Press Release No. 00/42

West African country completes original HIPC Initiative and qualifies for additional relief under enhanced framework

The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) agreed that Burkina Faso has satisfied the requirements to reach its completion point under the original Heavily Indebted Poor Countries (HIPC) Initiative, and is thereby eligible to begin receiving around US$400 million in debt service relief, or US$229 million in net present value (NPV) terms. Burkina Faso was one of the initial countries to qualify for assistance under the original HIPC framework when it reached its decision point in September, 1997.

The IMF and IDA also agreed that based on its determined efforts in social and structural reform, the policy commitment presented in the Poverty Reduction Strategy Paper, and the implementation of IMF and IDA programs, Burkina Faso has qualified for additional assistance under the enhanced framework (adopted in September 1999) amounting to US$300 million in debt service relief over time (US$169 million NPV). Together with the debt service reduction obtained under the original framework, total savings on IDA debt service is estimated at about US$282 million, with the IMF providing an additional US$49 million. The combined debt service savings from all Burkina Faso's creditors under the HIPC Initiative of US$700 million effectively cuts in half Burkina Faso's debt service obligations over the coming years.

All creditors are expected to proceed speedily with providing debt relief under the original framework. Regarding the enhanced assistance, the IMF and IDA will start providing interim debt relief under the enhanced framework. Burkina Faso will reach its completion point under the enhanced Initiative and receive the remainder of its debt relief from all creditors once it has it fulfilled a number of steps designed to improve key policies in the education and health sectors. Country authorities have outlined many of these measures in a Poverty Reduction Strategy Paper (PRSP), drafted in consultation with a broad cross section of local civil society and with the support of international partners (see Annex).

Burkina Faso's completion point under the original HIPC Initiative and eligibility under the enhanced HIPC Initiative is a recognition by the international community of the progress made in implementing economic reforms and in the social sectors. The resources freed by the HIPC Initiative will help support the continuation and strengthening of this progress.

Annex

1. Burkina Faso

Track Record in Social Policies and Macroeconomic Reform
Burkina Faso remains one of the poorest countries in the world, ranking 172^nd out of 174 countries in the United Nations Development Program's 1988 human development index. In this context, Burkina Faso has made determined efforts to address key social areas, such as primary education and basic health care. Over the past ten years, for instance, the share of the education budget allocated to basic education increased from 45 percent to about 58 percent. This budgetary reprioritization has been complemented by the construction of additional school facilities, with an average of 800 additional classrooms added each of the past several years. Progress in improving health indicators in Burkina Faso has been equally difficult, though substantial steps forward have been made in building more health centers, training more health personnel and increasing the availability of essential generic drugs.

Burkina Faso has also devoted attention to implementing crucial economic reforms, with tangible results. Despite a deterioration in the terms of trade, real GDP between 1996 and 1999 grew on average by 5.6 percent annually, owing mainly to the 1994 CFA franc devaluation, a large public investment program, and financial and structural policies aimed at maintaining macroeconomic stability. Inflation has dropped in recent years to 2 percent, and public finances have improved markedly, with government revenue increasing to 15 percent of GDP in 1999. Translating improving economic performance into broad poverty reduction is the primary aim of IMF and IDA program support.

2. Reform Steps to be Taken Before the Completion Point Under the Enhanced Framework

The full assistance from the IMF and IDA will be delivered to Burkina Faso when it has been determined that the following conditions have been met as part of overall progress in poverty reduction:

These measures reflect key issues in the PRSP and provide a basis for assessing Burkina Faso's progress in pursuing its comprehensive poverty reduction strategy and structural reform. The government is committed to accelerating the pace of the reform program and to fulfilling the agreed criteria by March 2001, and expects that the completion point will follow immediately thereafter.

3. HIPC Background

The HIPC Initiative was launched by the IMF and World Bank 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.

Thirty-six countries are expected to qualify for assistance under the enhanced HIPC Initiative, of which 29 are sub-Saharan African countries. So far, 16 countries have been reviewed under the enhanced framework, for packages amounting to some US$25 billion in debt service relief over time. Eight countries have now reached their decision point under the enhanced framework (Burkina Faso joins Bolivia, Honduras, Mauritania, Mozambique, Senegal, Tanzania and Uganda), with total committed assistance estimated at roughly US$15 billion, representing an average NPV stock-of-debt reduction of about 45 percent on top of traditional debt relief mechanisms. In addition, in the coming days Benin is expected to qualify for assistance under the enhanced HIPC framework.

For more information on HIPC, visit:
http://www.imf.org/external/np/exr/facts/hipc.htm
http://www.worldbank.org/hipc/

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