Press Release: Ghana to Receive $3.7 Billion in Debt Service Relief: The IMF and World Bank Support Debt Relief for Ghana Under the Enhanced HIPC Initiative
IMF News, February 27, 2002
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- Published: February 27, 2002
Overview
- Date: February 27, 2002
- Press Release No.: 02/11
- Main decision: The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) agreed to support a comprehensive debt reduction package for Ghana under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
- Total relief from all of Ghana's creditors: approximately US$3.7 billion, equivalent to US$2.186 billion in Net Present Value (NPV) terms, or 56 percent of total debt outstanding after the full use of traditional debt relief mechanisms.
Debt Relief Details and Delivery Timetable
- IDA assistance:
- US$781 million in NPV terms.
- Delivery period: 20-year period.
- Coverage: on average 67 percent of debt-service obligations falling due to IDA.
- IMF assistance:
- US$112 million in NPV terms.
- Delivery period: next eight years.
- Coverage: on average 49 percent of debt-service obligations.
- Timing and conditions:
- IDA, IMF, and most official bilateral creditors will begin providing debt relief immediately.
- The bulk of additional assistance under the enhanced HIPC Initiative will be delivered when Ghana completes a number of agreed measures.
Use of Relief and Monitoring
- Government planning:
- The Government of Ghana is developing a detailed plan for the use of funds made available through HIPC debt relief, guided by the draft Ghana Poverty Reduction Strategy (GPRS), due to be finalized during the first half of 2002.
- Intended allocations (as indicated by the draft GPRS):
- Increased expenditures on education.
- Increased expenditures on health.
- Programs to improve services and infrastructure in the rural sector.
- Improved governance.
- A portion to reduce further the heavy burden of domestic public debt.
- Transparency and monitoring:
- Mechanisms developed to ensure transparent monitoring of the use of HIPC relief.
- The existing budgetary accounting framework has been modified to identify budget expenditures which are poverty-related, and the sub-component financed by HIPC relief.
Economic and Poverty Context (1991–2001)
- Poverty trends:
- Overall poverty rate fell from 51.7 percent in 1991/92 to 39.5 percent in 1998/99.
- Poverty remains systemic, particularly in northern regions with low access to infrastructure, health services, and education.
- Income level:
- Per capita GDP: about US$300 in 2001.
- Ghana's income remains below the average for sub-Saharan African countries.
- Macroeconomic performance and shocks:
- Severe terms of trade shock in 1999/2000: lower prices for cocoa and gold; higher prices for petroleum.
- Resulting problems: sharply higher inflation, build-up in external arrears, exchange rate depreciation (the cedi lost half of its value in calendar 2000), accumulation of large bank debts at the state-owned petroleum refining company.
- Stabilization in 2001:
- Twelve-month inflation fell from a peak of 42 percent in March 2001 to 21 percent in December 2001.
- The cedi depreciated by just 3 percent for the year 2001.
- Growth remained buoyant.
- Overall fiscal objectives were attained, partly through further accumulation of domestic expenditure arrears.
- Structural reforms:
- Measures implemented: petroleum pricing formula; development of plans for a move to full cost recovery in the electricity and water sectors.
- Measures to strengthen monitoring and control of public expenditure.
- Work proceeding on the sale of a "fast track" list of government-owned assets in 2002.
Priority Measures Required for Full Relief
- Macroeconomic Stability:
- Continued commitment to the financial and economic program supported by the IMF's Poverty Reduction and Growth Facility (PRGF).
- PRSP/GPRS:
- Satisfactory implementation of the GPRS for at least one year, as evidenced by the joint staff assessment of the country's annual progress report.
- The full PRSP is expected to be published before mid-2002.
- Governance reforms:
- Strengthening public expenditure management, evidenced by publication of detailed budget reports and adoption of computer-based information systems in key ministries.
- Implementation of procurement reforms and internal audit procedures.
- Firm movement towards decentralization of government functions to the local level.
- Priority social sectors:
- Agreed measures in education (primary enrollment for girls), health (access to safe water and increased spending on health), and energy (automatic price adjustment mechanisms for full cost recovery in the petroleum and electricity sectors).
- External creditor participation:
- Confirmation of the participation of other creditors in the debt relief operation is a requirement for all similarly situated HIPC cases.
The Enhanced HIPC Initiative — Key Parameters
- Purpose: Broader, deeper and faster debt relief for the world's poorest, most heavily indebted countries.
- NPV reduction targets at Decision Point:
- Maximum of 150 percent of exports.
- Maximum of 250 percent of government revenue.
- Relationship to traditional mechanisms:
- Enhanced relief provided on top of traditional debt relief mechanisms (Paris Club on Naples terms: 67 percent debt reduction in NPV terms and at least comparable action by other bilateral creditors).
- Two-stage qualification process:
- Stage 1: Demonstrate capacity to use assistance prudently via a satisfactory track record (normally of three years) under IMF- and IDA-supported programs.
- Stage 2: After reaching Decision Point, implement a full-fledged poverty reduction strategy and agreed measures; IMF and IDA grant interim relief while the country stays on track; Paris Club and others expected to provide concessional relief. At the floating completion point, remainder of committed relief provided.
- Coverage and scope:
- Some three-dozen HIPCs expected to qualify; majority are sub-Saharan African countries.
- Debt relief packages in place for 25 countries under the enhanced HIPC Initiative framework.
- Ghana joins: Benin, Bolivia, Burkina Faso, Cameroon, Chad, Ethiopia, The Gambia, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tome & Príncipe, Senegal, Tanzania, Uganda and Zambia.
- Total committed assistance (for listed countries): estimated at nearly US$40 billion, representing an average NPV stock-of-debt reduction of about 48 percent on top of traditional debt relief mechanisms.
Additional Reference
- The full paper analyzing Ghana's qualification for the Decision Point under the enhanced HIPC Initiative will be available shortly at http://www.imf.org/external/np/hipc/index.asp; a summary is provided in the annex of the press release.
Source: Press Release No. 02/11, February 27, 2002