Press Release: IMF and World Bank Support US$334 Million Additional Debt Relief for Guyana
IMF News, December 19, 2003
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- Published: December 19, 2003
Key decision and aggregate debt relief
- Guyana reached its completion point under the enhanced framework of the Heavily Indebted Poor Countries (HIPC) Initiative and becomes the ninth country to reach this point.
- Debt relief under the enhanced HIPC Initiative from all of Guyana's creditors amounts to US$334.5 million in net present value (NPV) terms.
- This estimate was adjusted upward by US$5.9 million from the calculation made at the time of the decision point in November 2000.
- This enhanced relief comes in addition to US$256.4 million in NPV that Guyana received when it reached the completion point under the original HIPC framework in May 1999.
- The total debt relief under the original and enhanced HIPC Initiatives reduces the debt stock (after traditional debt relief) by 54 percent, based on cumulating both relief totals at end 2002.
Creditor composition and delivery of relief
- Multilateral creditors: US$202 million in NPV terms, including:
- US$40 million from the IMF
- US$41.2 million from the World Bank
- Bilateral creditors: expected to provide US$132 million in NPV terms.
- Paris Club outcome: Guyana negotiated a debt rescheduling agreement on Cologne terms (a debt reduction of 90 percent); a number of Paris Club creditors have indicated they would provide relief beyond HIPC requirements.
- Non-Paris Club and commercial creditors: approximately US$37 million in NPV of Guyana's debt relief is expected to be delivered; progress in obtaining comparable treatment has been slow and discussions are ongoing.
- Bilateral assistance beyond HIPC relief: US$13 million in NPV terms.
Debt sustainability projections and fiscal impacts
- Debt-to-revenue ratio after debt relief and additional bilateral assistance: about 213 percent in 2003.
- This level is 37 percent below the sustainability threshold for countries that qualify under the fiscal window.
- Projected path:
- Ratio expected to build to a peak of about 242 percent of revenues in 2007, associated with a large sugar investment currently taking place in Guyana.
- Long-run projection: decline to about 150 percent in 2022.
- Debt-service burden:
- Projected to decline sharply by 10 percentage points of revenue following enhanced HIPC relief.
- Projected debt service: 14 percent in 2004.
- Further projected long-run debt service: about 12 percent of revenues.
Accompanying financing and program support
- World Bank disbursement: US$13.35 million in zero-interest financing from a Poverty Reduction Support Credit on December 11, 2003.
- The credit was approved on December 17, 2002 and supports:
- stimulating economic growth;
- increasing productivity in key sectors such as sugar;
- improving accountability and transparency of the public sector;
- improving delivery of public services, including health, education, and water supply.
Steps taken to reach the completion point: policy, social, and institutional reforms
- Preconditions and commitments upon reaching the decision point (November 2000) included:
- (i) Completion of a full PRSP and implementation of the poverty reduction strategy;
- (ii) Continued implementation of strong macroeconomic and structural policies supported by an IMF PRGF program and an IDA PRSC, under both of which funds were disbursed recently;
- (iii) Implementation of a set of social, structural, and institutional reforms.
- Poverty Reduction Strategy Paper (PRSP):
- Completed in November 2001, developed in wide consultation with civil society.
- Strategic pillars: (i) broad-based growth, (ii) stronger institutions, (iii) investment in human and physical capital, (iv) improved targeting of poverty measures, (v) environmental protection.
- Governance and public sector reforms:
- New government procurement act passed in July 2003.
- New tax law approved in August 2003 and a new investment act tabled in Parliament.
- Civil service reforms: staff audits, a computerized public service payroll and pension system, and organizational diagnostic studies.
- Health sector progress:
- Number of health workers increased by about 5 percent per annum over 1999-2002.
- Infant mortality rates are below the objective initially set out in the PRSP.
- HIV/AIDS response: elaboration of a HIV/AIDS National Strategic Plan encompassing education, counseling, and adoption of treatment guidelines and access to antiretroviral drug therapy.
- Education sector progress and priorities:
- Number of unqualified secondary teachers has fallen by 12 percentage points since 2000.
- Number of teachers increased by about 5 percent per annum over 1999-2002.
- Future priorities: teacher training and retention, facilities management, provision of books and school supplies, and accessibility and affordability of school attendance for families.
- Structural reforms in key industries:
- Guyana National Commercial Bank privatized in March 2003.
- Major restructuring plan for GUYSUCO initiated, including downsizing, wage containment, and shifting incentives from production to profits.
Macroeconomic performance and near-term outlook
- Real exchange rate: has remained fairly stable.
- Inflation: has remained in single digits.
- Output growth history and forecast:
- Averaged over 7 percent per annum between 1992 and 1997.
- Slowed subsequently to less than 1 percent per annum, partly associated with the difficult security situation.
- For 2004, growth is expected to bounce back to 2 percent, boosted by a revival in the bauxite industry and a recovery in services.
- External position:
- Current account deficit projected to rise to over 18 percent of GDP on account of sizeable imports associated with the sugar investment.
The HIPC Initiative: purpose, enhancements, and coverage
- Original objective (1996): create a framework for all creditors, including multilateral creditors, to provide debt relief to the world's poorest and most heavily indebted countries to reduce the constraint on economic growth and poverty reduction imposed by debt build-up.
- 1999 modifications introduced three key enhancements:
- Deeper and Broader Relief: external debt thresholds were lowered; more countries became eligible and some eligible for greater relief.
- Faster Relief: some creditors began to provide interim relief at the "decision point"; 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.
- Coverage and outcomes to date (as reported):
- 26 countries have reached their "decision points" and are receiving debt relief that will amount to more than US$40 billion over time.
- An average NPV stock-of-debt reduction of nearly two-thirds for those countries.
- Of these 26, nine countries—Benin, Bolivia, Burkina Faso, Guyana, Mauritania, Mali, Mozambique, Tanzania and Uganda—have reached their completion points.
Press Release: IMF and World Bank Support US$334 Million Additional Debt Relief for Guyana