to US$37.6 billion on the principal in nominal terms to post-completion-point HIPCs. - Contributions by creditor (percent of total MDRI to post-completion-point HIPCs): IDA ~69 percent, AfDF ~15 percent, IMF ~8 percent, IaDB ~8 percent. - IDA MDRI: - IDA expected to provide US$33 billion in principal amount cancelled (nominal terms) to all HIPCs. - The 22 post-completion-point countries have already received US$28.3 billion in nominal debt relief (US$25.8 billion principal; US$2.5 billion forgone interest). - MDRI annual debt-service reduction is deducted from beneficiaries' annual IDA allocation; donors provide compensating resources allocated via IDA's performance-based allocation system. - IMF MDRI: - IMF expected to provide US$4.3 billion in nominal terms to HIPCs and non-HIPCs. - IMF has disbursed US$3.1 billion to the 22 post-completion-point HIPCs and about US$182 million to Cambodia and Tajikistan. - Additional resources required to finance relief for Afghanistan, newly ring-fenced countries (Eritrea, Haiti, the Kyrgyz Republic, Nepal), and protracted arrears cases (Liberia, Sudan, Somalia). - AfDF MDRI: - Total MDRI debt relief to be provided by AfDF: US$7.4 billion in principal cancelled (nominal terms). - AfDF delivered US$6.4 billion in nominal terms to post-completion-point countries (US$5.7 billion principal; US$0.8 billion forgone interest). - AfDF reductions in annual allocations reflect MDRI debt-service relief. - IaDB MDRI/2007 Initiative: - Total debt cancellation estimated at US$3.4 billion in principal cancelled (nominal terms). - IaDB has provided US$3.9 billion in nominal terms to Bolivia, Guyana, Honduras, and Nicaragua (US$3.0 billion principal; US$0.9 billion forgone interest). - Estimated US$0.5 billion in nominal terms will be provided to Haiti upon reaching completion point. - Table 4 nominal MDRI totals (nominal terms): - Post-Completion-Point HIPCs total: US$37.6 billion (IDA principal US$25.8; IDA forgone interest US$2.5; IMF principal US$3.1; AfDF principal US$5.7; AfDF forgone interest US$0.8; IaDB principal US$3.0; IaDB forgone interest US$0.9) - Interim and Pre-Decision-Point HIPCs total: US$10.3 billion (IDA principal US$7.2; IDA forgone interest US$0.6; IMF principal US$0.9; AfDF principal US$1.7; AfDF forgone interest US$0.2; IaDB principal US$0.4; IaDB forgone interest US$0.1) - All HIPCs total: US$47.9 billion (IDA principal US$33.0; IDA forgone interest US$3.2; IMF principal US$4.1; AfDF principal US$7.4; AfDF forgone interest US$1.0; IaDB principal US$3.4; IaDB forgone interest US$1.0) - Non-HIPCs: US$0.2 billion (IMF assistance to Cambodia and Tajikistan) ### Paris Club and bilateral creditor participation - Paris Club creditors: - Estimated cost to Paris Club creditors of providing HIPC debt relief to the 31 post-decision-point countries is US$16.6 billion in end-2006 NPV terms. - Total HIPC Initiative debt relief provided to the post-completion-point countries by Paris Club creditors amounts to US$10.7 billion. - Additional estimated cost to provide debt relief to the ten pre-decision-point HIPCs is US$7.6 billion. - Participation notes: - Seven regional multilateral creditors had not indicated participation due primarily to financial constraints (listed in footnote but not enumerated here as per source structure). *Source: IMF staff estimates and country authorities as presented in the HIPC Initiative and MDRI implementation report (end-2006 NPV and nominal terms).* ### 30. Almost all 19 Paris Club creditors have agreed, on a bilateral basis, to grant ### 30. Almost all 19 Paris Club creditors have agreed, on a bilateral basis, to grant HIPCs additional debt relief beyond what was committed under the HIPC Initiative ### Paris Club creditor additional debt relief: practices and delivery - Practices vary by stage reached and categories of eligible claims (see Appendix Tables 11, 12 and 13). - At decision point: - Some creditors have provided stock-of-debt reductions on various categories of debt in addition to interim relief. - At completion point: - Most creditors cancel 100 percent of their pre-cutoff claims. - Some creditors also cancel part or all of their post-cutoff claims. - Aggregate delivery: - Paris Club creditors have delivered US$7 billion in additional debt relief to post-completion-point HIPCs, an increase of about 66 percent relative to their commitments under the HIPC Initiative. - Footnote clarification: - The cutoff date defines a reference date for Paris Club debt treatments. As a general rule, credits granted after the cutoff date are not subject to future rescheduling. However, Paris Club creditors may cancel post-cutoff debt if required to restore debt sustainability under the HIPC Initiative. ### Participation of Non–Paris Club Official Bilateral Creditors - Delivery status (based on staffs’ information through June-2007): - Non-Paris Club creditors have delivered slightly more than one third of their expected share of HIPC Initiative debt relief (Appendix Table 15). - Delivery varies significantly across creditors: - Six countries are estimated to have delivered their full share of the expected HIPC Initiative debt relief. - 23 creditors, accounting for about 66 percent of the expected HIPC Initiative debt relief from non-Paris Club creditors, have provided partial debt relief. - 21 creditors, accounting for about 34 percent of the expected debt relief, have not yet delivered any HIPC Initiative debt relief. - Staff actions and recommendations: - Staffs will continue to encourage full participation of non-Paris Club creditors in the HIPC Initiative through Article IV consultations and other missions in creditor countries. - Staffs will continue to encourage bilateral creditors to share more detailed information and to disseminate their efforts more widely. - More extensive and transparent information is needed to better assess and monitor actual delivery, particularly from creditors that account for a substantial part of HIPC Initiative debt relief. - Executive Directors are called upon to continue conveying to their non-Paris Club constituency the importance of full participation. - Proposed complementary measures: - Where high-level political approval is required, raise the issue directly by IDA and IMF managements, or through bilateral contacts between country authorities. - Use a “scorecard” identifying the debt relief granted by each bilateral creditor, including non-Paris Club creditors, prominently published on the Fund’s and the Bank’s websites. - Debtor-side measures: - Staffs will step up efforts to encourage HIPCs to conclude bilateral agreements with non-Paris Club creditors to remove legal ambiguity and prevent accumulation of arrears. - Suggestion to include in IMF staff reports and World Bank country-specific documents for post-completion-point HIPCs a box providing detailed information on: - Debt relief received from non-Paris Club creditors. - Status of contacts and negotiations with those that have yet to provide debt relief. - Footnotes and related notes: - A Survey on non-Paris Club creditors’ participation in the HIPC Initiative was sent out to 28 of the 50 non-Paris Club creditors identified in post-completion-point documents as creditors of 22 post-completion-point HIPCs. See “Enhanced HIPC Initiative–Status of Non-Paris Club Official Bilateral Creditor Participation”, September 11, 2007. - Information provided to staffs in confidence will only be published if the requisite consents for its publication have been obtained. - Publishing information provided in confidence to staffs would require the consent of the provider. ### Participation of Commercial Creditors - Aggregate role and variation: - Commercial creditors account for about 4 percent of total costs of HIPC Initiative debt relief to the 31 post-decision-point HIPCs. - The costs range among individual HIPCs from zero (Afghanistan, Burkina Faso, the Gambia, Haiti, and Mauritania) to 35 percent in the Republic of Congo. - The cost amounts to 10 percent for Ghana and 13 percent for Sierra Leone, while it amounts to 3.4 percent on average for the other 23 post-decision-point HIPCs. - Future expectations: - The share of debt relief from commercial creditors is expected to increase as a number of pre-decision-point countries have large eligible commercial debt, estimated at: - 25 percent for Côte d’Ivoire, - 18 percent for Liberia, - 7 percent for Sudan, - 6 percent for the Central African Republic (in end-2006 NPV terms). - Data collection efforts: - Staffs gathered debt relief data from commercial banks and surveyed post-decision-point HIPCs on delivery by commercial creditors. - The Creditors Committee shared information on terms of debt buyback operations with 16 HIPCs (15 post-decision-point and one pre-decision-point). - Historical buybacks and DRF involvement: - Significant buyback operations took place before or around establishment of the HIPC Initiative and thus were not counted as HIPC Initiative debt relief (Creditors Committee buybacks between 1982 and 1995 in Benin, Bolivia, Madagascar, Mozambique, Niger, Sierra Leone, Uganda, and Zambia). - The Creditors Committee delivered debt relief amounting to US$1.4 billion through the DRF at the onset of the HIPC Initiative. - Between 1995-1998, buyback operations resulted in significant debt relief (examples): - Ethiopia: US$166 million, 1.2 percent of GDP - Guinea: US$78 million, 2.3 percent of GDP - Mauritania: US$48 million, 1.8 percent of GDP - Nicaragua: US$1 billion, 19 percent of GDP - Senegal: US$54 million, 0.6 percent of GDP - Subsequent buybacks that were included in HIPC Initiative calculations: - Cameroon: US$520 million, 3 percent of GDP (Creditors Committee fully delivered their share) - Tanzania: US$137 million, 1 percent of GDP (Creditors Committee fully delivered their share) - Republic of Congo agreement (June 2007) could provide debt relief on about 55 percent of the total outstanding commercial debt at decision point. - Survey findings on non-bank commercial creditors: - Only a few non-bank commercial creditors have provided their share of HIPC Initiative debt relief (directly or via buybacks). - Some suppliers and non-banks provided full HIPC debt relief on claims to Guyana and Madagascar. - Some non-banks provided partial debt relief to the Democratic Republic of Congo. - In Guyana, a supplier dropped legal action and granted debt relief after pressure from government and NGOs. - Concessional terms were provided in restructuring of some commercial loans to the Democratic Republic of the Congo. - Survey coverage note: - A survey was sent to 30 countries that had reached their decision points by May 2007. Twenty-four countries replied (80 percent). The survey was not sent to pre-decision point HIPCs. ### The Debt Reduction Facility (DRF) for IDA-only Countries (Box 4) - Role and history: - The DRF helps extinguish commercial debts through buybacks at a deep discount. - Established by the Boards of IBRD and IDA in 1989. - To date, the DRF has supported 22 buybacks in 21 countries and helped extinguish around US$8 billion of external commercial debt. - DRF operations have been completed in 15 post-completion-point HIPCs, in one of the nine interim HIPCs, and in two of the ten pre-decision-point HIPCs. - Recent Board approvals and operations: - In April 2007, IDA’s Board approved a five year extension of the DRF to July 31, 2012. - In April 2007, IDA’s Board approved a second commercial debt reduction operation for Mozambique expected to be closed in September 2007 and to extinguish US$176 million of eligible commercial external debt, including principal, interest, and associated penalties. - In July 2007, IDA’s Board approved a second commercial debt reduction operation for Nicaragua expected to be concluded before the end of 2007 and would help eliminate most if not all of Nicaragua's remaining US$1.4 billion of eligible commercial external debt, including principal, interest and penalties. - DRF operations for other HIPCs are currently in the preparatory stage or under consideration. ### Commercial creditor litigation against HIPCs: scope, outcomes, and costs - Survey results (24 respondents out of 30 surveyed in May 2007): - Eleven out of the 24 respondents reported being targeted with lawsuits by a total of 44 litigating creditors. - Six new legal actions reported since the 2006 survey: - Five against Nicaragua, one against Ethiopia. - Eight previously reported cases have been reclassified. - HIPCs facing the most litigation cases: - Nicaragua: nine lawsuits - Republic of Congo: eight lawsuits - Uganda: six lawsuits - Jurisdictions and locations: - Lawsuits most frequently filed in industrial country courts. - Litigating creditors concentrated in: - United States: seven litigating creditors - United Kingdom: four litigating creditors - British Virgin Islands: six litigating creditors - Lawsuits filed mainly in: - New York: ten litigations - Paris: seven litigations - London: seven litigations - Eight cases in other foreign courts, ten filed in courts in the HIPCs themselves. - Outcomes and financial impact: - Of the 44 litigation cases, 24 creditors obtained court judgments against eight HIPCs (Cameroon, the Democratic Republic of the Congo, Republic of Congo, Guyana, Nicaragua, Sierra Leone, Uganda, and Zambia). - Court judgments amount to about US$1 billion on original claims of US$434 million. - A few HIPCs reached out-of-court settlements with some commercial creditors (Republic of Congo, Guyana, Sierra Leone, and Uganda). - International commercial arbitration proceedings involve three HIPCs (Cameroon, Ethiopia, and São Tomé and Príncipe). - In the Republic of Congo, creditors have obtained at least seven court judgments and are seeking to enforce them in multiple jurisdictions. - Lawsuits against five HIPCs (Cameroon, Honduras, Nicaragua, Sierra Leone, and Uganda) are still pending. - Case example (Box 5: Donegal versus Zambia): - Original Romanian credit facility: US$15 million (1979) for Zambia. - Debt purchase: Romania sold the debt to Donegal for US$3.2 million (on a claim with a face value of US$30 million). - Donegal sought compensation of US$42 million in the British Virgin Islands; settlement reached for Zambia to repay US$14 million over three years. - Zambia fell into arrears in 2004; Donegal commenced litigation in England seeking US$55 million. - February 2007 English High Court ruling in favor of Donegal but reduced claim to US$15.4 million after accepting one of Zambia’s defenses that stipulated interest rate was an illegal penalty. - Resource implications: - Lengthy court proceedings may impose severe burdens on budgets and institutional resources of HIPCs. - When lawsuits are filed in overseas courts, HIPCs typically secure services of legal firms and financial advisors established in France, the United Kingdom, and the United States. - For local court cases, HIPCs have relied on their own public counselors/lawyers. - Staffs included questions on litigation costs in the 2007 survey, but not enough responses were provided to make a reliable estimate of legal costs. *Italic: Source — IMF staff report content as provided in the supplied PDF excerpt.* ### 45. Low participation of commercial creditors may delay the release of IMF interim ### 45. Low participation of commercial creditors may delay the release of IMF interim debt relief ### Problem: insufficient commercial creditor participation and thresholds - As of end-June 2007, the IMF had not yet received sufficient assurances of creditor participation to start disbursing interim debt relief to the Republic of Congo (reached decision point in April 2006). - Countries with significant debt to commercial creditors (examples cited: Côte d’Ivoire, Liberia) may find it difficult to meet the current threshold of creditor participation required to access IMF interim debt relief. - Numeric thresholds specified: - IMF delivers interim assistance when financing assurances are obtained from creditors representing at least 70 percent of HIPC-eligible debt. - For a country to reach completion point, financing assurances from creditors representing at least 80 percent of HIPC-eligible debt are required. - Risk: Low participation by commercial creditors could jeopardize HIPC Initiative debt relief at completion point and MDRI assistance if required thresholds are not met. ### Concern: commercial creditor litigation and inequitable treatment - Commercial creditor litigation raises concerns of inequitable treatment because: - The HIPC Initiative’s goal of proportional burden-sharing among creditors is undermined when commercial debt is paid back on more favorable terms than for most bilateral and multilateral creditors. - Litigation and preferential commercial creditor outcomes prevent HIPCs from using resources freed by debt relief for the initially intended purposes. ### International and institutional responses (actions and commitments) - G-8 Finance Ministers (May 2007) agreed to work together to identify measures to deal with litigations against HIPCs. - Paris Club creditors confirmed their commitment not to sell their claims on HIPCs to creditors who do not intend to provide debt relief under the HIPC Initiative, and committed to intensify work on litigation issues to identify concrete measures to tackle the problem. - Provision of technical and legal support being stepped up from different sources: - September 2006: Commonwealth Secretariat established a HIPC Legal Clinic to raise awareness on the risks and implications of litigation. - AfDB is exploring the possibility of establishing a technical assistance facility on legal issues for HIPCs. - IDA and the IMF have taken steps to encourage broader and more equitable participation by all creditors in the HIPC Initiative. ### IMF/World Bank staff actions and proposals - Staffs could intensify support by providing contextual notes on HIPC Initiative issues at the request of HIPC authorities (whether in the context of litigation or otherwise). - These contextual notes would operate within IMF’s and World Bank’s requirement to operate with neutrality; they would not take sides in disputes but would provide factual information on: - International characteristics of the HIPC Initiative. - Delivery of debt relief by multilaterals and Paris Club creditors. - Purpose and relevance of delivering debt relief. - Importance of broad and equitable creditor participation to ensure reaching HIPC Initiative’s debt sustainability and poverty reduction goals. - Macroeconomic situation of the country. - HIPC authorities may use these notes for any purpose they deem appropriate, including providing information to creditors or courts on HIPC issues. ### Box 6 — Measures to encourage commercial creditor participation (actions by IMF and World Bank) - Boards have encouraged staffs to use moral suasion to promote participation of commercial creditors in the HIPC Initiative while maintaining neutrality in disputes. - Specific institutional actions documented: - Staffs have encouraged countries to act swiftly in negotiating debt-restructuring agreements with commercial creditors, following current policies on good faith negotiations. - The World Bank’s Debt Reduction Facility for IDA-only countries is being used to help HIPCs buy back their external debt from commercial creditors at deep discount. - Staffs have tracked and released data on lawsuits, litigations, and settlements/awards against HIPCs in its annual progress report on the implementation of the HIPC Initiative and the MDRI. - Staffs have made consistent efforts to raise public awareness of the issues and costs involved in lawsuits against HIPCs, including through extending their contacts with NGOs. - Institutional constraints noted: - The IMF Articles of Agreement and Board policies require that the IMF operates with neutrality and impartiality in disputes among members and in disputes of members with other creditors. - References to prior policy documents and Board guidance are cited in support of these actions. ### Issues for discussion (posed to Directors) - Do Directors support the staffs’ proposed action to encourage official bilateral creditors to participate in the HIPC Initiative (namely, a “scorecard” identifying the debt relief granted by each bilateral creditor)? - Do Directors support the preparation of factual contextual notes on HIPC Initiative issues at the request of the authorities in support of HIPCs? - Do Directors have further suggestions on actions to encourage the participation of commercial creditors in the HIPC Initiative, while taking into account the voluntary nature of the HIPC Initiative? *Source: _082807 - 45. Low participation of commercial creditors may delay the release of IMF interim* ### 6.7 percent during 2006, mainly due to the increase in world oil prices and domestic food ### _082807 - 6.7 percent during 2006, mainly due to the increase in world oil prices and domestic food ### Comoros — Recent Political Developments - The political situation has deteriorated sharply. - Inter-island cooperation has broken down following the “unofficial” reelection of the Anjouanese president in a June 2007 ballot not recognized by the Union Government and the international community. - Efforts led by the African Union are underway to resolve the political impasse. ### Comoros — PRSP Status - An I-PRSP was presented to the Boards of IDA and IMF alongside a JSAN in May 2006. - The new administration has endorsed the I-PRSP. - The I-PRSP and related action plan are more comprehensive than is usually expected and contain most of the material required for a full PRSP. - Key needs going forward: - Translate the strategy into near-term specific priority actions consistent with implementation capacities and anticipated financial resources. - Further prioritization among sectors. - More work on addressing implementation risks and strengthening monitoring systems. - The full PRSP is not likely to be completed before the end of 2007. ### Comoros — IMF-Supported Program and Macroeconomic Status - Comoros had an SMP in place from the beginning of 2005 to end-2006. - In March 2007, an IMF staff mission reviewed end-2006 performance under the SMP and concluded agreement on a program that could be supported under the PRGF. - The PRGF request, initially scheduled for Board consideration in July 2007, was put on hold until the restoration of inter-island cooperation. - Required financing assurances for the PRGF have been lined up following the AfDB’s approval of an arrears clearance operation under its Post Conflict Country Facility. - Implementation will only be confirmed in a donor conference to be scheduled once the political crisis is resolved. ### Comoros — Decision Point - If the Executive Board approves a PRGF-supported program for Comoros by end-2007, the decision point could be reached in the second half of 2008. --- ### Côte d’Ivoire — Recent Political Developments - A peace accord was signed on March 4, 2007 in Ouagadougou by President Gbagbo and Mr. Soro. - The Ouagadougou peace accords led to a new transition government representing all key political groups and a homegrown roadmap to reunification and elections. - Mr. Soro was appointed Prime Minister. - Redeployment of civil service in the whole territory has begun; disarmament, demobilization, and reintegration have officially started with a peace ceremony in late July. - The roadmap foresees presidential elections in February 2008. ### Côte d’Ivoire — PRSP Status - An I-PRSP was endorsed in March 2002, but the conflict delayed completion of the full PRSP. - Since May 2005, a new institutional framework has been in place for managing the PRS process. - A full PRSP is expected to be prepared in 2008. ### Côte d’Ivoire — IMF-Supported Program and Macroeconomic Status - The last PRGF arrangement approved in March 2002 went off track later that year due to a crisis. - An EPCA was approved in August 2007. - Satisfactory policy implementation under the EPCA could become a bridge to a new PRGF-supported program. - Real GDP growth is projected to increase to 1.7 percent (from 1 percent in 2006) in 2007, provided reunification and return of confidence continue and are supported by favorable export prices. - A further pick up in growth, supported by stronger oil/gas production, is expected for 2008. - The fiscal situation in 2006 remained difficult due to expenditure overruns; sovereignty expenditures were financed by accumulation of external arrears. - Social and reunification spending has increased in the 2007 budget, while subsidies for the electricity sector and low-priority project allocations have declined. - Revenue measures include higher taxes for petroleum products and improved tax administration following deployment of the tax régies. ### Côte d’Ivoire — Decision Point - The decision point is expected to be reached in mid-2008. --- ### Eritrea — Recent Political Developments - Since independence in 1993, Eritrea has been ruled by President Isaias Afwerki and the People’s Front for Democracy and Justice. - Eritrea has forged closer economic and political ties with China. - Relations with neighboring Sudan have improved, leading to resumption of full diplomatic relations and a re-opening of the border. - Eritrea continues to be in a state of mobilization over the border demarcation dispute with Ethiopia, lingering from 2000. ### Eritrea — PRSP Status - An I-PRSP was drafted in June 2003, but it was neither finalized nor presented to IMF and IDA Boards. - PRSP discussions have not resumed with the Fund and the Bank. ### Eritrea — IMF-Supported Program and Macroeconomic Status - The government had expressed interest in an SMP in the context of the 2005 Article IV consultation. - Discussions on an SMP during a mission in June 2006 have not been concluded; IMF staff will probe intentions again during the upcoming 2007 Article IV mission. - The macroeconomic situation is characterized by stagnant economic activity. - High fiscal deficits are fuelling double-digit inflation and resulting in an unsustainable debt burden. - The external balance is maintained through heavy reliance on private transfers and controls over the use of foreign exchange. ### Eritrea — Decision Point - The date of the decision point is undetermined. --- ### Kyrgyz Republic — Recent Political Developments - Following mass demonstrations in November 2006, the constitution was amended to reduce presidential powers; most changes were then reversed at the end of December and the Prime Minister resigned. - In March 2007, the Prime Minister was replaced by an opposition leader, but most of the cabinet remained in place. - Political tensions subsided after demonstrations in April 2007 calling for early presidential elections and strengthening of the Prime Minister’s and parliament’s powers. - Debate has shifted to further constitutional reform. ### Kyrgyz Republic — PRSP Status - A full PRSP was completed and endorsed by the Boards in February 2003. - The second APR and accompanying JSAN were sent to the Boards in April 2006. - Authorities updated the PRSP (renamed Country Development Strategy, CDS), extending the poverty reduction strategy to 2010. - The CDS and accompanying JSAN were issued to Boards of IMF and IDA in April 2007. ### Kyrgyz Republic — IMF-Supported Program and Macroeconomic Status - A PRGF-supported program was approved by the Executive Board in February 2005 and remains on track. - The fourth review was completed in June 2007. - The staff expects adherence to the program, which expires in mid-March 2008. - The fifth review is scheduled for Board consideration in late 2007. - Real GDP growth is projected at 6.5 percent and inflation at 5 percent in 2007. ### Kyrgyz Republic — Decision Point - A preliminary HIPC decision point paper was presented to the Boards in October 2006, and a decision point paper was prepared for presentation in March 2007 but was withdrawn following the Kyrgyz government’s request not to avail itself of HIPC/MDRI debt relief. - Preliminary data suggest the Kyrgyz Republic’s indebtedness ratios at end-2006 are estimated to be below the applicable HIPC Initiative thresholds; thus the country would not qualify for debt relief under the HIPC Initiative. --- ### Liberia — Recent Political Developments - Peace and stability have been maintained since August 2003, boosted by the continued presence of around 15,000 UNMIL troops. - UNMIL’s mandate was extended by 6 months on March 30, 2007, with the Security Council calling for a detailed draw-down plan. - A primary government objective is preparing local security forces to assume responsibility for law and order and peace. - A strained relationship between the executive and the opposition-led legislature contributed to late passage of the 2007/08 budget (by one month) and inability to secure legislative approval for other key public financial management reforms. ### Liberia — PRSP Status - The government finalized an I-PRSP in January 2007 for the period July 2006-June 2008. - The I-PRSP was circulated to the Boards in February, and a JSAN was presented in May 2007. - The poverty reduction strategy rests on four pillars: - enhancing national security; - revitalizing the economy; - strengthening governance and the rule of law; - rehabilitating infrastructure and delivering basic services. - At the February 2007 Liberia Partners Forum, participants endorsed the developmental priorities identified in the I-PRSP. - Finalization of a full PRSP for 2008-12 is expected in mid-2008. ### Liberia — IMF-Supported Program and Macroeconomic Status - Liberia has been implementing SMPs since February 2006. - The current SMP was discussed by the Executive Board in February 2007; Directors agreed policies under the SMP met standards for an upper-credit-tranche (UCT) arrangement, apart from program financing assurances. - Performance to date under the SMPs has been broadly satisfactory. - Real GDP is estimated to have grown about 8 percent in 2006, compared to about 5 percent in 2005, and is projected to grow 9.4 percent in 2007. - Anchored by a broadly stable exchange rate, inflation is projected to be in single digits by end-2007. - The current account balance is estimated to have widened substantially in 2006 mainly because of higher donor-funding and food imports; it is expected to contract slightly in 2007 with the pick up of exports. - Authorities are eager to make progress in clearing Liberia’s arrears to multilateral institutions, which would be possible by mobilizing financing from a group of bilateral contributors. ### Liberia — Decision Point - The decision point could be reached in the last quarter of 2007, subject to: - key multilateral creditors securing financial resources needed to provide their respective shares of debt relief for Liberia; and - continued satisfactory performance on the SMP. --- ### Nepal — Recent Political Developments - Political situation remains vulnerable despite signing of a "Comprehensive Peace Accord" (CPA) in November 2006. - Of the four steps in the CPA leading to constituent assembly elections and durable peace, three have been completed. - A new “interim government” including the Maoist party was formed in April 2007. - Constituent assembly elections originally planned for June have been postponed to November 2007; new dates have not been announced. - Disturbances continue as Maoists push for declaration of a republic (without elections) and other interest groups stall parliament; there are fears violent clashes in the Tarai could derail the peace process. ### Nepal — PRSP Status - A full PRSP was completed and presented to the Boards of IMF and IDA in November 2003. - The PRS has been incorporated into the government’s five-year plan and implemented since then. - The JSAN of the third PRSP Progress Report was circulated to the Board in December 2006. - Authorities completed and circulated a PRSP Progress report for 2005/06. - Because the current five-year plan expired in July 2007, an interim plan is being developed by the transitional government for the next three years. ### Nepal — IMF-Supported Program and Macroeconomic Status - A PRGF-supported arrangement is set to expire in November 2007. - The fourth program review was completed in June 2007. - The current PRGF-supported program is on track; authorities have expressed interest in a successor arrangement. - The macroeconomic situation has stabilized. - Real GDP growth is projected to rise to 4-4.5 percent in 2007/08 from 2.5 percent in 2006/07, supported by tourism, transportation, and services. - Private investment remains sluggish due to an unfavorable business climate, labor demands and power shortages. - In 2006/07, underlying inflation was 6.5 percent and roughly in line with developments in India. - Private remittances have been robust. - International reserves rose from US$1.8 billion at end 2005/06 to US$2.5 billion in 2006/07. ### Nepal — Decision Point - The expected decision point is uncertain; the Nepalese authorities have not yet decided regarding participation in the HIPC Initiative. - Based on recent data and the updated DSA, Nepal remains eligible for the HIPC Initiative. --- ### Somalia — Recent Political Developments - The political and security situation remains fragile. - Fighting between the Ethiopian-backed government and the Union of Islamic Courts (UIC) continues. - The viability of the Transitional Federal Government (TFG), formed in 2004, remains uncertain as legitimacy is continuously challenged by warring clans. - A national reconciliation conference proposed by the international community has been postponed several times. ### Somalia — PRSP Status - There is no PRSP process in place. - Given lack of a fully functional national authority and continued domestic conflict, Somalia is not expected to proceed with a PRSP in the near term. ### Somalia — IMF-Supported Program and Macroeconomic Status - Somalia has not had an IMF-supported arrangement since 1987; current prospects for an arrangement are minimal. - Fund reengagement depends on progress in the peace process, formation of an internationally recognized government, agreement on clearance of overdue obligations to IMF, and demonstration of sufficient capacity and improved data reporting. ### Somalia — Decision Point - The date of the decision point is undetermined. --- ### Sudan — Recent Political Developments - A Comprehensive Peace Agreement was signed in January 2005 establishing the Government of National Unity and the Government of Southern Sudan. - While some commitments were met, overall progress has been below expectations. - Darfur remains the single most difficult political issue. - Sudanese negotiators agreed in June 2007 in Addis Ababa to deployment of the UN/African Union hybrid force in Darfur. - Significant risk remains that this achievement will be short-lived without further domestic and international political dialogue. ### Sudan — PRSP Status - The government prepared a draft I-PRSP in 2004. - In February 2007, the Government of National Unity developed a workplan to go directly to preparation of a national PRSP (i.e., without a formal I-PRSP). - The workplan was finalized and a request for funding is reportedly nearing approval. - The Government of National Unity is preparing a five-year strategic plan in consultation with the Government of Southern Sudan; a draft circulated in June 2007 aims to focus and coordinate peace and development efforts over the next five years, building on the Joint Assessment Mission. - Timing of PRSP completion is uncertain. ### Sudan — IMF-Supported Program and Macroeconomic Status - Sudan has had a string of SMPs since the late 1990s. - A mid-year review of the 2006 SMP was presented to the IMF Board in November 2006. - Sudan’s performance deteriorated in the second half of 2006 and early 2007, reflecting fiscal policy slippages, and lower than expected oil production and prices. - As a result, Sudan’s external current account deficit worsened, contributing to a significant loss in net international reserves of the central bank. - Sudanese authorities have agreed on a new 18-month SMP expected to be discussed by the Board in September 2007. ### Sudan — Decision Point - Timing of HIPC decision point is uncertain given the need for arrears clearance and establishment of a policy track record. --- ### Togo — Recent Political Developments - A government of national unity took office in late August 2006 following dialogue between opposition parties and the government. - Parliamentary elections are expected in October 2007. - Free and transparent elections are seen as critical for ending the socio-political crisis and resumption of donor support. ### Togo — PRSP Status - An I-PRSP was approved by the Council of Ministers in November 2004 but has not been submitted to the Boards of IDA and IMF. - The government is updating the document and expects to present it to the Boards by the end of 2007. - A PRSP could be available at the beginning of 2009. ### Togo — IMF-Supported Program and Macroeconomic Status - The 1994 ESAF-supported program went off track in 1998; Togo has not had an IMF arrangement since then. - Following progress on governance-related structural reforms, Togo started a nine-month SMP covering October 2006-June 2007. - All SMP targets through end-February 2007 were met, but program risks are high in the run-up to the elections. - Successful performance under the SMP could pave the way for a PRGF agreement, but Togo would first have to reach understanding on external arrears clearance. - Following a spike in 2005, inflation returned to the low single digits in 2006. - Fiscal policy implementation improved significantly in the second half of 2006. - Continued progress on political reforms and reduction of energy shortages is expected to help economic recovery continue in 2007 (growth is projected at around 3 percent in 2007). ### Togo — Decision Point - Togo is expected to reach the decision point by end-2008, which would require establishing a policy track record under a PRGF-supported arrangement. *Source: Excerpt from the IMF document provided in the content unit.* ### 2006. It was discussed by the Boards of IDA and IMF in May and June 2006, together with ### _082807 - 2006. It was discussed by the Boards of IDA and IMF in May and June 2006, together with ### Afghanistan — PRSP and IMF program - PRSP Status: - Preparations toward full PRSP are progressing well and the authorities intend to finalize it by early-to-mid-2008. - Progress was reported to donors at the Afghanistan Development Forum in late April 2007. - IMF-Supported Program and Macroeconomic Status: - On June 26, 2006, the IMF Board approved Afghanistan’s PRGF-supported program. - The program is on track; the second review was completed in July 2007. - Macroeconomic performance during the 2006/07 fiscal year conformed broadly with the objectives of the program. - Economic growth has been sustained, albeit at a lower rate than in recent years; inflation subsided; fiscal and monetary developments remained favorable. - The current arrangement expires in June 2009; Afghanistan can either request an extension of the arrangement or an SMP. - Completion Point: - Afghanistan could reach the completion point by mid-2009. - Status of Completion Point Triggers: - Progress has been made in preparing the PRSP, but further efforts are required to cost, prioritize, and integrate the strategy into the budget before the Afghanistan National Development Strategy is completed. - Steps are underway to strengthen the Medium-Term Expenditure Framework and improve budgetary alignment in time for the 2008/09 budget. - Government steps to improve budget presentation and reporting include submission to the parliament of the audit report for 2005/06 budget, plans to conduct an audit of the 2006/07 budget, and the introduction of program budgeting, on a pilot basis, in the Ministry’s of Education. - The government is working towards strengthening the tracking and reporting of the external debt data, and may commence producing quarterly debt reports later this year. - The government has placed high priority on implementing its Public Administration Reform Strategy; as part of this strategy, the implementation of pay and grading reform is due to start this year. ### Burundi — PRSP and macroeconomic outcomes - PRSP Status: - Burundi’s first full PRSP was published in September 2006. - A JSAN was prepared and discussed by the Boards of IDA and IMF, along with the PRSP in March 2007. - The full PRSP benefited from broad and inclusive consultations from all stakeholders at national, provincial and communal levels. - Government priorities: (i) improving governance and security; (ii) achieving equitable and sustainable growth; (iii) developing human capital by improving the quality of social services; and (iv) reinforcing the fight against HIV/AIDS. - IMF-Supported Program and Macroeconomic Status: - Satisfactory track record under EPCA (2002-03) and PRGF (2004-07). - The PRGF-supported program for 2004-07 remains on track, although structural reforms, including privatization of coffee sector, have been delayed. - The fifth review under the PRGF-supported program was completed in March 2007. - Macroeconomic developments in 2006 were in line with the program. Growth reached 5.1 percent on the account of a strong recovery in agriculture, notably the coffee sector, and inflation remained in single-digits at 9.1 percent. - Growth in 2007 is expected to be sustained, albeit at a lower rate (about 4 percent), due to an expected contraction of coffee production, and inflation is expected to be further reduced to 5.5 percent. - Tax revenue has been consistent with projections under IMF program. - The primary fiscal deficit is expected to be below IMF-supported program projections (5.7 percent of GDP versus 8.9 percent targeted) due to cuts in budgeted expenditures. - Completion Point: - Burundi could reach the completion point in early 2008. - Status of Completion Point Triggers: - Budget classification adopted in 2005 allowed identification of pro-poor expenditures; share increased from 33.6 percent of total expenditure in 2005 to 35.5 percent in the 2006 revised budget law. - Public spending on education increased from 4.6 percent of GDP in 2005 to more than 6 percent in 2006 due to recruitment of 6,500 additional teachers and construction of new classrooms (capital expenditures financed with HIPC resources). - Elimination of primary school fees in September 2005 contributed to increase in primary school enrollment rate from an estimated 80 percent in 2003/04 to almost 100 percent in 2005/06 (96.7 percent for girls). - Public Expenditure Tracking survey (PETS) scheduled this year in education, health, and justice sectors is expected to motivate further improvements in service delivery. - In 2006 progress in health: measles vaccination coverage increased from 78 percent in 2004 to 92 percent in 2006; DTC-Hib-Hep3 coverage increased from 83 percent to 92 percent; Polio3 coverage increased from 76 percent to 88 percent. - Little progress achieved so far on debt management. ### Chad — PRSP process and program performance - PRSP Status: - PRSP completed in June 2003 and discussed by the Boards of IDA and IMF in November 2003. - First APR circulated to the Boards in June 2005; second APR finalized in December 2005 and officially submitted to IDA and IMF in March 2007. - In 2006, work started on a new PRSP, expected to be ready by October 2007. - IMF-Supported Program and Macroeconomic Status: - Latest PRGF-supported arrangement approved in 2005 is off track. - As of July 2007, the first and the second reviews had yet to take place due to poor overall performance under the program (fiscal slippages) and the break in relations with the World Bank over Chad’s unilateral changes to the revenue management arrangement agreed as part of the World Bank financing for the Chad-Cameroon pipeline. - Relations with the World Bank have been restored on the basis of an interim agreement, while a new comprehensive oil revenue management strategy is under preparation. - Execution of the 2007 budget agreed with IMF is expected to pave the way for completion of the first and the second reviews under the PRGF arrangement. - In the first few months of 2007, expenditure commitments have been incompatible with the agreed budget. - Completion Point: - Chad could reach the completion point by mid-2008 at the earliest. - Status of Completion Point Triggers: - Triggers on basic infrastructure, rural development, water access, health and education have been met. - Health-related triggers have largely been met; significant progress on HIV/AIDS and sexually transmitted diseases trigger. - Some progress in education on reducing repetition rate. - Governance progress: Public Expenditure Tracking Survey undertaken; procurement code adopted in 2003; implementation of Governance Strategy and Action Plan adopted in 2002 is underway. - Remaining work on governance triggers includes strengthening implementation of the computerized expenditure circuit. ### Republic of Congo — PRSP drafting and fiscal challenges - PRSP Status: - A draft PRSP was submitted to the Fund in February 2007; staff comments provided in May 2007. - Government expects to complete the full PRSP by end-December 2007. - A JSAN for the I-PRSP was approved by the Boards in December 2004. - IMF-Supported Program and Macroeconomic Status: - Three-year PRGF-supported program approved in December 2004. - First and second reviews completed in August 2005 and July 2006, respectively. - Third review could not be completed in October 2006 because of significant fiscal slippages and nonobservance of most structural benchmarks. - In May 2007, staff and authorities reached understandings ad referendum on a six-month SMP that could lead to resumption of discussions on a PRGF-supported arrangement by end-2007. - Prospects for growth in 2007 appear weaker than in recent years (around 3.7 percent), reflecting expected temporary decline in oil output. - Non-oil fiscal deficit is expected to be reduced by 10 percentage points to 42 percent of non-oil GDP in 2007. - Structural and governance reforms to focus on improvements in public financial management, strengthening transparency in the oil sector, and further governance reforms. - Completion Point: - Expected completion point date is end-2009 at the earliest. - Status of Completion Point Triggers: - Progress report for HIPC implementation presented to the Boards of IDA and IMF in April and May 2007, respectively. - Following action plan for HIPC implementation agreed in August 2006, progress has been mixed. - Progress made in finalizing a draft PRSP, reforming the forestry sector, and adopting a comprehensive public financial management action plan. - Poverty diagnosis has improved. - Weaknesses in the public investment management system raise questions on quality of public investment. - Functional budget classification consistent with IMF GFS 2001 expected to become fully effective only in January 2008. - Progress in setting up institutional framework to fight corruption is being made, though slower than expected; Parliament adopted in June 2007 a law creating the Anti-Corruption Observatory. - Education: progress in identifying ghost workers, though no final decision on elimination process; recruitment of 1,000 primary teachers in 2006 has been partially met. - Health: an independent purchasing authority created to manage purchase and distribution of basic pharmaceuticals for the public sector; in 2007 it took over the budget allocation for basic medicines for the public sector. - HIV/AIDS: 17 centers for voluntary AIDS counseling and testing being established, of which 10 are operational. - External debt management trigger not yet fully met, though progress has been made; quarterly debt data available at government’s debt management agency and posted on government website. ### Democratic Republic of the Congo — PRSP adoption and program sequencing - PRSP Status: - JSA of the I-PRSP sent to the Board of IDA in June 2004. - Full PRSP completed, officially adopted and transmitted to development partners in July 2006. - In March 2007, the new duly-elected government endorsed the PRSP. - PRSP presented to the IMF Board in April 2007; JSAN and PRSP discussed at an IDA Board meeting in May 2007. - Fund Board to have opportunity to discuss the JSAN in September 2007 alongside the Article IV consultation. - IMF-Supported Program and Macroeconomic Status: - PRGF-supported arrangement approved in July 2002 expired in March 2006 prior to completion of the last review due to fiscal slippages and delays in structural reforms. - SMP covering April-December 2006 was agreed; weak performance under 2006 SMP led to a new SMP for 2007. - Strong performance under the 2007 SMP would pave the way for a successor PRGF-supported program. - In 2007, growth is expected to reach 6.5 percent. - Completion Point: - Expected to reach the completion point in the first half of 2008. - Status of Completion Point Triggers: - Some progress toward adoption of satisfactory sectoral development strategies: Sector Country Status reports for Education (2004) and Health (2005) completed. - Spending on education and health has remained well below levels envisaged in the PRSP. - Agricultural sector review completed in May 2006. - UNCTAD financed acquisition of new public debt management software (DMFAS). - Progress in strengthening technical capacity of public debt management agency should be complemented by improved collaboration among government bodies involved in contracting and payment of public debt. ### The Gambia — PRSP cycle and macro outlook - PRSP Status: - First PRSP covering 2002-05 completed in April 2002 and presented to IDA and IMF Boards in July 2002. - Second PRSP covering 2007-11 completed in November 2006. - Second PRSP and JSAN issued to the Board of IDA in July 2007; IMF Board presentation expected in August 2007. - IMF-Supported Program and Macroeconomic Status: - Successful implementation of an SMP during October 2005–March 2006 led to Board approval of a new three-year PRGF arrangement in February 2007. - First review expected to be completed at end-August 2007. - Macroeconomic performance has been good in past few years; medium-term macroeconomic outlook positive. - Growth projected to reach 7 percent in 2007, led by construction, telecommunications, and tourism. - Inflation at low single-digit levels since early 2006 and expected to remain low (at about 5 percent in 2007) despite an upsurge earlier this year following increases in international prices of some key imported commodities. - Completion Point: - The Gambia could reach the completion point by end-2007. - Status of Completion Point Triggers: - All triggers except one on privatization of public processing plants in the groundnut sector have been met. - World Bank staff endorsed government’s new comprehensive framework for revitalizing the groundnut sector, including measures to open operations to the private sector and greater role for an independent stakeholder body for setting producer prices. - Authorities hope new approach will provide basis for Boards of IDA and IMF to waive condition requiring privatization of public assets. ### Guinea-Bissau — program prospects and capacity constraints - PRSP Status: - A full PRSP, together with the first JSAN, was issued to the Board of IMF in April 2007 for information, and presented at the Board of IDA in May 2007. - IMF-Supported Program and Macroeconomic Status: - PRGF-supported program went off-track immediately after inception at end of 2000 due to fiscal policy slippages. - Government engaged in successive SMPs; latest SMP expired in December 2006. - IMF reviewed developments under 2006 SMP in July 2006 and performance was evaluated as mixed. - SMP could be followed by an EPCA-supported program in the third quarter of 2007 (covering 2007-09) and eventually by a PRGF-supported arrangement (covering 2009-12). - Fiscal situation remains difficult; sufficient donor support must be secured to fill the financing gap for 2007 before post-conflict assistance can begin. - Completion Point: - Completion point could be reached by end-2009, but could be delayed until 2010 as build-up of administrative capacity (under EPCA) necessary to implement a PRGF may take more than two years. - Status of Completion Point Triggers: - Progress in public finance management: a Treasury Committee controlling revenue collection and ensuring expenditure commitments consistent with financial resources has been operating since 2003, although with irregularities during 2006. - Parliament still lacks capacity to control budget process effectively. - Modern public procurement system introduced in five pilot ministries in 2002; government upgrading system and expanding to five additional ministries to include defense and fisheries. - School fees in primary sector eliminated, allowing increase in gross enrollment rate above the 61 percent target. - In health, 40 percent target for proportion of children fully vaccinated per year was exceeded largely owing to donor assistance. - Malaria action plan operational since 2002; strategic framework for fight against HIV/AIDS adopted; country benefited from MAP assistance in 2004. ### Guinea — macro stabilization efforts and outstanding weaknesses - PRSP Status: - First PRSP presented to the Boards in July 2002. - JSAN commenting on the third APR sent to the Boards for information in July 2007. - Authorities finalizing a new PRSP, which could be presented to the Boards of IMF and IDA in the last quarter of 2007. - IMF-Supported Program and Macroeconomic Status: - PRGF arrangement approved in May 2001 went off track in December 2002 and expired in May 2004. - Subsequent efforts to start a new program, including an SMP covering April 2005-March 2006, were unsuccessful. - Negotiations on a new PRGF arrangement started again during the 2007 Article IV mission that visited Conakry in July 2007. - Guinea macroeconomic performance in 2006 was weak: real GDP growth of 2 percent; end-year inflation close to 40 percent; depletion of official foreign reserves; strong depreciation of exchange rate. - Economic activity and public finances affected by a general strike organized by trade unions in early 2007. - Government appointed in March 2007 has started to implement stabilization policies and broad-based governance reforms; measures have contributed to rapid disinflation and an appreciation of the exchange rate, but external position remains precarious as net international reserves continue to be virtually nil and the stock of external arrears significant. - Completion Point: - If PRGF-supported program is approved by end-2007, remains on track and the new PRSP satisfactorily implemented for one year, completion point could be reached by end-2008. - Status of Completion Point Triggers: - Regulatory framework for micro-credit institutions established; new law covering microfinance adopted in 2005. - Institutional set-up for governance and anti-corruption revised by creating a National Agency for the Fight against Corruption replacing previous Anti-Corruption Committee; Agency has regularly made public progress reports on its resources and activities. - Trigger requiring audits of all large government procurement contracts on a quarterly basis has not yet been met; quarterly publication of audits has not been done; a comprehensive audit covering 2002-04 is still to be finalized. - Progress in social sector triggers: education sector triggers generally surpassed, including improved gross enrollment ratios for girls; health immunization objectives met early in the decade but not maintained due to weak macro policies and budget execution; similar outcome for consultations for pregnant women. ### Haiti — PRSP drafting and program progress (partial) - PRSP Status: - Authorities completed the first draft of an I-PRSP. - I-PRSP, together with a JSAN, was issued to the Boards of IDA and IMF in November 2006. - Authorities are drafting a full PRSP, which is expected by end-2007. - IMF-Supported Program and Macroeconomic Status: - A PRGF-supported program was approved by the Board of IMF in November 2006. - The first review of the PRGF-supported program was completed in July 2007. - All quantitative performance criteria were met with large margins, and most structural performance criteria and benchmarks were fulfilled. - The economy has gradually recovered from the shocks of 2004 (political turmoil and severe floods), and annual GDP growth is estimated to have increased to 2.3 percent in FY06 (from *Italic: Source — _082807 - 2006. It was discussed by the Boards of IDA and IMF in May and June 2006, together with (PDF content supplied).* ### 1.8 percent in FY05 and a contraction of 3.5 percent in FY04). Inflation has declined, and ### _082807 - 1.8 percent in FY05 and a contraction of 3.5 percent in FY04). Inflation has declined, and ### Completion point and program progress - Completion Point: The expected completion point date is the last quarter of 2008. - Status of Completion Point Triggers: - Authorities are on track with their PRGF-supported program. - Authorities are working on a full PRSP. - Progress has been made in all other triggers except the adoption of a public financing mechanism to help poor families pay for the costs of school fees in non-public schools. - A Bank-supported program has recently been launched and is expected to help the authorities meet the outstanding trigger. ### Benin — PRSP, macroeconomic status, and public financial management - PRSP Status: - The second PRSP was completed in April 2007 and presented to the Boards of IDA and IMF in June 2007. - Monetary poverty prevalence: preliminary data show an increase from 28.5 percent in 2002 to 36.8 percent in 2006 (new data may not be comparable to the earlier series). - Non-monetary poverty indicators: assessment based on “living conditions” points to a modest improvement including maternal and child health and socio-communal investments. - Authorities intend to reassess and clarify conflicting developments in poverty prevalence indicators. - IMF-Supported Program and Macroeconomic Status: - A PRGF-supported program was approved in August 2005. - The second review of the program was completed in June 2007. - Growth: strengthened somewhat in 2006 after a slowdown in 2005; real GDP growth in 2007 projected at slightly over 4 percent (the rate achieved in 2006). - Downside risks: electric power shortages and persistent weaknesses in the cotton sector. - Fiscal policy: conservative under the new government; revenue collection strengthened; expenditures contained below targets permitting clearance of unpaid bills from the previous administration. - Public Financial Management: - Improvements since 1998: more comprehensive budget coverage; treasury general ledgers produced regularly; integrated financial information system improving; program budgeting gradually taking hold in some line ministries. - Other progress: sectoral budget performance reports; drastic limitation of exceptional procedures; decree (September 2006) to organize internal control framework; Financial Inspection Department strengthened; draft procurement Code prepared in line with WAEMU Directives. - Remaining weaknesses: - Unrealistic budget forecasts. - Inadequate budget classification. - Insufficient appropriation of program budgeting by line ministries. - Lack of basic functionalities for treasury software and poor interface with budget execution software, resulting in weak expenditure monitoring. - Inadequate accounting resources and untimely reconciliation of government accounts; inaccurate accounts and treasury ledgers. - Delays in completing budget audit reports due to lack of resources and lack of independence for the Chamber of Accounts from the Supreme Court. - Next steps: An audit of Benin’s public finance information systems is under preparation; a medium-term strategy for strengthening PFM will be developed. ### Bolivia — PRSP, macroeconomic status, and public financial management - PRSP Status: - Latest formal PRSP prepared in June 2001 covering policies and targets through 2015. - Implementation uneven largely due to political uncertainty until end-2005. - New government (early 2006) put forward a National Development Plan with policies aimed to reduce poverty and income inequality; government reported positive developments in health and education after first year. - MDG progress (UDAPE, November 2006): extreme poverty reduced from 41.2 percent in 1996 to 38.2 percent in 2005; malnutrition of children under 3 decreased from 38.3 percent in 1989 to 24.2 percent in 2003. - IMF-Supported Program and Macroeconomic Status: - Bolivia is in surveillance mode. - Latest Stand-By Arrangement expired in March 2006; last review completed in October 2005. - Macroeconomic situation: favorable external conditions boosted natural gas and mining exports and led to further accumulation of international reserves. - GDP growth: remained above 4 percent per year but concentrated in few sectors; private investment levels stayed low. - Inflation: low and expected to remain at manageable levels. - Fiscal accounts: shifted into a significant surplus in 2006. - Outlook: economy expected to continue to benefit from favorable external environment. - Public Financial Management: - Bolivia met four of the 16 expenditure management benchmarks in the 2004 HIPC Assessment and Action Plan. - Initiatives since 2004: strengthening SIGMA financial management information system (gradually expanded to sub-national governments); draft budget framework law prepared to improve budget formulation (includes medium-term budget framework and economic and functional classifications). - Passage of new law on hold pending constitutional assembly results. - Other achievements: system to track public employment expenses; progress on legal framework for sub-national debt; Ministry of Finance entering into voluntary Performance Agreements with sub-national entities. - Remaining challenges: weaknesses in budget coverage, formulation (multi-year planning), internal controls, internal and external audits; lack of automatic budget tagging mechanism to track local government spending. - Note: new government supports transparency in public expenditure management but concrete actions have not been proposed. ### Burkina Faso — PRSP, macroeconomic status, and public financial management - PRSP Status: - Second full PRSP covering 2004-06 and accompanying JSAN considered by IDA and IMF Boards in May 2005. - Sixth APR and related JSAN circulated to Boards for information in May 2007; reconfirm government’s successful implementation of PRS and extend strategy from 2006 to 2009. - IDA staff estimates poverty headcount fell by 12 percentage points between 1998 and 2005. - Social progress: improved access to basic services; raised immunization coverage rates; lowered infant and child mortality rates; ensured supply of essential drugs; reduced HIV/AIDS transmission; increased number of health centers with minimum required personnel since completion point. - Remaining needs: combat malaria and malnutrition; better expenditure management to balance scaling up anti-retroviral treatment with HIV prevention programs. - Gross enrollment rate in primary education reached 47 percent (2005); further work needed on decentralization, aid coordination, and cost effectiveness of school construction. - IMF-Supported Program and Macroeconomic Status: - Four successive PRGF programs implemented, last completed in September 2006. - Fifth PRGF-supported program for 2007-10 approved by IMF Board in April 2007; first review expected by December 2007. - Macroeconomic track record: real GDP grew by 6.5 percent in 2006; inflation declined to 2.4 percent. - External challenges since 2004: drop in world cotton prices posed significant challenges; current account improved in 2006 but cotton sector faced severe financial difficulties. - Cotton sector reform is a critical component of current PRGF-supported program. - Public Financial Management: - PFM performance improved since completion point in 2002. - New public finance strategy and action plan adopted and implementation started in early 2007 using PEFA findings. - IMF technical assistance mission visited in June 2007 to assist implementation. - Budget coverage generally complete; extra-budgetary expenditures negligible; budget reliable as implementation guide. - Tracking of spending improved via new budget nomenclature and annual service delivery surveys. - Medium-term expenditure framework and annual budget laws aligned with PRS priorities. - Internal budget reports and entry of transactions into accounts are timely. - Internal control enforced though limited by weak capacity and procedures; external audit of budget execution submitted to National Assembly. - Reform program addressing procurement system shortcomings, including institutional framework and capacity. - Government working on integrating priority poverty-reducing spending in budget tracking system. ### Cameroon — PRSP, macroeconomic status, and public financial management - PRSP Status: - PRSP prepared through extensive consultation, discussed at IDA and IMF Boards in July 2003. - Four APRs prepared, latest reporting on 2006 presented in March 2007. - Government started preparation of a new PRSP with stronger focus on growth and employment; new PRSP could be completed in the first half of 2008. - Sector strategies being updated and a household survey planned. - IMF-Supported Program and Macroeconomic Status: - Three-year PRGF arrangement approved in October 2005. - IMF-supported program on-track; third review completed in June 2007. - Program priorities: accelerate growth while preserving fiscal sustainability and create environment conducive to private sector development. - Economic indicators: growth picked up somewhat in 2006; inflation in the 12-month period through December reached 5 percent. - Fiscal position improved partly due to higher oil prices and lower debt service payments; concerns remain about budget execution and poverty objectives. - Real GDP growth expected to accelerate to 6 percent in 2011 reflecting stimulus from increased capital spending financed by debt relief, structural reforms, and investment in infrastructure and energy. - Public Financial Management: - Progress in HIPC AAP reviews: from four out of 15 areas in 2001 to seven out of 16 areas in 2004. - Budget allocation to PRSP priority sectors has progressively increased since 2000. - An integrated public finance information system is functioning, improving monitoring and fiscal reporting timeliness. - Supreme audit body (la Chambre des Comptes) operational. - Increased dissemination of budget information and promotion of budget execution oversight by stakeholders. - Foundations for medium-term expenditure framework in place with sector strategies and expenditure plans consistent with strategy. - New organic budget law to be approved in 2007 expected to further improve PFM. - Public debt management strategy being prepared with key elements: contraction of loans on concessional terms; detailed study of projects requiring loan financing; periodic debt-sustainability analysis at least once a year and before signing any loans amounting to more than 0.5 percent of GDP. - Authorities preparing an action plan on PFM issues to be ready by end-2007. - Non-oil revenue mobilization remains a key challenge. ### Ethiopia — PRSP, macroeconomic status, and public financial management - PRSP Status: - First PRS (Sustainable Development and Poverty Reduction Program) completed in July 2002; two APRs in December 2003 and July 2005 reported broadly satisfactory implementation. - New PRS (PASDEP) finalized in January 2007 and approved by parliament. - PASDEP targets: reduce poverty headcount index to 29 percent by 2009/10 (from about 39 percent in 2004/05); increase proportion of population with access to electricity to 50 percent (from current 16 percent). - Growth strategy: commercialize agriculture and foster non-farm private sector; governance commitments include civil service reform, decentralization, public financial management, justice, parliament, political governance, civil society, and media. - IMF-Supported Program and Macroeconomic Status: - Not engaged in an IMF-supported program; last PRGF-supported program expired in October 2004. - Economy experienced buoyant, broad-based expansion since drought-related contraction in 2002/03. - Real GDP grew by an average annual rate of 10.7 percent between 2003/04 and 2005/06. - Recent data show inflation remains high and official reserves are below 2 months of import coverage. - Public Financial Management: - PFM systems improved since HIPC completion point in 2004 when seven out of 16 expenditure management benchmarks were met (AAP 2004). - Authorities working to strengthen cash management, roll out budget and accounting reforms to additional sub-national governments, and pass new procurement legislation. - Expenditure performance and financial management systems reviewed jointly through Joint Budget Aid Review (introduced in 2004, regularized in 2005). - 2005 PEFA assessment: improved planning, budgeting and reporting systems due to accounting reforms, better budget processes, internal controls, cash management, internal and external audits. - April 2006 staff assessments: single treasury/single pool fund introduced in all regions and federal level; double-entry modified cash accounting introduced in federal government and almost all regions; FY 2004/05 federal budget and almost all FY 2003/04 regional budgets closed. - Initiative to implement performance-based budgeting to strengthen medium-term expenditure framework. - Cash-management system (“zero balance drawing limit”) introduced, substantially reducing idle cash balances. - Under Protection of Basic Services Project: rolling audits and interventions to enhance accountability. - Remaining needs: ensure timely and regular consolidation of extra budgetary funds in fiscal reporting and reconciliation of fiscal and monetary accounts. - Implementation of BIS/BDA3 and internet access vision (IBEX) noted as important steps forward in financial management information system. ### Ghana — PRSP, macroeconomic status, and public financial management - PRSP Status: - Ghana Growth and Poverty Reduction Strategy (GPRS II), covering 2006-09, completed in October 2005 and presented to IDA and IMF Boards in June 2006. - Strategy focuses on: (i) accelerating private sector-led growth; (ii) promoting vigorous human resource development; (iii) encouraging good governance and civic responsibility. - Next update of GPRS expected in 2008-09. - Poverty headcount declined by 11 percentage points between 1999 and 2006, reaching 28.5 percent in 2006. - Total poverty-related spending reached 10.5 percent of GDP by end-2006. - Health and education indicators: share of supervised maternal deliveries rose to 54 percent by end-2005 (from 49 percent in 2002); national gross primary enrollment rate (GPER) reached 91 percent May-2006 (up from 81 percent mid-2003). - HIV/AIDS prevalence among pregnant women declined to 3.1 percent in early 2006 (from 3.6 percent in 2003). - Further progress requires greater coordination across sectors, including linkages between health interventions and safe water and sanitation. - IMF-Supported Program and Macroeconomic Status: - Three-year PRGF arrangement in support of Ghana’s PRS expired in October 2006 upon completion of the sixth and final review. - Growth: estimated at 6.2 percent in 2006 supported by favorable external environment. - Inflation: stood at 15 percent at end-2005 and declined gradually to slightly above 10 percent in June 2007. - Fiscal deficit: widened to 7.7 percent of GDP in 2006 from 3 percent in 2005 due to lower than projected tax revenue, increased wage bill and energy subsidies. - Medium-term outlook: favorable with sustained growth and declining inflation; good export performance will remain key. - Public Financial Management: - PFM improved since HIPC completion point in 2004. - Ghana meets eight of the 16 HIPC public financial management benchmarks (up from seven benchmarks in 2004 and one in 2001). - 2006 PEFA diagnostics: Ghana’s PFM system performing at an average standard. - Progress areas: broadening budget coverage; improving expenditure control and timeliness of fiscal reporting; strengthening PFM capacity through deployment of computer systems. - Budget coverage broadened to include more information on internally generated funds and donor grants. - New audit law: internal audit units established in all Ministries, Departments, and Agencies (MDAs); external oversight improved through timely submission of Auditor-General reports to parliament. - Since August 2005 monthly reports on budget execution generally completed within six weeks. - In eight pilot MDAs, computerized budget and public expenditure management system set up: four out of six modules fully functional, two ready for deployment; planned roll out to other MDAs in Accra and three regional capitals. - New computer-based integrated payroll management system deployed. - Progress implementing new public procurement law with increased coverage by entity tender committees and tender review boards. ### Guyana — PRSP status and selected outcomes (partial) - PRSP Status: - Guyana’s 2001 PRSP was discussed by IDA and IMF Boards in September 2002. - Three APRs prepared, latest covering 2005. - Of 25 poverty reduction targets identified in 2001, Guyana successfully met or exceeded 14. - Shortfalls: access to treated water and adequate sanitation; distribution of house lots and land titles; percentage of trained teachers in secondary schools; HIV/AIDS. - Pro-poor spending in the budget recorded at 19.7 percent (text truncates here). *Source: Excerpt from IMF PDF chapter/section _082807 - 1.8 percent in FY05 and a contraction of 3.5 percent in FY04). Inflation has declined, and* ### 20.1 percent of GDP in 2005 and 2006 respectively, exceeded considerably the HIPC target ### _082807 - 20.1 percent of GDP in 2005 and 2006 respectively, exceeded considerably the HIPC target ### Guyana — PRSP and Macroeconomic Overview - PRSP: New PRSP to be completed by end-2007; informed by a poverty diagnosis from a new household survey completed in April 2007 and prepared with World Bank support. A poverty reduction monitoring and evaluation system is being put in place. - IMF program history: Last PRGF arrangement approved September 2002; extended twice and concluded after completion of the sixth review in September 2006. Discussions of a new arrangement are ongoing. - 2006 macro outcomes: - Real GDP growth: 5 percent in 2006. - Inflation: fell to 4 percent. - Current account deficit: widened to 25 percent of GDP in 2006, fully financed by foreign direct investment and official disbursements. - Medium-term projections: - GDP growth: projected to average 4.5 percent. - Inflation: projected to remain low at around 4 percent. - Current account deficit: projected to narrow to 14 percent of GDP by 2011. - Fiscal framework: targeted primary surplus of 1 percent of GDP by 2010. ### Guyana — Public Financial Management (PFM) - Improvements since HIPC completion point (December 2003): met 11 of the 16 expenditure management benchmarks in December 2006 HIPC assessment. - Noted improvements: - Comprehensiveness of fiscal reporting. - Use of expenditure tracking surveys. - Reconciliation of bank accounts. - Effectiveness and transparency of procurement processes. - Extension of Integrated Financial Management System (IFMAS) to all central government agencies improving budget execution and reporting. - Remaining weaknesses: - Internal control and audit systems remain weak. - Overall reconciliation of fiscal accounts is unsatisfactory. - Insufficient guidance of the budget process by medium-term forecasts. - Weak external audit process. - Limited use of systems to track end-use of actual spending and weak monitoring of government’s bank float. - Institutional/legal progress: adoption of three new laws (budget, external audit, public procurement) during 2003–05; more time needed for full implementation. - Ongoing assessments: joint World Bank/IAfDB Country Fiduciary Assessment (CFA) expected by end-2007 to produce an action plan; Guyana undertaking a PEFA assessment. ### Honduras — PRSP and Macroeconomic Status - PRSP: Completed August 2001; progress reports in 2003, 2005, 2007; PRSP update planned by end-2007. Latest Progress Report: between one-half and two-thirds of PRSP goals met in 2005. - PRS spending: declined to 8.3 percent of GDP in 2006 from 8.9 percent in 2005. - IMF program: three-year PRGF expired February 2007 before completion of fourth review. - 2006 macro outcomes: - Growth: exceeded 5 percent in 2006. - Inflation: around 6 percent. - Fiscal pressures: rising due to public sector wage increases, energy subsidies, weakening state enterprise finances, and higher net lending. - 2007 prospects: positive growth supported by external environment and remittances; key challenge to anchor fiscal deficit to stabilize debt while shifting spending toward priority sectors (public investment and PRS spending). ### Honduras — Public Financial Management - HIPC PEM benchmarks: met 7 of 16 in 2004. - Reforms and progress: - Integrated financial administration system (SIAFI) introduced May 2005 and rolled out across central government. - Government bank accounts consolidated; single treasury account implemented for 2007 budget exercise. - Electronic bank payment system operational. - Public procurement information system operational October 2005. ### Madagascar — PRSP and Social Indicators - PRSP: APR for first PRSP prepared June 2006; second PRSP (Madagascar Action Plan, MAP) covering 2007-12 finalized November 2006 and presented to IDA and IMF Boards in March 2007 and February 2007 respectively. - Poverty changes: - Overall poverty declined from around 80 percent in 2002 to 68.7 percent in 2005. - Urban poverty: 52 percent in 2005 (higher than 2001 level of 44 percent). - Rural poverty: 73.5 percent in 2005 (lower than 2001 level of 77.2 percent). - Social progress: - Net primary enrolment rates in 2006/07: over 90 percent (up from 70 percent in 2001/02). - Health: some improvements in child mortality, immunization, and child underweight rate; maternal mortality remains a major challenge. - HIV/AIDS prevalence: contained at around 1 percent. - Access to safe water and rural transport improved (access to reliable transport increased from 46 percent in 2003 to 57 percent in 2005). - Anti-corruption agency (BIANCO) operational; measures to improve investment climate and private sector coordination underway. ### Madagascar — IMF Program and Macroeconomic Projections - IMF: Board approved new three-year PRGF arrangement and activation of Trade Integration Mechanism in July 2006; first review completed December 2006. - 2006 macro outcomes: - Real GDP growth: 4.9 percent in 2006. - Inflation: declined to 10.8 percent. - Medium-term projections 2007-11: - Real GDP: projected average annual growth of 8 percent. - Inflation: projected to decline to 5 percent beginning in 2008. ### Madagascar — Public Financial Management - PFM reform guided by 2004 Priority Action Plan and follow-ups in 2005 and 2006. - HIPC PFM benchmarks: met 4 of 16 in 2004. - 2006 PEFA: nine PEFA indicators score a B or higher. - Weaknesses: internal control mechanisms and institutions weak; challenges from introduction of program budgeting in 2005 given weak capacity. - Key outputs since July 2006: - Strengthened reform coordination unit in Ministry of Finance and Budget. - Strengthened budget preparation process; budget framework paper presented to cabinet in April 2007. - IFMIS operational in central treasury and five regional treasuries; extended to some sector ministries. - Consolidation of procurement reform and capacity-building plan implemented in education, health, transport, agriculture, environment ministries. - Auditor-General cleared backlog: Loi de Reglement 2004 submitted to parliament December 2006; annual accounts for 2005 submitted to Auditor General in April 2007. ### Malawi — PRSP and Poverty Data - PRSP: full PRSP completed August 2002; third APR (July 2004-December 2005) submitted May 2006. New PRSP (MGDS) approved by cabinet August 2006, submitted to Boards November 2006, discussed January 2007 with JSAN. - Poverty measures: - IHS 2004-05: poverty headcount decreased from 54.1 percent to 52.4 percent (not statistically significant). - 2006 Welfare Monitoring Survey (WMS): poverty headcount decreased to 45 percent (results to be interpreted with caution). ### Malawi — IMF Program and Macroeconomic Status - PRGF-supported program approved August 2005; performance satisfactory with focus on reducing domestic debt and moving toward flexible exchange rate. - Reviews: 4th review discussions initiated April 2007; 4th and 5th reviews planned end-September 2007; IMF Board to discuss tentatively by end-November 2007. ### Malawi — Public Financial Management - Significant progress: Integrated Financial Management System unveiled October 2006; PFM action plan completed October 2006 to be implemented over three years. - Action plan covers: budget preparation, planning, execution; fiscal monitoring and reporting; enhanced audit capacity; stronger local governments; more effective policymaking tools. - Payroll: Human Resource Management Information System introduced. - Audit and procurement: capacity being strengthened via recruitment and training. - Public debt management: Debt and Aid Division reorganized into front office, middle office, back office; produces annual and half-yearly reports. Debt management policy finalized; Debt and Aid Management policy planned for cabinet approval before end of 2007. ### Mali — PRSP and Macroeconomic Outlook - PRSP: adopted May 2002; second generation PRSP for 2007-11 adopted. 2006 APR expected September 2007. Household survey 2006 data being compiled. - Poverty and social indicators: data to 2001 show significant poverty reduction between 1989 and 2001 and decreased income inequality; health and education indicators improved since 2002. - IMF program: PRGF-supported arrangement approved June 2004; latest fifth review concluded February 2007. - Macro outcomes: - Real GDP growth: preliminary estimate 5.3 percent in 2006. - 2007 projection: 5.2 percent growth. - Inflation: remained under 2 percent in 2006. - Medium-term assumptions: average GDP growth 5.5 percent and annual inflation 2.5 percent through 2010. ### Mali — Public Financial Management - Improvements since 2004 AAP: met 11 of 16 expenditure management benchmarks in 2004; 2007 PEFA shows budget management improving. - Strengths: budget system works well at central government level; tracking of poverty-reducing expenditures satisfactory. - Remaining weaknesses: procurement, internal controls, timely audits of budget execution, tracking of grant-financed activities and extra budgetary funds. - Authorities have a comprehensive action plan to strengthen PFM; some delays in enhancing internal controls and audits but progress continues. ### Mauritania — PRSP and Program Assessment - PRSP: first PRSP (2001-04) prepared February 2001; second PRSP (2006-10) presented in December 2006. JSAN staff note PRSP-2 is ambitious and policy strengthening is needed in priority areas and for monitoring and evaluation. - IMF program: following satisfactory SMP implementation in first half of 2006, IMF Board approved a three-year PRGF-supported program in December 2006; first review completed April 2007. - 2007 prospects and projections: - Non-oil sector growth expected to strengthen. - Inflation expected to decline to 7 percent in 2007. - 2007-11 real GDP growth projected at 5.8 percent. - Inflation expected to fall below 5 percent starting in 2009. - Official reserves expected to be maintained at 3 months of import cover through 2009. - Risks: lingering uncertainties about future oil production. ### Mauritania — Public Financial Management - 2006 remedial actions: staffs advised Boards Mauritania met MDRI criteria because: - No indication of extra-budgetary spending during first quarter of 2006. - Arrears clearance target for first quarter of 2006 largely met. - Periodic reconciliation between Treasury and Banque Centrale de Mauritanie established; Treasury produced monthly balances. - New functional budget classification adopted and 2006 budget reclassified. - Global MTEF (2007-09) updated. - MDRI relief effective July 1, 2006. - Further progress: use of computer applications across ministries enhanced budget execution, reduced Treasury float, and reimbursed domestic arrears. - Oil revenue management: ordinance issued to transfer hydrocarbon revenues to Fonds National Des Revenues Des Hydrocarbures; draft petroleum revenue management law prepared with IMF assistance. ### Mozambique — PRSP, Macroeconomics, and PFM - PRSP: PARPA II implemented September 2006; PARPA II presented to Boards December 2006. PARPA I progress report June 2005 suggested likely achievement of poverty MDG and infant mortality goal but unlikely to meet universal primary school completion and gender equality in education by 2015. - IMF program: Board approved three-year PSI in June 2007 upon completion of sixth and final review of PRGF-supported program. - Macro outcomes and projections: - 2006: accelerating growth and moderate inflation. - 2007: real GDP expected to grow at over 7 percent per year and inflation expected to remain below 6 percent. - Sustainable fiscal and external positions expected to be maintained; downside risks from exogenous shocks remain. - PFM progress (PEFA March 2006): - Major improvements and nationwide PFM reform focused on rolling out government financial management information system to most line ministries at central and provincial level. - Medium-term fiscal framework aligned with PARPA II priorities; approved by Council of Ministers in 2006. - Budget coverage, execution, and reporting improved; quarterly budget execution reports published and strong ex-ante control in place. - Fiscal information covers 95 percent of general government as defined in GFS. - Investment execution often at least 15 percent lower than budgeted amounts. - Regulations to Local State Entities Law approved to give districts central role in planning and introduce an investment budget. - New public procurement code in line with international standards approved late 2005; implementation and large-scale training started in 2006. - Internal and external audits increased exponentially; further strengthening of audit capacity needed. ### Nicaragua — PRSP and Fiscal Spending - PRSP: first PRSP completed July 2001; two PRSP Progress Reports and a preliminary draft of third prepared. New PRSP completed November 2005 and approved end-2005; incorporated into National Development Plan 2005-09. PRSP update being prepared. - Government program: new Economic and Financial Program for 2007-09 outlined to complement National Development Plan. - PRSP progress: - Public spending on PRSP programs remained above 12 percent of GDP. - Poverty: overall ratio increased slightly from 45.8 percent in 2001 to 46.1 percent in 2005; extreme poverty and poverty gap declined. - Poverty-reducing spending increased from around 9 percent of GDP in 2003 to about 12 percent of GDP in 2006. - Education and water sector targets met; health sector targets not met. ### Nicaragua — IMF Program Status - PRGF-supported program approved December 2002; went off-track end-2004; progress in late 2005 allowed completion of outstanding reviews in January 2006; arrangement extended through December 2006 with eleventh and final review completed December 2006. - Ad-referendum agreement reached July 2007 on a new three-year PRGF program with Ortega administration; Board meeting tentatively scheduled for September/October. *Source: _082807 - 20.1 percent of GDP in 2005 and 2006 respectively, exceeded considerably the HIPC target* ### 2007. The program envisages an increase in the fiscal space. According to current ### _082807 - 2007. The program envisages an increase in the fiscal space. According to current ### Nicaragua — Macroeconomic outlook and vulnerabilities - Real GDP growth projected to pick up in the medium term to 5 percent per annum. - Inflation will remain moderate. - External reserves will rise. - External account will continue to be supported by strong flows of donor resources and FDI. - Identified vulnerabilities: - Relatively high level of public debt. - Large current account imbalance. - High level of dollarization. - Sensitivity to external shocks. ### Nicaragua — Public Financial Management (PFM) - PFM system performance has improved since the completion point. - Nicaragua met six of the 16 HIPC PFM benchmarks in 2004. - The 2005 Fiscal Administrative Law: - Eliminated off-budget transactions. - Improved the coverage of the fiscal accounts. - Strengthened procurement procedures. - Increased transparency in fiscal reporting. - Within-year budget reporting is available quarterly on an administrative, economic and functional basis, enabling active monitoring of spending. - Poverty-reducing expenditures are clearly defined in the budget and their execution is tracked. - Government intentions for further administrative improvements: - Strengthen cash and treasury management. - Strengthen the budget recording system. - Improve monitoring of local governments and autonomous agencies. - Enhance human resource capacity at the Ministry of Finance. - Constraints: - Budget rigidities, including constitutionally mandated transfers to universities and the judiciary, will continue to constrain fiscal management and efforts to prioritize spending. - Support and diagnostics: - A technical assistance program developed with Fund staff to advance reform efforts in PFM. - World Bank PER conducted to offer additional guidance to improving PFM in Nicaragua. ### Niger — PRSP status - Niger completed its full PRSP in January 2002. - PRSP was presented and endorsed by IMF and IDA Boards in February 2002. - Four APRs were issued including the latest one in October 2006. - A new PRSP is being finalized. - Progress 2003-06: - Expanded access of the poor to education and clean water. - Health sector progress was slow in 2003-04 but improved during 2005-06. - Income poverty: - Share of total population living in poverty estimated at around 62 percent in 2005. ### Niger — IMF-supported program and macroeconomic status - January 2005: IMF Board approved a third three-year PRGF-supported program. - Program is on track; fourth review completed in June 2007. - 2006 macroeconomic performance: - Real GDP growth reached 4.8 percent following a second consecutive year of record agriculture output. - 2007 projections: - Real GDP growth projected at 4.5 percent. - Inflation projected at 2 percent. - 2007–09 drivers of growth: increased agricultural output, accelerated mining activities (notably uranium), continued prudent government financial policies, and investments in infrastructure including telecommunications. - Macroeconomic objectives for 2007-09 (in line with new PRSP): - (i) achieving an annual real GDP growth rate of about 5 percent; - (ii) limiting annual inflation by about 2 percent; and - (iii) reducing the external current account deficit (excluding official transfers) to about 16.5 percent of GDP by 2009. ### Niger — Public Financial Management (PFM) - Continued improvement since HIPC Completion Point in April 2004. - Met five of the 16 expenditure management benchmarks in the 2004 HIPC PFM assessments, up from three of the 15 benchmarks in 2001. - Strongest progress in budget preparation: - Medium-term public expenditure frameworks for rural development and agriculture added in 2006 to existing MTEFs for health and basic education and integrated into budget preparation. - Reduced time lags in transmitting budget execution reports for consolidation and delays in preparation of budget execution laws. - Commitment to integrating all HIPC resources into line ministry budgets based on performance on budget management and reforms (done for Health, Education, and Rural Development). - Actions taken and planned: - Prepared an action plan to strengthen the financial control function. - Adopted a new organizational structure for the Treasury. - Improved the classification and monitoring of priority programs. - Established a new department of public procurement and a regulatory agency under the Prime Minister to issue regulations and settle disputes. - Established an Audit Court (Cour des Comptes) as an independent entity. - Recruited additional finance inspectors and will prepare a procedures manual for financial inspection. - Finalizing computerization of expenditure management and piloting a unit to allow spending ministries to initiate expenditure commitments, obtain approvals from the budget directorate, and get information on treasury payments. - The pilot unit will be fully operational in January 2008. ### Rwanda — PRSP status - PRSP completed in June 2002; discussed by IDA and IMF Boards in August 2002. - Three progress reports prepared; third completed in fall of 2005. - PRSP-II expected to be finalized in fall 2007, focusing on sustained poverty-reducing long-term growth measures. - 2005/06 Household Living Conditions Survey (EICV): - 57 percent of the population lives below the poverty line. - Improvements in non-income indicators: - Primary school net enrolment rate: 86 percent. - 47 percent of individuals covered by health insurance (majority by mutual insurance arrangements). - Ownership of durable goods: about 53 percent of households own a radio; 6 percent own a telephone. - Inequality: - Gini coefficient rose from 0.47 to 0.51. ### Rwanda — IMF-supported program and macroeconomic status - Executive Board approved a three-year PRGF-supported program in June 2006; second review completed in June 2007. - 2006 macroeconomic performance: - Real growth increased by more than 5 percent driven by services, manufacturing, and agriculture. - Inflation increased due to reduced food supplies. - Key 2007 macro challenge: - Manage grant-financed fiscal expansion successfully. ### Rwanda — Public Financial Management (PFM) - Continued progress since April 2005 completion point. - HIPC AAP historical benchmarks: - Met 8 out of 15 (2001) and 8 out of 16 (2004). - PEFA assessment update expected by fall of 2007. - Existing expenditure controls adequate to ensure funds are committed before spending. - Internal audit function currently being constituted. - Newly operational Sous-Comite de la Dette prepared an action plan for 2006. - Reform progress slowed due to capacity constraints, disruptive effects of extensive civil service reform, and substantial turnover at the ministry of finance. - Expectation that approval of the Organic Budget Law and supporting regulations will revive reform momentum. ### São Tomé and Príncipe — PRSP status - Full PRSP adopted in December 2002; submitted to IDA and IMF in February 2005. - JSAN discussed by IDA and IMF Boards in April and August 2005. - Newly-elected government submitted first annual progress report to IDA and IMF in June 2006. - First APR and accompanying JSAN distributed to both Boards in October 2006. ### São Tomé and Príncipe — IMF-supported program and macroeconomic status - PRGF-supported program approved in April 2000 went off track due to fiscal policy slippages and delays in structural reforms. - New three-year PRGF arrangement approved in August 2005 strengthened implementation of macroeconomic policies and structural reforms. - Policy slippages and upsurge in inflation mid-2005 to mid-2006 addressed by remedial measures; program brought back on track. - Fourth program review completed in June 2007. ### São Tomé and Príncipe — Public Financial Management (PFM) - New organic public finance law adopted in early 2007 providing legal and institutional framework for integrated government financial administration. - Law introduced improvements: - Better budget classification. - More transparency. - Increased coverage supporting development and implementation of the 2007 budget. - Law supports creation of an accounting directorate for the Ministry of Planning and Finance and permits setup of an integrated computerized system. - A pilot system was introduced in early 2007 to improve budget preparation and execution. ### Senegal — PRSP status - First PRSP presented to the Board in December 2002; progress reports in 2004 and 2005. - Second PRSP covering 2006–10 issued to the Boards in January 2007. - Poverty and social indicators have improved, but substantial efforts will be needed to meet the MDGs. - Reductions achieved in maternal and child mortality and improved access to safe water and primary education. - Underlying poverty reduction agenda remains largely unfulfilled due to absorptive capacity constraints and weaknesses in PFM. - Reorientation of spending needed to provide sufficient allocations to priority sectors—especially health and education. ### Senegal — IMF-supported program and macroeconomic status - Three-year PRGF-supported program expired in April 2006. - Preliminary agreement on a successor program under the PSI in July 2007. - Framework built around economic and financial policies for 2007-10 with targeted reforms to: - Increase fiscal transparency and governance. - Strengthen the framework for private sector activity. - Enhance the role of the financial sector in providing access to credit and capital. - Growth projections: - Growth projected to accelerate to slightly above 5.5 percent on average during 2007-10, compared to 2 percent in 2006. - External current account deficit (including grants) projected at around 10 percent of GDP, financed by FDI related to several large investment projects. - Fiscal projections: - Fiscal deficit projected to decline from a peak of 5.5 percent of GDP in 2006 to about 4 percent of GDP over the next three years. ### Senegal — Public Financial Management (PFM) - New legal and institutional framework on procurement enacted in May 2007; enforcement will be crucial. - Persistent weaknesses in public procurement expected to be addressed in context of new Fund-supported program. - Program focus will include reinforcing planning, evaluation and monitoring of Senegal’s large investment program and properly assessing and reflecting budgetary risks. ### Sierra Leone — PRSP status - Final full PRSP issued to IDA and IMF Boards and circulated to donor community in spring 2005. - Latest JSAN presented to IDA and IMF Boards in December 2006. - Plans underway for preparation of a new PRSP. - Progress in poverty reduction undetermined due to lack of recent household survey; sustained high GDP growth rates suggest possible improvements. ### Sierra Leone — IMF-supported program and macroeconomic status - PRGF arrangement approved in May 2006. - Second review could not be completed as three out of eight performance criteria were missed at end-December 2006: - Ceilings on bank credit to the government and on net domestic assets were missed. - Floor on the primary budget balance was missed. - Authorities identified corrective measures aiming to bring program back on track by end-September 2007. - 2006 developments: - Real GDP growth continued to be strong. - Inflation declined in 2006 but reverted to double digits in early-2007. - Fiscal performance weakened significantly during second half of 2006 and first half of 2007. ### Sierra Leone — Public Financial Management (PFM) - Encouraging progress with measures implemented under multi-donor budget support and PRGF: - New government budgeting and accountability law restores parliamentary control and reinstates oversight roles of the Auditor General and the Public Accounts Committee. - New IFMIS introduced to facilitate expenditure control and accounting; rolled out to Sierra Leone Police; delays in installation in all key ministries, departments and agencies remain. - Anti-Money Laundering Act and Procurement Act passed. - Debt management: - Ministry of Finance and Bank of Sierra Leone conducted a debt sustainability analysis. - Authorities committed to strengthening external debt management capacity and avoiding non-concessional external borrowing. - Debt Unit launched an annual Public Debt Bulletin complementing the Economic Bulletin. - Institutional arrangements: - Ministry of Finance prepared a PFM National Action Plan and re-established the PFM Oversight Committee with five sub-committees. ### Tanzania — PRSP status - First PRSP prepared in 2000; three annual progress reports prepared. - Second PRSP issued in 2005 covering 2005-10; discussed by IMF and IDA Boards in April and May 2006. - First progress report for second PRSP published in December 2006. - No recent household survey since 2000/01; poverty simulations suggest recent growth likely reduced income poverty. - Non-income progress: significant gains in access to primary education and reduction of malnutrition and child mortality. - Household Budget Survey results and four Poverty and Human Development reports published; fourth PHDR including poverty maps published in March 2006. ### Tanzania — IMF-supported program and macroeconomic status - IMF Board approved a three-year PSI in February 2007 upon completion of the sixth and final review under PRGF. - Performance under PSI broadly on track; overall macroeconomic performance and prospects remain favorable. - Despite drought effects in late 2005, real GDP growth slowed moderately in 2006 to 6.2 percent. - Growth projection for 2007: 7-7.5 percent assuming energy supply problems and infrastructure bottlenecks are addressed promptly. - Inflation rose to 6.7 percent in 2006 from 5 percent in 2005. ### Tanzania — Public Financial Management (PFM) - Progress since November 2001 completion point. - According to the 2004 PFM Country Assessment and Action Plan review, Tanzania met eleven out of the 16 public financial management benchmarks, up from nine out of 15 in 2001. - Focus areas and reforms: - Extension of IFMIS to local governments to improve budget execution and reporting. - Adoption of a wide-ranging PFM reform program to ensure appropriate sequencing and ownership. - Strengthened budget formulation via the Strategic Budget Allocation System to better link policy and resource allocations. - Continued efforts to enhance internal and external audit functions. - Procurement system reform reached implementation stage. - Cash management being strengthened. ### Uganda — PRSP status - Uganda’s PEAP launched in 1997 and revised twice; current version approved in May 2005. - Pillar Review workshop held in February 2007 for the first Annual PEAP Implementation Review (APIR); APIR Report 2005-06 discussed. - Poverty and inequality trends: - Income poverty declined from 56 percent in 1992 to 34 percent in 2000, and further to estimated 31.5 percent by 2005/06. - Inequality improved by 4.5 percent between 2002/03 and 2005/06 as measured by the Gini coefficient. - Regional disparities persist in the north. - Sectoral results: strong results in education, health, water and sanitation, agriculture, telecommunication and trade. - Remaining challenges: rationalization of public expenditures, enhance efficiency in service delivery, combat corruption, and restore peace and stability in conflict-affected north and east. ### Uganda — IMF-supported program and macroeconomic status - Uganda is supported by a PSI; latest program review completed in June 2007. - Macroeconomic performance relatively strong; fiscal developments broadly on track. - Real GDP growth: - Declined slightly to 5.4 percent in 2005/06 due to the electricity shortage. - Projected to rise to 6.2 percent in 2006/07 as the electricity shortage is being addressed. - Medium-term expenditure framework aims at higher public savings through spending restraint and a rising domestic revenue ratio. - Pace of fiscal consolidation slowed in 2006/07 mainly because of the electricity crisis. - Inflation: - Temporary shocks pushed underlying inflation above the threshold of 5 percent in 2006/07. - Inflation projected to fall below 5 percent in 2007/08. ### Uganda — Public Financial Management (PFM) - Since 2004 HIPC assessment (when Uganda met nine out of 16 benchmarks), continued progress in improving PFM. - 2005 assessment (PFM Performance Measurement Framework) conclusions: - Budget is comprehensive and transparent. - Quality of information has improved. - Audits are timely. - Remaining PFM shortcomings and fiduciary risks: - Credibility of the budget undermined by continuous growth of arrears despite the Commitment Control System (CCS). - Deficiencies in fiscal risk oversight. - Lack of impact of audits due to delays imposed by the Public Accounts Committee. - Use of “releases” rather than “actual” expenditure data to assess budget performance. - Arrears problem estimated at about 3 percent of GDP. - Need to strengthen independence and resource capacity of the Auditor General’s office. - Need to track contingent liabilities and improve timeliness and effectiveness of legislative and public scrutiny. - Reforms and systems: - Integrated Financial Management System rolled out at central government level; in process of roll-out at local government level to support CCS implementation. - Government has incorporated most donor projects in the medium term expenditure framework and is consolidating revenues, spending and accounts of semi-autonomous bodies into the government budget. - Internal audit pilot in two ministries with plans to roll out to additional four ministries next financial year; implementation delayed by institutional constraints. - Funding delays for Integrated Personnel and Payroll System hampered improvements in payroll controls. - Financial Management and Accountability Project designed to build on recent innovations. - PFM Performance Report and update of the Country Integrated Fiduciary Assessment occurred in May 2006; draft Local Government PFM Assessment issued. - Government prepared a Debt Management Strategy outlining principles for external and domestic borrowing. *Italic: IMF source content (extracted content unit)._ ### 2002. The Fifth National Development Plan, 2006-10, which serves as the PRSP, was ### 2002. The Fifth National Development Plan, 2006-10, which serves as the PRSP, was ### PRSP rollout, objectives, and poverty outcomes - The Fifth National Development Plan, 2006-10, which serves as the PRSP, was launched in January 2007. - A JSAN was prepared to be presented to the Boards of IMF and IDA in July and August 2007, respectively. - Implementation of Zambia’s PRS has been broadly satisfactory since the HIPC completion point. - In line with PRSP objectives, a significant number of new teachers and health workers were hired in 2005 and 2006. - Despite PRSP implementation and positive economic growth since 1999, the national poverty level remains high; the degree of poverty and its severity is more pronounced in rural areas of Zambia. - The authorities developed a definition of poverty reducing spending aligned with programs identified in the PRSP. - To ensure effective monitoring and evaluation, the government has developed a set of key performance indicators and will submit periodic reports to cabinet on the implementation of the PRSP programs. - The 2007 budget is based on an accelerated implementation of poverty reducing programs (PRPs) in sectors such as health, education, infrastructure, and agriculture, and is in line with the Fifth National Development Plan. ### IMF-supported program and macroeconomic status - A three-year PRGF-supported program approved in June 2004 is set to expire at end-September 2007. - The fifth and sixth reviews were completed in June 2007. - Real GDP growth remained robust at 6 percent in 2006. - Inflation fell to about 9 percent in 2006. - International reserves increased significantly in recent years and reached 2.2 months of imports in 2006. ### Public Financial Management (PFM) reform, progress, and remaining weaknesses - In 2003, Zambia met only three of the 16 HIPC PFM benchmarks. - The country engaged in a process of substantially enhancing its PFM systems and, in cooperation with development partners, designed a comprehensive Public Expenditure Management and Financial Accountability (PEMFA) reform program implemented in the first half of 2005. - Initial focus was on improvements necessary to reach the HIPC completion point. - Since reaching the HIPC completion point, Zambia’s PFM systems have improved and the core systems work reasonably well. - Progress achieved includes: - Strengthening of commitment controls through improved financial management systems. - Capacity building and preparation of terms of reference for technical assistance. - Improvements in budget operations, debt management, information flows, and procurement. - Implementation of a cash-flow framework in all line ministries. - Preparation of a framework for monitoring and evaluating the PEMFA reform program using the Public Expenditure and Financial Accountability (PEFA) indicators. - Availability of quarterly budget execution reports covering most ministries within 45 days of the end of the quarter. - The PEMFA reform program reported in December 2005 that 9 out of the 28 PEFA indicators received the lowest ratings of D or D+. Reform efforts were therefore focused on these poor performing areas. - While there has been progress in some areas, including improvement in efficiency of tax collections and in strengthening budget execution, there have been delays in the piloting of the IFMIS. - Significant weaknesses remain in procurement, financial reporting, and auditing. *Source: Excerpt from chapter/text labeled "_082807 - 2002. The Fifth National Development Plan, 2006-10, which serves as the PRSP, was"* ### Annex II: Country Coverage, Data Sources, and Assumptions for the HIPC Initiative ### Annex II: Country Coverage, Data Sources, and Assumptions for the HIPC Initiative and MDRI Costing Exercise ### Country Coverage - Post-decision-point countries (31): Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Chad, Democratic Republic of the Congo, Republic of Congo, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Tanzania, Uganda, and Zambia. - Pre-decision-point HIPCs (9): Central African Republic, Comoros, Côte d’Ivoire, Eritrea, Liberia, Nepal, Somalia, Sudan, and Togo. - Note: Kyrgyz Republic is not included in cost estimates, as its indebtedness ratio at end-2006 is estimated at below the HIPC Initiative threshold. ### Data Sources and Coverage Dates - Staff estimates are based on HIPC Initiative decision and completion point documents for all 31 post-decision-point countries. - For the 9 pre-decision-point HIPCs, preliminary documents or estimates presented in “Heavily Indebted Poor Countries (HIPC) Initiative – List of Ring-Fenced Countries that Meet the Income and Indebtedness Criteria at end-2004” were used. - Data were updated through end-July 2007. ### Assumptions for HIPC Initiative and MDRI Costing - Calculations of total costs include costs under the original and HIPC Initiative frameworks and the MDRI. - Cost estimates for the HIPC Initiative are based on debt data after full use of traditional debt-relief mechanisms. - Exchange rates used for MDRI calculations: - IDA and AfDF: The MDRI Trust Fund replenishment rate of 1.47738 US dollars per SDR. - IMF: The exchange rate of the date that debt relief was delivered, and, in cases where debt was not yet delivered, the rate as of July 01, 2007 was used. - IaDB: Currency units in US dollars at end-2006. ### Update of Cost Estimates in Net Present Value Terms - The cost of HIPC Initiative assistance calculated in NPV terms at the time of the decision point is discounted to end-2006 using the average interest rate applicable to the debt relief. - Discount rate used: 4.6 percent. - The rate corresponds to the implicit long-term interest rate of currencies that comprise the SDR basket over the period 2004-2006, calculated as a 6-month average of the Commercial Interest Reference Rate (CIRR) over this period, weighted by the participation of the currencies in the SDR basket. - The same rate (4.6 percent) was used to calculate MDRI debt relief in end-2006 NPV terms. ### Key Aggregates and Projections (selected figures from tables) - Table 1 (Summary of Debt Service and Poverty Reducing Expenditures 2000-2011) — Poverty Reducing Expenditures (in millions of U.S. dollars), 2000–2011: - 2000: 5,819 - 2001: 6,657 - 2002: 7,716 - 2003: 9,124 - 2004: 11,153 - 2005: 13,864 - 2006: 17,040 - 2007 (Prel./Projections): 20,097 - 2008: 22,505 - 2009: 24,882 - 2010: 26,916 - 2011: 26,434 - Table 1 — Average Ratios (in percent), selected: - Debt Service/Exports: 2000 = 16.6; 2006 = 6.4; 2011 = 3.3 - Debt Service/GDP: 2000 = 4.6; 2006 = 1.9; 2011 = 0.9 - Poverty-Reducing Expenditure/Government Revenue: 2000 = 37.8; 2006 = 50.2; 2011 = 56.1 - Poverty-Reducing Expenditure/GDP: 2000 = 6.8; 2006 = 8.8; 2011 = 10.1 - Table 4 (HIPC Initiative and MDRI: Committed Debt Relief and Outlook, Status as of end-July 2007) — Selected totals: - Total HIPC and MDRI Assistance (summary rows show per-group subtotals) - Total Debt Relief Committed (bottom row): 63,413 41,932 105,345 - Table 5 (HIPC Initiative: Cost Estimates to Multilateral Creditors and Status of their Commitments, in end-2006 NPV terms) — Selected creditor totals (in millions of U.S. dollars): - Total: 22,679.8 - Delivering or Committed to Deliver Debt Relief: 22,592.3 - World Bank Group: 10,811.8 - African Development Bank (AfDB) Group: 3,801.4 - International Monetary Fund (IMF): 3,310.3 - Inter-American Development Bank (IaDB): 1,538.3 - European Union/European Investment Bank (EU/EIB): 896.3 - Have not Indicated Intention to Provide Relief under the HIPC Initiative: 87.5 - Table 6A (World Bank assistance status, status as of end-July 2007) — Selected totals: - 22 Post-Completion-Point HIPCs — TOTAL (columns combined across formats): 12,104.3 (Committed Assistance in NPV terms at decision point), 6,770.8 (Total Delivered Assistance in end-2006 NPV Terms), 8,775.8 (Committed Assistance in end-2006 NPV Terms), 3,341.9 (Delivered Assistance in end-2006 NPV Terms) - Total Debt Relief Committed (World Bank Group): 14,684.7 (Total committed HIPC assistance), 8,563.2 (Total delivered HIPC assistance), 10,811.8 (World Bank Group total committed) - Table 6B (World Bank Group Debt Service after HIPC Initiative and MDRI Debt Relief, 2000-2011) — Overall totals (selected rows): - Debt Service before HIPC Initiative Debt Relief — TOTAL (actuals/projections sequence line shown): 681 787 1,078 829 899 1,131 1,051 1,122 1,130 1,399 1,475 1,589 (year-by-year totals as displayed). - Debt Service after HIPC Initiative Debt Relief — TOTAL (actuals/projections sequence line): 617 539 754 461 492 624 491 625 674 732 815 904. - Debt Service after HIPC Initiative Debt Relief and MDRI — TOTAL (actuals/projections sequence line): 617 539 754 461 492 624 310 252 242 226 231 263. - Table 7A (Implementation by the IMF, Status as of end-July 2007) — Selected IMF aggregates (in millions of SDRs): - 22 Completion-Point HIPCs: HIPC Initiative Assistance (A) = 1,557; MDRI Debt Relief (B) = 1,668; Total (A+B) = 2,169; Total (A+B) in combined column = 3,837 (reflecting additional columns for delivery). - Total (all entries): 1,878 (HIPC Initiative Assistance), 1,687 (MDRI), 2,295 (Total HIPC), 3,982 (combined). - Table 7B (IMF Debt Service after HIPC Initiative and MDRI Debt Relief, 2000-2011) — Selected totals: - Debt Service before HIPC Initiative Debt Relief — TOTAL (annual sequence): 435 716 1,231 714 764 811 189 165 212 224 250 302. - Debt Service after HIPC Initiative Debt Relief — TOTAL (annual sequence): 344 416 898 376 553 410 180 97 60 40 51 115. - Debt Service after HIPC Initiative Debt Relief and MDRI — TOTAL (annual sequence): 344 416 898 376 553 410 180 97 60 40 51 115 (matching delivered projections in table). - Table 8A (AfDB Group Assistance status as of end-July 2007) — Selected totals (in millions of U.S. dollars): - 18 Post-Completion-Point HIPCs — TOTAL (Committed Assistance in NPV Terms as of Decision Point): 1,792.4; Committed Assistance in end-2006 NPV Terms: 2,319.5; Total Debt Relief Committed (AfDB Group): 3,077.2; Total Debt Relief Committed (AfDB Group) shown also as 3,801.4 in combined summary. - Table 8B (AfDB Group Debt Service after HIPC Initiative and MDRI Debt Relief, 2000-2011) — Selected totals: - Debt Service before HIPC Initiative Debt Relief — TOTAL (annual sequence): 302 204 419 418 576 521 540 406 409 407 399 413. - Debt Service after HIPC Initiative Debt Relief — TOTAL (annual sequence): 271 83 240 243 335 254 247 125 136 146 157 188. - Debt service after HIPC Initiative debt relief and MDRI — TOTAL (annual sequence): 271 83 240 243 335 254 199 93 96 94 93 101. - Table 9 (IaDB status as of end-July 2007) — Selected totals: - 4 Post-Completion-Point HIPCs — TOTAL (Committed Assistance in NPV Terms as of Decision Point): 1,126.5; Committed Assistance in end-2006 NPV Terms: 1,477.9; Total Debt Relief Committed (IaDB and 2007 Initiative combined): 1,186.9 1,538.3 2,456.5 (columns reflect combined presentation). - Table 10 (Bilateral Donor Pledges to the HIPC Trust Fund, status as of 28 June 2007) — Selected totals and aggregates: - Total Bilateral Contributions (various columns and time windows): summarized totals shown include 1,889 (Total Bilateral Contributions in a table column), and overall Total including EC-ACP and bilaterals: 3,849 (aggregate in the table). - Note: table contains donor-level pledged and paid-in breakdowns (November 2004 to October 2006; October 2002 to October 2004; November 2006 onwards). - Table 11 (HIPC Initiative: Cost Estimates to Paris Club Creditors, in end-2006 NPV terms) — Selected country totals and grand totals: - Total for 31 Post-Decision-Point HIPCs (across Paris Club creditors): 16,563 (bottom of Table 11 summary shows grand total 16,563 in context of Paris Club commitments). - Table 12 (Debt Relief Committed and Delivered by Paris Club Official Bilateral Creditors, in end-2006 NPV terms) — Selected aggregates: - 22 Post-Completion-Point HIPCs — TOTAL Debt Relief Provided: 10,712.8 (HIPC Initiative Assistance Provided) and Total Debt Relief Provided: 17,753.1 (reflecting HIPC plus debt relief beyond HIPC). - 9 Interim HIPCs — TOTAL (column shows) 5,850.6 (committed), and overall TOTAL across sets reported as 16,563.5 (grand total in table). - Table 13 (Paris Club Creditors' Delivery of Debt Relief under Bilateral Initiatives beyond the HIPC Initiative) — Summary format: - The table reports creditor-by-creditor coverage (ODA/non-ODA, pre-cutoff/post-cutoff, flow vs stock) and shows many creditors providing "100 percent" cancellation in various categories (examples: Australia, Belgium, Canada, Denmark, France, Germany, Japan, Netherlands, United Kingdom, United States). - Table 14–15 (Non-Paris Club Official Bilateral Creditors) — Selected summaries: - Table 15 classifies non-Paris Club creditors into three groups by delivery status to the 22 post-completion-point HIPCs: - I. Full Delivery of HIPC Relief (6 Creditors) — Total = 170.5 (percent of total cost: 3.0) - II. Partial Delivery of HIPC Relief (23 Creditors) — Total = 2,307.65 (percent of total cost: 65.9) - III. No Delivery of HIPC Relief (21 Creditors) — Total = 1,176.33 (percent of total cost: 33.6) - Grand Total (I+II+III) = 3,501 (100.0) - Table 16 (Commercial Creditor Lawsuits Against HIPCs) — Selected dispute figures (original claim and judgments where reported, in millions of U.S. dollars): - Cameroon: reported claims and judgments include Winslow Bank (Judgment awarded 9.0; original claim 46.3; judgment 46.3), Del Favero (Judgment awarded 0.8; judgment 4.6), SCONSET arbitration (18.2 original), others. - Congo, Dem. Rep.: FG Hemisphere (original claim 55.8; judgment 81.7), KHD Humboldt Wedag AG (judgment 67.1). - Congo, Rep.: multiple creditors with large judgments, e.g., Groupe Antoine Tabet (original 126.0; judgment 88.6), FG Hemisphere Associates LLC (original 35.9; judgment 152.0). - Nicaragua: multiple judgments (LNC Investment, Inc. judgment 26.3 original 87.1; Hemisphere Associates judgment 30.9 original 126.0). - Sierra Leone: Executive Outcome (original claim 19.5; judgment 23.0). - Uganda: Transroad Ltd (judgment awarded 4.0; judgment 16.7). - Zambia: Donegal International Limited (judgment awarded 15.4; original claim 55.3; judgment 15.7). - Note on Table 16: commercial creditor lawsuits are reported from HIPC authorities' survey responses and are not an exhaustive legal analysis of merits. ### Observations and Implicit Policy Points (as presented in the annex) - Costing aggregates combine original HIPC, enhanced HIPC, and MDRI costs using standardized exchange-rate and discounting assumptions (1.47738 US dollars per SDR for MDRI Trust Fund replenishment; 4.6 percent discount rate to end-2006). - Debt-service and poverty-reducing expenditure projections are provided for 2000–2011 for 31 post-decision-point HIPCs, showing a marked increase in poverty-reducing expenditures from 5,819 (2000) to projected 26,434 (2011). - Multilateral and bilateral creditor commitments are itemized by creditor and reported in end-2006 NPV terms and nominal terms where applicable; status of delivery (committed vs delivered) is reported separately for institutions (World Bank, IMF, AfDB, IaDB). - Paris Club and non-Paris Club bilateral creditor participation and delivery show substantial variability: Paris Club creditors provided major shares of bilateral relief, while non-Paris Club creditor delivery is mixed (full, partial, or no delivery categories). - Commercial creditor litigation is a material risk in some HIPCs, with specific cases producing judgments and settlements reflected in the country responses. *Source: Annex II: Country Coverage, Data Sources, and Assumptions for the HIPC Initiative and MDRI Costing Exercise (document content provided).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/2007/eng/_082807.pdf_