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

February 27, 2002

The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) agreed on February 22 and 26, 2002 respectively, 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 is worth approximately US$3.7 billion, which is equivalent to US$2.186 billion in Net Present Value (NPV) terms,1 or 56 percent of total debt outstanding after the full use of traditional debt relief mechanisms.

Under the decisions taken by the two organizations, assistance committed by IDA—US$781 million in NPV terms—will be delivered over a 20-year period and will cover on average 67 percent of debt-service obligations falling due to IDA. Debt relief provided by the IMF—US$112 million in NPV terms covering an average of 49 percent of debt-service obligations—will be delivered over the next eight years. Both IDA and the IMF will begin providing debt relief immediately, as will most official bilateral creditors. The bulk of additional assistance under the enhanced HIPC Initiative will be delivered when Ghana completes a number of agreed measures.

The Government of Ghana is developing a detailed plan for the use of funds made available through debt relief under the enhanced HIPC Initiative, guided by the draft Ghana Poverty Reduction Strategy (GPRS), which is due to be finalized during the first half of 2002. The draft GPRS indicates that the HIPC Initiative relief will be directed primarily at increased expenditures on education, health, programs to improve services and infrastructure in the rural sector, and improved governance. A portion of the relief will be used to reduce further the heavy burden of domestic public debt. The government has also developed mechanisms 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 that sub-component which is financed by HIPC relief.

The full paper analyzing the basis on which Ghana has qualified for the Decision Point under the enhanced HIPC Initiative will be available shortly at; a summary is provided in the annex below.


1. Ghana

Poverty and Track Record: 1991-2001

Ghana has made strides in reducing poverty since the early 1990s, particularly in urban regions and those where exports such as cocoa, gold, and timber are produced. As a result, the overall poverty rate fell from 51.7 percent in 1991/92 to 39.5 percent in 1998/99, based on household survey and other relevant data. Broad economic growth accounted for nearly all of the poverty reduction at the national level, and within most regions.

However, poverty remains a systemic problem in Ghana, particularly in the northern regions of the country where it is closely linked to low access to basic infrastructure, health services, and education. With a per capita GDP of about US$300 in 2001, Ghana's income level remains below the average for sub-Saharan African countries. Even with continued economic growth and a projected recovery in its terms of trade, Ghana's status as an IDA-only and PRGF-eligible country is expected to remain unchanged for the foreseeable future.

Ghana's macroeconomic and structural adjustment record over the past decade was generally positive, although interrupted periodically by episodes of weak macroeconomic management and exogenous shocks. The most recent such instance was a severe terms of trade shock in 1999/2000 that resulted in lower prices for cocoa and gold, Ghana's main export commodities, and higher prices for petroleum, the largest imported good. This shock, together with a delay in adjusting fiscal and monetary policy, led to a sharply higher inflation and a build-up in external arrears. As a result, the exchange rate depreciated rapidly, losing half of its value in calendar 2000. The situation was compounded by delays in the adjustment of domestic petroleum prices and electricity rates, resulting in an accumulation of large bank debts at the state-owned petroleum refining company.

These problems were addressed decisively in 2001, with the restoration of financial discipline resulting in significant progress toward attaining macroeconomic stabilization. Twelve-month inflation was brought down from its peak of 42 percent in March 2001 to 21 percent in December 2001. The cedi depreciated by just 3 percent for the year, growth remained buoyant, and overall fiscal objectives were attained, albeit in part through a further accumulation of domestic expenditure arrears. On the structural front, progress was weaker than intended, although important measures were put in place, including a petroleum pricing formula, and development of plans for a move to full cost recovery in the electricity and water sectors. Measures are being taken to strengthen the monitoring and control of public expenditure, and work is proceeding on the sale of a "fast track" list of government-owned assets in 2002.

Priority Measures

Full assistance from IDA and the IMF will be delivered to Ghana following the completion of a number of key measures, including the development and implementation of a full PRSP, enhancement of reforms in macroeconomic management and governance, and strengthening of management in priority social sectors. The key measures are listed below. Their number and specificity reflect the Ghanaian authorities' desire to focus on results, and are consistent with the priorities identified during the participatory consultations for the PRSP.

  • Macroeconomic Stability—Continued commitment to the financial and economic program supported by the IMF's Poverty Reduction and Growth Facility (PRGF).

  • PRSP—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—A strengthening of public expenditure management, as evidenced by the publication of detailed budget reports and the adoption of computer-based information systems in key ministries. Implementation of procurement reforms and internal audit procedures; and firm movement towards decentralization of government functions to the local level.

  • Priority Sectors—Implementation of an agreed set of measures identified because of their importance in reducing poverty, specifically in the areas of: education (primary enrollment for girls), health (access to safe water and increased spending on health), and the energy sector (automatic price adjustment mechanisms for full cost recovery in the petroleum and electricity sectors).

  • Confirmation of the participation of other creditors in the debt relief operation, a requirement for all similarly situated HIPC cases.

2. General

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 make the Initiative broader, deeper and faster by increasing the number of eligible countries, raising the amount of debt relief each eligible country will receive, and speeding up its delivery. The enhanced Initiative aims at reducing the net present value (NPV) of debt at the decision point to a maximum of 150 percent of exports and 250 percent of government revenue, and will be provided on top of traditional debt relief mechanisms (Paris Club debt rescheduling on Naples terms, involving 67 percent debt reduction in NPV terms and at least comparable action by other bilateral creditors).

Eligible countries will qualify for debt relief in two stages. In the first stage, the debtor country will need to demonstrate the capacity to use prudently the assistance granted by establishing a satisfactory track record, normally of three years, under IMF- and IDA-supported programs. In the second stage, after reaching the decision point under the Initiative, the country will implement a full-fledged poverty reduction strategy, which has been prepared with broad participation of civil society, and an agreed set of measures aimed at enhancing economic growth. During this stage, the IMF and IDA grant interim relief, provided that the country stays on track with its IMF- and IDA-supported program. In addition, Paris Club creditors, and possibly others, are expected to grant debt relief on highly concessional terms. At the end of the second stage, when the floating completion point has been reached, the IMF and IDA will provide the remainder of the committed debt relief, while Paris Club creditors will enter into a highly concessional stock-of-debt operation with the country involved. Other multilateral and bilateral creditors will need to contribute to the debt relief on comparable terms.

Some three-dozen HIPCs are expected to qualify for assistance under the enhanced HIPC Initiative, the great majority of which are sub-Saharan African countries. Debt relief packages are now 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, for total committed assistance 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.

For more information on HIPC, visit:

1 Net Present Value (NPV) of debt is the discounted sum of all future debt-service obligations (interest and principal) on existing debt. The NPV of debt is a measure that takes into account the degree of concessionality present in the stock of debt. It is defined as the sum of all future debt-service obligations (interest and principal) on existing debt, discounted, under the HIPC Initiative, at market interest rates. Whenever the interest rate on a loan is lower than the market rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element.


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