Press Release: HIPC Debt Relief for Uganda Increased to a Total of US$2 Billion: Additional Relief for Uganda's Poverty Reduction Programs

February 8, 2000

The International Monetary Fund (IMF) and the International Development Association (IDA) agreed to support a debt reduction package for Uganda under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. In net present value terms, total relief under the enhanced HIPC Initiative is worth nearly US$700 million, equivalent to 38 percent of total NPV debt outstanding at the end-June 1999. This is expected to translate into debt service relief over time of about US$1.3 billion. This amount is in addition to the US$650 million (US$347 million in NPV terms) of relief provided in April 1998 under the original HIPC Initiative. Total debt service relief under the original and enhanced HIPC frameworks will yield approximately US$2 billion.

Enhanced HIPC assistance will be provided as soon as Uganda has finalized a poverty reduction strategy paper-in a participatory process with civil society-which has been broadly endorsed by the Boards of the World Bank and IMF. Based on current projections, this could be as early as April 2000. In the meantime, both the Bank and the Fund will provide interim assistance.

The HIPC Initiative was launched by the World Bank and the IMF in 1996 as the first comprehensive effort to eliminate unsustainable debt in the world's poorest, most heavily indebted countries. In October 1999, the international community agreed to major enhancements designed to make the Initiative broader, deeper and faster by increasing the number eligible countries, raising the amount of debt relief each eligible country will receive, and speeding up its delivery.

As indicated by the above, Uganda's external debt and debt service burden will be substantially reduced by the delivery of enhanced assistance. Under the terms of the original HIPC framework, Uganda was expected to save an average of approximately $37 million per year in debt service over the next 10 years, an average of $22 million per year during 2010-2019, and an average of $3.5 million per year during 2020-2038. The new framework reduces Uganda's debt service by an additional US$50 million per year over the next 26 years. When aggregated, total assistance received under the HIPC Initiative (original and enhanced frameworks) would relieve Uganda from between two-thirds and three-quarters of its debt service in the coming years.

IDA's assistance to Uganda will amount to US$629 million (US$357 million in NPV terms), and will be provided by covering about 54 percent of debt service falling due to IDA over the next 20 years (after assistance under the original HIPC framework), starting in February 2000. IMF assistance of US$139 million (US$91 million in net present value terms) will cover around one half of principal payments falling due after assistance provided under the original HIPC framework.

Uganda's eligibility for debt relief under the enhanced Initiative recognizes the effectiveness of Uganda's poverty reduction strategy to date, the application of resources from debt relief under the original HIPC framework to its poverty reduction programs, the iterative process involving civil society in the formulation of the poverty reduction strategy, and the authorities' continued commitment to macroeconomic stability. While Uganda remains one of the poorest countries in the world, analytic work supported by the World Bank indicates that there was an 18 percent reduction in poverty between 1992/93 and 1996/97 (declining from 56 to 44 percent) owing primarily to strong economic growth. Substantial improvements in various welfare indicators have also been recorded, the most notable in the area of primary education, where the net primary enrollment rate increased from 56 percent in 1995/96 to 94 percent in 1998/99.

Support under the enhanced HIPC Initiative is critical for Uganda to advance its poverty reduction programs, while deepening structural reforms and maintaining macroeconomic stability. Indeed, debt relief savings of the enhanced HIPC Initiative would allow an increase of social expenditures in the order of about 12 percent of current levels. Over the next 10 years, assistance under the HIPC assistance reduces (a) the NPV debt-to-GDP ratio from an average 28 percent to an average 11 percent, and (b) the debt service-to-government ratio from an average 12 percent to 5 percent.

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