Press Release: World Bank and IMF Support Malawi's Completion Point under the Enhanced HIPC Initiative and Approve Debt Relief under the Multilateral Debt Relief Initiative.

IMF News, September 1, 2006

Source details

Canonical URL: Press Release: World Bank and IMF Support Malawi's Completion Point under the Enhanced HIPC Initiative and Approve Debt Relief under the Multilateral Debt Relief Initiative.

Malawi has made sufficient progress to reach the completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative and becomes the 20th country to reach the completion point under the Initiative.
Debt relief under the enhanced HIPC Initiative from all of Malawi's creditors amounts to US$646 million in net present value (NPV) terms as of the decision point plus a topping-up of this assistance in an amount equivalent to US$411 million in NPV terms as of the completion point.
This assistance is estimated to correspond to approximately US$1.6 billion in nominal terms.
Debt service savings under the Multilateral Debt Relief Initiative (MDRI) would amount to US$1.4 billion.
As a result of reaching the HIPC completion point, Malawi is expected to receive the equivalent of US$3.1 billion in total nominal debt relief under the HIPC Initiative and the MDRI on principal as well as interest payments.

Average annual debt service savings are expected to increase from US$39 million between 2001 to 2005 to about US$110 million between 2006 and 2025.
Malawi's annual debt service payments on outstanding debt are now expected to average US$5 million between 2006 and 2025.

IMF:
- Committed HIPC assistance of US$30 million in NPV terms, of which half has already been disbursed.
- Topping-up of HIPC assistance from the IMF would amount to US$15 million.
- Under the MDRI, the IMF would provide 100 percent debt relief on US$56 million in obligations incurred before end-2004 and still outstanding at the completion point, implying additional debt relief of US$22 million after assistance under the HIPC Initiative.
World Bank's International Development Association (IDA):
- Committed HIPC assistance of US$333 million in NPV terms, of which US$100 million has already been delivered.
- Topping-up of IDA's HIPC assistance would amount to US$289 million in NPV terms.
- Under the MDRI, IDA would cancel a debt stock of US$1.8 billion of debt disbursed before end-2003 and still outstanding on September 30, 2006, of which a reduction of US$1.1 billion would be due to the implementation of MDRI, corresponding to US$1.2 billion in debt service savings.

The additional assistance under the topping-up framework was approved because Malawi's debt sustainability outlook had deteriorated substantially since the decision point, primarily due to exogenous factors that led to fundamental changes in the country's economic circumstances.
The largely unexpected decline in Malawi's export prices and a fall in international interest rates were the main factors leading to an unanticipated deterioration in Malawi's debt sustainability outlook.

World Bank (Michael Baxter, World Bank Country Director for Malawi):
- Debt relief will provide a push to Malawi's poverty reduction efforts and supports implementation of the Malawi Growth and Development Strategy (MGDS).
- To achieve optimum results, Malawi must continue improved governance through greater transparency, fighting corruption, and strengthened accountability.
IMF (Calvin McDonald, IMF Mission chief for Malawi):
- Sustain strong policies going forward.
- Domestic debt reduction should continue to be the cornerstone of fiscal policy.
- Exchange rate policy should continue to be flexible.
- Monetary policy should guard against resurgent inflation.
- Medium-term prospects hinge on implementing broader structural reforms to mitigate against domestic and external shocks, and removing bottlenecks to investment and growth in order to reduce poverty.
- Debt relief under the enhanced HIPC Initiative and MDRI will assist Malawi in achieving these objectives.

Launched in 1996 by the World Bank and IMF to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world's poorest and most heavily indebted countries to reduce constraints on growth and poverty reduction.
Modified in 1999 to provide three key enhancements:
- Deeper and Broader Relief: External debt thresholds were lowered.
- Faster Relief: Some creditors provide interim debt relief at the "decision point" and the framework permitted faster progression to the "completion point."
- Stronger Link Between Debt Relief and Poverty Reduction: Freed resources were to support poverty reduction strategies developed through broad consultative processes.
To date, 29 HIPC countries have reached their decision points, of which 20 (including Malawi) have reached completion point.

Announced following the July 2005 G8 Summit in Gleneagles, Scotland, where G8 leaders pledged to cancel the debt of the world's most indebted countries to help them reach the Millennium Development Goals (MDGs).
The MDRI is separate from but operationally linked to the HIPC Initiative.
Under the MDRI, three multilateral institutions — IDA, the IMF and the African Development Fund — provide 100 percent debt relief on eligible debts to countries having reached the HIPC completion point.
The MDRI does not involve official bilateral or commercial creditors, or multilateral institutions other than the three mentioned.
Note: The IMF also provided MDRI debt relief to non-HIPCs whose income per capita is below US$380 to ensure uniformity of treatment in the use of IMF resources.

Press Release No. 06/187 — September 1, 2006.