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

IMF News, December 18, 2006

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

Sierra Leone has reached the completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative and becomes the 21st country to reach the completion point.
Debt relief to Sierra Leone under the enhanced HIPC Initiative will amount to US$675.2 million in 2000 net present value (NPV) terms, equivalent to a revised 81.4 percent NPV reduction of Sierra Leone's debt after traditional debt relief. This assistance is estimated to correspond to approximately US$994 million in nominal terms.
Sierra Leone becomes eligible for further debt relief under the Multilateral Debt Relief Initiative (MDRI) from the IMF, IDA, and the African Development Fund (AfDF).

MDRI debt relief will reduce the debt stock by US$556.2 million, in addition to relief received from the three institutions under the HIPC Initiative.
MDRI debt relief (net of HIPC assistance) would lead to nominal debt service savings on debt owed to IDA, the IMF and the AfDF of US$609.9 million.
IMF MDRI relief specifics:
- The IMF's debt relief under the MDRI would cover the full stock of debt owed as at the end-2004 that remains outstanding at the completion point: US$176 million (equivalent to SDR 117.3 million).
- Composition: US$115 million (equivalent to SDR 76.7 million) financed by MDRI and US$61 million (equivalent to SDR 40.6 million) by HIPC.
- The IMF's MDRI relief will become effective immediately at completion point.
IDA MDRI relief specifics:
- Debt relief under the MDRI will cancel debt stock owed to IDA amounting to US$326.7 million, in addition to US$173.3 million cancelled as a result of HIPC relief.
- IDA provides MDRI relief through a debt stock cancellation of debt disbursed before end-2003 and still outstanding on January 1st, 2007.

NPV stock of debt:
- At end-2005: US$1,197.6 million
- After HIPC relief (end-2006): US$483.0 million
- After MDRI: US$110.0 million
Aggregate assistance estimated to correspond to approximately US$1,603 million in nominal terms.

Sierra Leone met the following conditions:

(i) preparation of a full PRSP and implementation for at least one year, as evidenced by the joint staff assessment of the PRSP and the country's annual progress report;
(ii) maintenance of macroeconomic stability as evidenced by satisfactory implementation of the PRGF-supported program;
(iii) completion of structural measures in the areas of governance and decentralization, private sector development, education and health;
(iv) an increase in spending on designated poverty reducing expenditure priorities that was proportionate to HIPC relief.

Mats Karlsson, Country Director for Sierra Leone: "US$1.6 billion in nominal terms translates to significant new fiscal space, initially about US$90million a year. The task now is to have high value-for-money public expenditure. Sierra Leone needs effective decentralization and full implementation of the Improved Governance and Accountability Pact. Can Government do it?"
Norbert Toé, IMF Mission Chief for Sierra Leone: "Looking forward, a key challenge is to sustain high economic growth rates in order to further reduce poverty while maintaining macroeconomic stability and debt sustainability. Meeting this challenge will require maintaining the momentum for structural and governance reforms, including an increased domestic revenue mobilization effort and continued reforms in public expenditure management. Debt relief at completion point under the enhanced HIPC Initiative and MDRI is an important milestone for Sierra Leone toward debt sustainability while providing more resources for poverty reduction and the attainment of the Millennium Development Goals."

World Bank engagement priorities:
- Continue support through investment projects, technical assistance, budget support, and policy dialogue.
- Emphasis areas: quality of governance; level and quality of public service delivery through decentralization; investments in infrastructure; private sector development (urban and rural); health services; educational services.
Government commitments and fiscal measures:
- Apply resources released through debt relief to programs that promote growth and poverty reduction.
- In 2007: prepare a supplemental budget and implement new budget procedures to provide deeper protection for poverty reducing expenditures in the event of unforeseen resource shortfalls.
- Commit to elimination of waste and corruption through a comprehensive governance reform program including the Anti-Corruption Commission; implementation of the Government Budgeting and Accountability Act (2005); deepened procurement reforms; and implementation of the principles and criteria set out under the Extractive Industries Transparency Initiative.

HIPC Initiative (launched 1996; modified 1999) enhancements:
- Deeper and Broader Relief.
- Faster Relief.
- Stronger Link Between Debt Relief and Poverty Reduction.
To date, 30 HIPC countries have reached their decision points, of which 21 (including Sierra Leone) have reached completion point.
MDRI overview:
- Announced following the July 2005 G8 Summit in Gleneagles, Scotland.
- Under the MDRI, 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 is linked operationally to HIPC but is not comprehensive in creditor coverage; it does not involve participation of official bilateral or commercial creditors, or of multilateral institutions other than IDA, the IMF and the African Development Fund.
Note definitions from the release:
- "The net present value (NPV) of debt is the discounted sum of all future debt service obligations (interest and principal)."
- "Revised from 80.2 percent as at Decision Point because of upward revision in total NPV debt from US$600 million to US$675 million."
- "Nominal terms refer to the actual dollar value of debt service forgiven over a period of time."
- "The IMF also provided MDRI debt relief to non-HIPCs whose income per capita is below US$380 in order to ensure uniformity of treatment in the use of IMF resources."

Press Release No. 06/286 — December 18, 2006, International Monetary Fund