Press Release: International Monetary Fund and World Bank Support US$1.4 billion in Debt Service Relief for Rwanda

IMF News, April 13, 2005

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Canonical URL: Press Release: International Monetary Fund and World Bank Support US$1.4 billion in Debt Service Relief for Rwanda

Publication date: April 13, 2005
The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have agreed that Rwanda has taken the necessary steps to reach the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC).
Rwanda is the 18th country to reach this point, joining Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Senegal, Tanzania, Uganda and Zambia.

Total debt relief under the enhanced HIPC Initiative from all of Rwanda's creditors is estimated at US$1.4 billion in nominal terms.
This assistance is equivalent to:
- a reduction in net present value (NPV) terms of US$452.4 million agreed at the decision point, plus
- a topping-up of the assistance in an amount equivalent to US$243.1 million in NPV terms, approved at the completion point.
In the first ten years after the Completion Point, Rwanda would save approximately US$48 million annually in debt service costs.

Including topping-up of the HIPC Initiative assistance:
- Multilateral creditors would provide debt relief of about US$1.1 billion in nominal terms.
- Bilateral creditors would provide another US$0.3 billion in nominal terms.
The World Bank will provide a total of US$0.7 billion in debt service savings over time.
The IMF will deliver debt relief equivalent to:
- a reduction in NPV terms of US$43.8 million agreed at the Decision Point, plus
- a topping up of the assistance in an amount equivalent to US$19.6 million in NPV terms, approved at the Completion Point.
Since the Decision Point, part of the assistance has already been provided.

The additional assistance under the topping-up framework was approved because Rwanda's debt prospects had deteriorated primarily due to exogenous factors causing fundamental changes in the country's economic circumstances since the Decision Point.
Key contributing factors:
- A largely unexpected decline in Rwanda's export prices.
- A fall in international interest rates.
These factors increased the NPV of the debt-to-exports ratio, which at end-2003 stood substantially above the 150 percent target set out under the enhanced HIPC framework.

Resources made available by debt relief under the enhanced HIPC Initiative are being allocated to fund pro-poor expenditure programs, as outlined in Rwanda's Poverty Reduction Strategy Paper (PRSP).
The PRSP (completed in June 2002) is based on six strategic pillars:
- (i) rural development and agricultural transformation,
- (ii) human development,
- (iii) economic infrastructure,
- (iv) good governance,
- (v) private sector development, and
- (vi) institutional capacity building.
Quotes from officials:
- Pedro Alba, World Bank Country Director for Rwanda: "The HIPC completion point is an important achievement for Rwanda, and reflects major and sustained efforts to improve the delivery of social services and other reforms over several years. The budget savings from this debt relief are an important contribution to further improvements in social indicators and more generally to reduce poverty in the years ahead."
- Kristina Kostial, IMF mission chief for Rwanda: "Rwanda has largely achieved macroeconomic stability and established a good track record of policy implementation in 2004. Looking forward, the key challenge for Rwanda is to raise the economic growth rate while maintaining macroeconomic stability and debt sustainability. Reaching the completion point is thus an important milestone for Rwanda toward debt sustainability while providing more resources for poverty reduction and the attainment of the MDGs."

Rwanda is a small landlocked country with:
- a population of 8.4 million,
- a per capita income of US$220 in 2003,
- widespread poverty.
Since the 1994 genocide, Rwanda's output has recovered and the country broadly succeeded in maintaining macroeconomic stability (price stability and a comfortable level of international reserves).
Domestic political situation has stabilized, with adoption of a new constitution in May 2003 followed by a presidential election and legislative polls in the same year.
Improving regional stability in the Great Lakes region is identified as a key factor for achieving the country's development potential.

Upon reaching its decision point in December 2000, Rwanda committed to reforms as preconditions for the completion point:
- (i) substantial achievements in social indicators, related to education, health, gender equality, and the combat of HIV/AIDS;
- (ii) adoption of a full PRSP and its successful implementation for at least one year;
- (iii) satisfactory progress in implementing structural reforms in the tea sector; and
- (iv) satisfactory performance under IDA and IMF-supported reform programs.

Source: International Monetary Fund press release, April 13, 2005.