Press Release: IMF and World Bank Support US$3 billion In Debt Service Relief For Tanzania Under Enhanced HIPC Initiative

IMF News, November 27, 2001

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Canonical URL: Press Release: IMF and World Bank Support US$3 billion In Debt Service Relief For Tanzania Under Enhanced HIPC Initiative

The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) agreed that Tanzania has reached its completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
Tanzania becomes the fourth country to reach this point (joining Bolivia, Mozambique and Uganda).
Debt service relief from all of Tanzania's creditors will amount to approximately US$3 billion over time (US$2.026 billion in net present value [NPV] terms).

Net present value of Tanzania's total external debt is reduced by some 54 percent.
The NPV of debt-to-export ratio is expected to remain well below the target ceiling of 150 percent throughout the period 2000-2020.
After additional bilateral assistance beyond the enhanced HIPC Initiative, debt ratios fall further.
Debt service payments are cut by an average of 47 percent over time:
- From about US$193 million in fiscal year1 1999/2000 (actually paid before HIPC assistance)
- To an average of US$116 million during 2001/02 to 2010/11
- And US$87 million during 2011/12-2020/21
Debt service as a percentage of government revenue:
- Reduced from 19 percent in 2000/2001 before HIPC assistance
- To an average after HIPC relief of 7.7 percent over 2000/01-2010/11
- And 4.4 percent over 2011/12 -2020/21
Resources freed by HIPC relief will be allocated to key anti-poverty programs outlined in Tanzania's Poverty Reduction Strategy Paper (PRSP).

Multilateral creditors’ required relief under the enhanced HIPC Initiative: US$1.020 billion in NPV terms.
- IDA will provide US$694.5 million in NPV terms, delivered through a 69 percent reduction in debt service on IDA credits disbursed and outstanding as of end-June 1999.
- The IMF will provide some US$120 million in NPV terms.
HIPC relief required of bilateral and commercial creditors: US$1.006 billion in NPV terms.
Tanzania negotiated a debt rescheduling agreement with the Paris Club on Cologne terms.
Some 10 percent of Tanzania's HIPC relief is expected to be delivered by non-Paris Club and commercial creditors; Tanzanian authorities are continuing efforts to obtain comparable treatment from these creditors.

Conditions Tanzania committed to after reaching the decision point in April 2000:
- Completion of a full PRSP and implementation of the poverty reduction strategy for at least one year;
- Continued implementation of strong macroeconomic and structural policies supported by an IMF Poverty Reduction and Growth Facility (PRGF) program; and,
- Implementation of a set of social, structural and institutional reforms.

Poverty Reduction Strategy Paper (PRSP):
- Welcomed domestically and by donors; builds on the National Poverty Eradication Strategy (1997) and public expenditure reviews.
- Participation in public discussions was broad; document described as a truly homegrown development strategy.
- Tanzania presented a PRSP Progress Report in October 2001.
Economic program and recent performance:
- GDP growth increased to 4.9 percent in 2000 and is expected to remain at a similar level in 2001.
- Inflation reduced from seven percent to five percent from 1999 to 2001.
- Current account deficit declined from 12 percent of GDP in 1999 to less than 10 percent of GDP for 2000.
Key policy measures and reforms:
- Governance and financial management: steps to improve transparency, including adopting, publishing and disseminating the national action plan for the control of corruption.
- Progress in tax reform, improvement of the business climate, and strengthening utilities’ performance.
- Health sector: immunization program to ensure at least 75 percent of children under two vaccinated against measles and diphtheria; national HIV-AIDS campaign including completion of visits to three-quarters of all districts.
- Education: Education Sector Development Program aimed at increasing access and alleviating household cost burden; budgets increased, school fees abolished, and a school mapping exercise underway; progress particularly at the primary level.

Launched in 1996 by the IMF and World Bank to eliminate unsustainable debt in the world's poorest, most heavily indebted countries.
In October 1999 the Initiative was broadened, deepened and accelerated: increasing eligible countries, raising debt relief amounts, and speeding delivery.
The enhanced HIPC Initiative aims to reduce NPV of debt at the decision point to a maximum of 150 percent of exports or 250 percent of government revenue, provided on top of traditional debt relief mechanisms.
Eligibility and delivery involve two stages:
- First stage: demonstrate a satisfactory track record, normally of three years, under IMF- and IDA-supported programs.
- Second stage: implement a full-fledged poverty reduction strategy prepared with broad civil society participation and remain on track with IMF- and IDA-supported programs to receive interim and then irrevocable relief.
Some three dozen HIPCs are expected to qualify; debt relief packages are in place for 24 countries under the enhanced framework for total committed assistance estimated at more than US$36 billion, representing, with other sources of debt relief, an average NPV stock-of-debt reduction of nearly two-thirds.

Press Release No. 01/48, November 27, 2001